/LONDON, December 7, 2021, 15:30 GMT, RENEWABLE MARKET WATCHTM/ The European Council reached an agreement on a proposal to update EU rules on value-added tax (VAT) rates. The new rules reflect member states’ current needs and the EU's present policy objectives, which have changed considerably since the old rules were put in place. The updates ensure member states are treated equally and give them more flexibility to apply reduced and zero VAT rates. The rules will also phase out preferential treatments for environmentally harmful goods. The current levels of dependence on fossil fuels, the need of reducing the carbon emissions associated with energy use and the prospects of developing a new and highly innovative European technology sector make distributed solar photovoltaic energy generation increasingly attractive. According to the EU Green Deal, substantial fossil fuel capacity needs faster decommissioning to ensure that the EU reduces carbon-intensive power plants by 2030. The rate of replacement of carbon-intensive energy sources by renewable energy to date has already resulted in GHG emissions reductions in the EU electricity sector. Residential and commercial prosumers installing rooftop and building-integrated (BIPV) solar photovoltaic systems and energy storage shall have a vital role in the European clean energy transition by 2030.
The Council updated and modernised the list of goods and services for which reduced VAT rates are allowed (Annex III of the VAT directive), taking into account the digital transformation of the economy. The update of the list was driven by a number of principles, such as the benefit of the final consumer and the general interest. However, to prevent a proliferation of reduced rates, the Council decided to limit the number of items to which reduced rates could be applied.
The document also specifies that the proposal may apply to the “Supply and installation of solar panels on, and adjacent to, private dwellings, housing and public and other buildings used for activities in the public interest.” The member states will have the autonomy to select a VAT rate of 0% to 5% to a restricted list of goods and services, including solar PV modules.
The Council also decided to ensure that all member states are treated equally. To achieve this, existing derogations that allowed some member states to apply preferential rates for certain products were opened to all member states, provided that they are compatible with the agreed principles. A new provision in the VAT directive was also added to address possible future crises and to enable member states to respond swiftly to exceptional circumstances, like pandemics, humanitarian crises or natural disasters.
The Council agreed to phase out reduced VAT rates or exemptions on fossil fuels and other goods with a similar impact on greenhouse gas emissions, by 1 January 2030. Reduced rates and exemptions for chemical fertilizers and chemical pesticides will end by 1 January 2032, to give small-scale farmers more time to adapt. In addition, the Council introduced environmentally-friendly goods and services in the list for which reduced rates are allowed, such as solar PV modules, electric bicycles and waste recycling services.
If adopted, this proposal of the European Council shall have a significant positive impact on the residential and public users of solar energy, according to the study Europe Net Metering and Self-Consumption Solar Photovoltaic (PV) Market Outlook 2021 – 2030. Countries in Europe have different terms and conditions for support and financial incentives given to small scale residential and commercial solar PV installations. Besides net-metering, some countries have feed-in tariffs or premiums, but there is no unified and well-structured approach to support. Tax reductions, capital subsidies, loans, or other forms of investment support are also available, but they vary across Europe. Incentive schemes are beneficial in countries with less developed net metering and self-consumption solar PV market.
There is significant potential for renewable energy production in apartment buildings that can be realised if self-consumption is also allowed for solar cooperatives, tenant communities and supported by adequate permitting procedures. Furthermore, access to capital and/or financing is crucial for residential consumers to select and invest in self-consumption installations. Therefore, the development of business models and financial instruments is necessary to make self-consumption widely accessible to customers from all income levels, including special programs for vulnerable consumers. The complicated and time-consuming administrative and authorisation procedures still represent a bottleneck to small-scale self-consumption projects' competitiveness.
The more information about the net metering and self-consumption solar power market in Europe, including country profiles, you may read here: Europe Net Metering and Self-Consumption Solar Photovoltaic (PV) Market Outlook 2021 – 2030
To download the executive summary brochure with sample pages, please access from here: Europe Net Metering and Self-Consumption Solar Photovoltaic (PV) Market Outlook 2021 – 2030 - Sample
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