Today (11th December, 2023) the Government has published their response to the expansion of the VAT relief on energy-saving materials (ESMs).
We are extremely disappointed that the Government is not expanding the list of ESMs to sufficiently cover the broad range of electrification technologies integral to decarbonising UK homes.
Thermal storage technologies, such as smart thermal stores, high heat retention storage heating and thermal hydro stores, amongst others, will be key to enabling our energy transition, with flexibility from electric heat having the potential to save 10-14% of peak demand by 2050, according to ESO’s 2023 Future Energy Scenarios report. By not including these technologies as ESMs, Government has missed an opportunity to realise the benefit of these solutions, which will enable our energy transition to decarbonise heat whilst ensuring greater energy security and enabling demand side response.
Crucially, excluding thermal storage technologies from the ESM technology list gives mixed signals for industry and customers on the range of solutions which will be required to provide low carbon heat. We will aim to contact DESNZ and HMRC with key information on these technologies in response to this omission. In turn, Government must effectively publicise the benefits of energy storage, and make it widely known that thermal storage can be zero rated for VAT when installed at the same time as a qualifying ESM.
Although it is a positive step that water source heat pumps now fall into scope of the VAT relief, we require greater detail to understand which technologies within this broad category fall under the ESM VAT relief remit.
To electrify UK homes for Net Zero, we require criteria-based, holistic policy, with a broad technology remit for direct and indirect subsidies to enable greater consumer choice, energy security and encourage UK investment. We already have access to a range of electrification technologies available to decarbonise UK homes – having missed this opportunity to fully expand the list of ESM technologies, we are still not leveraging these correctly to enable our Net Zero energy transition.
