Power generators
This publication is intended for Valuation Officers. It may contain links to internal resources that are not available through this version.
This Section of the Rating Manual deals with those hereditaments occupied wholly or mainly for the purpose of the generation of electrical power exclusively or in connection with combined heat and power schemes and, in certain circumstances, refuse destruction, whether in connection with the sale of electricity or otherwise.
These should be valued with reference to the Plant and Machinery Guide.
All power stations and generators are shown as individual hereditaments in local rating lists.
The description code for this type of property is FE.
This will generate a generic description of power generator and premises, which must be overwritten to specify the type of power generator being valued.
These include:
- Anaerobic digestion plant and premises
- Biofuel plant and premises
- Biomass Combustion Power Plant and Premises
- Biomass Gasification Power Plant and Premises
- Anaerobic Digestion Gas to Grid Plant and Premises
- Coal fired power station and premises
- Combined heat and power generator and premises
- Diesel power station and premises
- Gas fired power station and premises
- Hydro power station and premises
- Nuclear power station and premises
- Oil fired power station and premises
- Photovoltaic installation and premises
- Wind farm and premises
- Wind turbine and premises
For 2017 and subsequent rating lists Special Category Codes appropriate to the predominant generator type are applied as follows:
- 729 Mixed Renewables
- 730 Anaerobic Digestion (including Gas to Grid)
- 731 Biomass combustion and gasification
- 733 Battery Storage
- 743 Renewable power generators – Photovoltaic
- 744 Renewable power generators – Wind
- 745 Renewable power generators – Other (any other technologies not otherwise listed)
- 746 Renewable power generators – Hydro
- 747 Fossil fuel power stations This will include coal, gas, diesel and oil
- 748 Nuclear power stations
The vast majority of these properties will be valued by the Utilities and Transport Team within the National Valuation Unit, and will therefore have the special category code suffix of U.
Generators powered by landfill gas, by coal mine gas or by municipal and industrial waste (MIW) are dealt with by the BEAMS team within the National Valuation Unit, and will therefore have the special category code suffix of M.
The Utilities, Transport & Telecom (UTT) team is responsible for the approach to and accuracy and consistency of power generator valuations.
The team will deliver practice notes describing the valuation basis for revaluation and provide advice as necessary during the life of the rating lists. Caseworkers have a responsibility to:
- follow the advice given at all times
- not depart from the guidance given on appeals, CCA, or maintenance work, without approval from the UTT team
- seek advice from the utilities team when starting new work
The electricity market in England and Wales is stratified into four distinct licensed functions: generation, transmission, distribution and supply as described below.
i) Generation comprises physical production of electricity at power stations by nuclear fission or by combustion of fossil fuels or biomass to raise steam for steam turbines, or by using the power of water or wind to spin direct turbines. More recently this includes generation from solar photovoltaic (PV) cells. Sites are operated by a mixture of organisations from large, vertically integrated energy companies or specialist portfolio generators to smaller ‘independent’ operators.
ii) Transmission is the means of transporting bulk electricity away from major power stations or national interconnectors towards the main areas of electricity demand via grid supply points. Electricity is transmitted at very high voltage (400kV or 250kV) to minimise transmission losses. The transmission network in England and Wales is in single occupation.
iii) Distribution comprises the physical act of transporting electricity from the grid supply points to consumers. This is achieved using a regional distribution network operating at 132kV and progressively transforming power down to 33kV and 11kV at a series of substations until it is finally delivered to customers at 415V or 240V via a service cable and meter. The distribution networks are owned and operated by twelve distribution network operators (DNOs).
iv) Supply comprises the purchase of electricity (from a generator or elsewhere) and sale to the ultimate consumer. The supplier incurs use of system charges in respect of both the national grid transmission system and the regional distribution system. These charges are passed on to the consumer and ultimately form part of the retail price of electricity.
To assist in identification, the following outlines the physical characteristics of the most commonly encountered plant, and the information that is required for each.
6.1 Steam-driven turbo-alternators
Perhaps the most commonly encountered type of large-scale generation plant. The generator itself consists of a three phase alternator driven by directly coupled steam turbines. The steam is generated within an external boiler and passed through two or more stages of turbines (high and low or high, medium and low pressure). It is then passed through a condenser before being returned to the boiler to be heated once more. The condensers are cooled by a separate water circuit which may employ cooling towers, river or sea water dependent upon the location of the station.
Steam turbo-alternators may employ a number of different fuels to fire the boilers. Some may be capable of utilising more than one type of fuel. The most commonly encountered are:
6.1.1 Historically, coal (sometimes referred to as pulverised fuel). Such power stations require extensive plant to handle and process the fuel prior to combustion, and also to dispose of the waste products, both in terms of ash handling plant and desulphurisation plant fitted to the chimneys. The station also requires large amounts of storage land to hold fuel stocks. On 1 October 2024 the last operational coal powered station of size in England or Wales was closed for normal power generation business.
6.1.2 Oil burning stations are similar in core plant to coal-fired, but do not require the associated fuel and waste handling facilities, or such sophisticated environmental protection.
6.1.3 Nuclear power stations work upon a similar principle, except that the steam passing through the turbines is generated in a secondary circuit, separate from the water (or gas) which passes through and cools the reactor. Heat is transferred between the primary and secondary circuits via a heat exchanger. Three types of reactor can be encountered:
Magnox – this is the earliest type, being a gas-cooled reactor. By 2019 all Magnox stations have ceased generation and are being decommissioned
Advanced Gas-cooled Reactors (AGRs) – the majority of the more recent reactors in this country are of this type.
