The co-signatories want to see heat batteries included as an Energy Saving Material (ESM) eligible for zero-rated VAT in the forthcoming Autumn Budget.
The letter has been co-ordinated by Thermal Storage UK and is signed by e.on, Ovo, Energy Saving Trust, The MCS Foundation, Good Energy, Centrica, tepeo, Wates, Catapult Energy Systems, So Energy, the Heat Pump Federation, UK Power Networks, Empowering Energy Demand, Sustainable Energy Association, eskimo, Cenergist, Sunamp and Flexitricity.
It has been sent in tandem with a similar letter from a group of cross-party MPs and Peers calling for the same thing.
The current ESM status grants VAT relief to a limited range of low-carbon technologies, predominantly heat pumps. While heat pumps play a crucial role in reducing carbon emissions, they may not suit all UK homeowners. An estimated 20 per cent of the UK’s housing stock, representing over 5.5 million households, may find it more difficult to accommodate individual heat pumps due to space constraints and may not have access to a suitable local heat network.
Heat batteries offer a viable alternative, operating at temperatures equivalent to traditional fossil fuel systems and using existing home infrastructure such as pipes and radiators. They provide an effective low-carbon heating solution with running costs comparable to heat pumps. When compared to electric boilers, heat batteries are half the cost to run.
Despite strong support from senior officials in the Department for Energy Security and Net Zero (DESNZ) and other government entities, heat batteries narrowly missed out on achieving ESM status in autumn 2023 due to definitional issues.
Since then, ongoing discussions between the DESNZ, HM Treasury, and HM Revenue & Customs (HMRC) have sought to address these barriers. However, the scope of ESM relief has not yet been expanded, despite HMRC acknowledging that heat batteries meet the objectives of the scheme.
Heat batteries will be more valuable than ever
The industry letter states:
“To meet the Government’s ambitious targets to accelerate power decarbonisation to 2030, we will need to expand renewable generation and harness flexibility to balance demand and supply on the grid.
“Demand-side products that can be used flexibly, like heat batteries for central heating, will be more valuable than ever because of their ability to adapt to intermittent renewable generation.
“Making heat batteries for central heating more accessible to households will be crucial in helping to reduce the demand for, and cost of, network reinforcement to upgrade our distribution and transmission system as we transition to an electrified future.
“Adding heat batteries for central heating to the technology list would reduce costs for consumers, remove competitive distortions and minimise perverse scenarios for installers of low carbon technologies.
“Today, a heat battery for hot water is zero-rated for VAT when installed as part of a heat pump system. However, households pay 20% VAT when installing a standalone heat battery for central heating or when adding a heat battery for hot water to an existing heat pump system.
“Charging VAT at 20% for heat batteries for central heating is a disincentive for people to add flexible products to decarbonise their heating and to efficiently use renewable generation through the wider electricity system.”
‘Net zero needs to be simple and affordable’
Tom Pakenham, Commercial Director, Centrica New Business & Net Zero, said: “Helping the UK reach net zero needs to be simple and affordable for households. Providing VAT relief on a whole range of low carbon technology will give homeowners more choice on the solutions that will help to decarbonise their homes.”
Johan du Plessis, CEO of tepeo (pictured) said: “The Secretary of State for Energy Security and Net Zero has expressed a commitment to decarbonising millions more households. By widening the list of ESMs to include heat batteries, the government can fulfil this ambition and support households in making sustainable choices that suit their unique needs.”
The co-signatories emphasise that extending ESM status to heat batteries will particularly benefit smaller, low-income households that lack outdoor space, alongside a request that VAT relief for all ESMs runs until 2030. This is crucial for reducing household carbon emissions by offering consumers a variety of viable and cost-effective, low-carbon heating options.
The letter has been sent to James Murray MP, Exchequer Secretary to the Treasury, Rt Hon Ed Miliband MP, Secretary of State for Energy Security and Net Zero, Miatta Fahnbulleh MP, Minister for Energy Consumers and Lord Livermore, Financial Secretary to the Treasury.
It mirrors a separate letter signed by prominent parliamentarians including Afzal Khan MP, Ben Lake MP, Bob Blackman MP, Lord Storey, Lord Duncan of Springbank, Baroness Whitaker, Baroness Sheehan, Baroness Brown and Baroness Hayman. The issue has also garnered the attention of a number of newly elected Parliamentarians who have made representations to the Treasury on behalf of the heat battery industry.
Image: tepeo CEO Johan du Plessis, courtesy of tepeo.