Burning Question: Does your Heat Network qualify for UK Heat Network Business Rates Relief?

Heat Network Business Rates Relief provides a full exemption from business rates for properties primarily functioning as heat networks which take its energy from a low carbon source.

The purpose of the relief is to encourage the development of low-carbon heating solutions, by lowering operational costs.

Heat Networks

A heat network is a system which supplies cooling, and/or heating and hot water to multiple buildings from a central source.

This involves a distribution system, which is attached to a central energy source and utilises Heat Interface Units to manage the transfer.

Business Rates

Business rates are a tax on non-domestic properties and are comparable to council tax but for businesses. They are calculated by applying a government-set multiplier to a property’s rateable value, and then relevant relief schemes can be considered which have the effect of reducing the bill.

One such exemption is the Heat Network Business Rates Relief.

The Heat Network Business Rates Relief

The Heat Network Business Rates Relief is available if the property is only used or mainly used as a “heat network”.

The gov.uk wording states:

“A heat network supplies heating or cooling to other properties from a central source. To be eligible, the heat network must:

• take its energy from a low carbon source
• supply heating and cooling to other properties – for example, homes, shops, public buildings, hospitals and offices

The heat network must not supply heat or cooling for industrial use – for example, to create products in factories.”

Owners of properties where the above criteria may apply can submit an application to the Valuation Office Agency, who check and assess the eligibility of the exemption.

The key eligibility criterion is that the heat network must demonstrate “low carbon intensity”. This means it must meet defined performance thresholds and emissions.

The 100 per cent exemption is beneficial for reducing the operational costs for sustainable heating systems, and as such the relief incentivises the development of efficient and low-carbon heat networks.

The Heat Network Business Rate relief and application to Combined Heat and Power Systems

Combined Heat Network Power (CHP) is a type of cogeneration system which generates useful thermal energy while simultaneously generating electricity.

These CHP systems have increased efficiency as they transfer the energy from heat from electrical generation which would normally be wasted in traditional power generation systems.

As outlined above, to qualify for the relief the heat network system must “take its energy from a low carbon source”.

CHP systems using low-carbon fuels are more likely to qualify, but a CHP using multiple sources with varying conditions may still qualify for the relief if its net output meets the low-carbon threshold criteria.

Hybrid Heat Network Systems with “Gas Backups”

If a heat network has a gas-fired system on standby, or is used a backup, this does not necessarily disqualify the heat network from the relief.

Again, what matters is the carbon intensity threshold, and the overall assessment of whether the heat network is utilising a low-carbon source.

If a gas backup is used intermittently, it may still fail to be within the acceptable limits, but it is less likely. As with all heat networks, this must be assessed on a case-by-case basis.

The Subsidy Control Act and Heat Network Business Rate Relief

The Subsidy Control Act governs aid provided by the state, with the main aim of ensuring that financial assistance doesn’t distort competition within a market.

According to government guidance, the Heat Network relief is subject to the UK’s domestic and international subsidy control obligations.

There is some uncertainty about the application of the act to the relief. A key test under the Subsidy Control Act is whether a measure could provide an advantage which could distort competition.

Whether a particular measure or application of the Heat Network Business Rate Relief falls under the Subsidy Control Act requires specific consideration.

For those operating or planning a heat network it is advisable to seek advice on broader regulations, including whether this relief applies.

Contact us today at enquiries@sharpepritchard.co.uk for expert advice and support on navigating regulations which affects heat networks.

Freddie Farrell is a Trainee Solicitor and Steve Gummer is a Partner at Sharpe Pritchard LLP.

This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published. If you would like further advice and assistance in relation to any issue raised in this article, please contact us by telephone or email enquiries@sharpepritchard.co.uk.