Developers' tax charges are calculated according to the income each turbine is expected to generate, including subsidies, with annual charges now ranging from £10,000 to £18,000 per megawatt of installed capacity. This is up to 300% higher than five years ago. For example, the 22 wind turbines at the Fullabrook Down wind farm, Devon, in south-west England, attract an annual charge of over £715,000 (EUR887,251).
There are 340 operational onshore wind farms in the UK with a generating capacity of 5.01GW, meaning that operators and owners already contribute over £60 million to the UK Treasury each year through business rates. This is set to rise to over £200 million annually as installed capacity rises to meet the UK's target of sourcing 15% of energy from renewables by 2020.
This means the sector as a whole is facing increases that possibly exceed that of any other commercial property. While most EU wind farms attract local taxation, most rates are considerably lower than in the UK and tend to vary more from one region to another within EU member states. This begs the question of why business rates are so high in the UK?
The tax department (HMRC) bases business rate charges on the expected profitability of each site and has analysed a number of wind farms across the country to arrive at a method that uses the expected wind loadings at each site. The basic approach is to deduct working expenses, such as site rent, grid charges and maintenance from gross receipts from all sources - calculated by adding expected wholesale electricity plus subsidy payments from Renewable Obligation Certificates (ROCs).
This leaves a balance from which the tenant's profit is deducted. The result of this calculation is the value on which the business rate is levied. This rateable value is then multiplied by approximately £0.46 in the pound which is increased each year in line with inflation.
Businesses that invest in onsite renewable energy sources for the primary purpose to supply electricity for their own use, with only surplus power fed into the National Grid, are being charged even higher rates. A client that already pays business rates on its food manufacturing site has seen its bill rise by £40,000 per megawatt since installing turbines at its plant. Clearly this is a significant financial burden.
Many developers and owners do not realise they have a right to appeal the level of business rates to ensure the charges reflect the additional costs now affecting the profitability of wind farms. These include increases in site lease rental charges, grid connection charges and the imminent renewables obligation banding review.
Costs can also be reduced where a turbine is down for routine maintenance or prolonged repairs. In these circumstances, owners can apply for rates relief from the local council, which typically can save up to £10,000.
The situation in Scotland is better. Assets there not only benefit from an excellent wind resource, but to further encourage the sector, the Scottish government has introduced a substantial rates relief scheme, which can enable developers to claim discounts of over 25%.
The wind industry should consider a united and co-ordinated campaign to make the government aware of the challenges business rates pose for developers. The concern is that UK developers will be faced with artificially high charges that are far beyond that experienced by European assets and that may deter further investment.
Chris Handel is associate director of rating and taxation at global property adviser CBRE and specialises in mitigation of rates levied against the low carbon power sector
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