Renewable Energy – the goal posts have moved (again)

The introduction of Feed-In Tariffs (FITs) and the Renewable Heat Incentive (RHI) has led to increased interest in renewable energy production, with many farmers and landowners trying to get projects up and running by 31 March 2012 when the FITs and capital allowances are highly likely to reduce.

Frustratingly, though, this deadline has been brought forward and the parameters changed. On 31 October 2011, the Department of Energy and Climate Change opened a consultation whereby one of the proposals is that the new tariffs will affect all new solar PV installations with an eligibility date of on or after 12 December 2011. For those farmers and landowners, they would receive the current tariffs but, come 1 April 2012, would move onto the lower tariffs, expected to be 15.2p/kWh for 10-50kW systems rather than the current rate of 32.9p/kWh. It is therefore important where there are solar PV projects already underway to ensure that the projects are completed before 11 December, where possible.

The expected reduction will impact on the anticipated returns from projects, leading many to review whether they should press ahead with planned projects. As well as the commercial viability of a project, there are a number of tax implications to consider:

• VAT – can you reclaim the VAT on the installation costs? This may depend on the energy usage, how you invoice for the energy and the business structure.
• Income Tax – will the income be taxable? Can you benefit from Capital Allowances? This may depend on the timing of the project and business structure. 
• Capital Gains Tax – what if you decide to sell the land involved in the project? The correct business structure from the start may enable you to claim Entrepreneurs’ Relief, with Capital Gains Tax chargeable at 10% rather than 28%. 
 
• Inheritance Tax – consideration at the beginning may mean the difference between no IHT liability and a 40% tax charge. 
 
• Business rates – are there other costs that may need to be considered? 

In conclusion, for farms and estates that have already obtained planning permission and perhaps paid a deposit, advice should be taken regarding the implications of the eligibility date of 12 December 2011 and whether they would be able to meet the deadline. For those who were considering whether to proceed before 31 March 2012, we will need to consider whether the reduction in FITs now makes projects unviable or whether, with the continued reduction in the cost of Solar PV panels, Solar PV will become viable again in time.   

For more information about renewable energy or any related issue, please contact Louise Evans or John Thame in the Agriculture & Property department here at Ellacotts LLP.