18 March 2004 - The British Chancellor brought the prospect of homes producing their own power and heat closer in yesterday's budget (March 17 2004) by reducing the VAT rate on domestic micro combined heat and power (microCHP) appliances from 2005.
The announcement means that microCHP units will benefit from the same VAT rating as some other energy efficient products and the use of energy itself - a move designed to encourage people to invest in this new technology.
MicroCHP could revolutionize the home energy market by enabling customers to produce part of their own electricity whilst heating their homes. The industry says that MicroCHP will cut a typical household's energy bills by up to £150 a year and carbon dioxide emissions by up to 1.5 tonnes a year.
Yesterday's development is the latest step in the UK government's move towards a low carbon economy. In early 2003 the Energy White Paper identified energy efficiency as the cheapest, cleanest and safest way of meeting the government's Kyoto and manifesto targets. Since then, the UK government has demonstrated international leadership in removing technical and regulatory barriers to distributed generation, through the work done by the Distributed Generation Coordinating Group. This includes securing legislative change, with the recently adopted Cogeneration Directive paving the way for similar barriers to be removed across all of the European Union.
The move was endorsed by Roger Webb, Heating Services Director of the Society of British Gas Industries, who stated: "We are delighted that the Chancellor has listened to the views of the industry by offering this excellent incentive to UK households to invest in MicroCHP technology. In doing so, the Government has demonstrated its commitment to cutting carbon emissions, as outlined in its Energy White Paper. This cut in VAT will help the industry further develop the market for more fuel efficient heating systems, while consumers will benefit in the long term from greater availability of appliances that will cut their heating bills."
Lord Ezra, Chairman of Micropower said: "We are pleased to see the government has acknowledged the valuable role of distributed energy for the future of this country. This reduction in VAT sends a clear signal to micropower technology developers, customers and investors that the government recognizes the potential of consumer - based power generation in the energy policy mix to meet the country's Climate Change objectives."
David Green, Director of the Combined Heat & Power Association responded: "The Chancellor has once again shown his clear support for CHP, which we welcome. The Association urges both DTI and DEFRA to show a similar commitment to the industry in the forthcoming, and long awaited, CHP strategy."