Pressurised Water Reactors (PWRs) - in this type the reactor is cooled by water rather than gas. This is a design frequently found elsewhere in the world.
6.1.4 As at 2024 two new PWR nuclear power stations are under construction. One will be approaching completion by 2030; the other by the mid-2030s.
6.1.5 Other fuel sources will also be encountered. These fall within the group sometimes known as renewable energy resources and include refuse, straw, chicken litter, wood pellets and wood chips.
6.1.6 Because the basis of valuation will usually be on the receipts and expenditure method, normally it is not necessary to carry out a full survey of any large scale power generators. Exceptionally, where it is decided that detailed surveys of any particular plant is required, for example to carry out a full contractor’s basis valuation approach, individual arrangements will be made within the NVU property inspectors.
6.2 Open cycle gas turbines (OCGTs)
Not to be confused with Combined Cycle Gas Turbines. These are based upon aero-engine technology and normally are found in the role of standby plant, either fixed in situ or containerised. They do occasionally occur as main generation plant, either as auxiliary gas turbines (AGTs) providing “black start” capacity at main power stations or in groups as main gas turbines (MGTs) in a system support role. They burn gas-oil (aviation fuel) or natural gas and are highly inefficient (17-25%), but have the advantage of being able to be started rapidly in response to changes in demand.
A variation which is occasionally encountered as an “independent” installation is adapted to run on landfill gas and will be associated with landfill operations.
OCGTs are usually valued on a contractor’s basis approach, and new sites are referenced by the NVU property inspector team.
6.3 Combined cycle gas turbines (CCGTs)
The generation set consists of a gas turbine driving an alternator direct. The hot exhaust gases are employed to raise steam in a boiler, which then generates further electricity via a steam turbo-alternator.
Early examples utilised modified aero engines, and employed a secondary combustion stage by injecting fuel into the exhaust stream. More modern CCGTs are much larger and designed specifically for power generation. The usual fuel source is natural gas. The high fuel cost is justified by the greater thermal efficiency of the plant.
Plants built in the early 1990s are in some cases nearing the end of their life and many have been mothballed, demolished or converted to OCGT. From 2008, larger capacity stations operating at higher efficiencies have been developed.
All gas turbines have a maximum output which varies seasonally, since they are more efficient when the ambient temperature is low.
CCGTs are usually valued on a receipts and expenditure approach and capital costs are obtained both to assist with confirming the rateable/non-rateable split of assets and to enable the consideration of a valuation approach on a contractor’s basis – site surveys may also be undertaken by the NVU property inspector team in order to carry out a contractor’s basis valuation.
6.4 Hydro electric schemes
These involve the utilisation of the natural head of water afforded by mountainous country to drive alternators by means of water turbines. Hydro electric schemes are capital-intensive, but the type encountered in England and Wales, which are of modest output, have a relatively long plant life, which tends to counteract the effect of initial high cost upon financing. The hereditament will normally include the gathering grounds, reservoirs and dams, aqueducts and pipeline as well as the turbine house itself.
Hydro electric schemes are usually valued on a receipts and expenditure basis – site surveys may be undertaken by the NVU property inspector team in order to carry out a contractor’s basis valuation.
6.5 Pumped storage schemes
These are a development of hydro electric technology in which the large upper level gathering grounds are dispensed with and instead water is cycled between an upper and lower reservoir. The original purpose of the schemes was to utilise unwanted electricity being generated at off-peak times by pumping water from the lower to the upper level. At times of peak demand the direction of flow was reversed, and a proportion of the energy reclaimed by generation in a manner similar to a conventional hydro-electric scheme.
Much of the economic justification for such schemes has been removed by the development of more flexible CCGT power plant and the way in which the New Electricity Trading Arrangements operate. Pumped storage retains one valuable feature from the point of view of maintaining the system security of the transmission network, which lies in its rapid response time. Pumped storage can increase output from zero to one third capacity in ten seconds, compared with a CCGT of around twenty minutes.
Pumped storage schemes are valued on a receipts and expenditure basis.
6.6 Wind farms and aero generators
Traditional windmills have been employed on occasions to generate electricity since the late 19th century.
Individual modern wind turbines, with a rated output sufficiently high to be practicable as a commercial power source (sometimes referred to as aero generators), started to be erected on an experimental basis in the late 1980s.
Since 1990, a number of commercial wind farms have been developed. Favoured situations are largely on the western coastline or on exposed high ground inland.
Each aero generator consists of a tapering steel column mounted upon a reinforced concrete foundation pad. The rotor assembly, gearbox and turbine are mounted in a rotatable head, known as a nacelle on top of the column. Contained within the column, at its base and accessible via a door, is the computer control equipment which regulates the rotor speed and keeps the rotor headed into the wind.
The individual generators are connected by a system of cables, normally on a radial pattern, via transformers and voltage regulators to a suitable point for the delivery of the electricity to the distribution network, normally via a meter located at or adjacent to one of the DNO’s sub-stations. It is possible to find installations where there is a transformer associated with each turbine, and others where they are shared between two or more, or indeed all the turbines on the farm. Notwithstanding the separation of individual turbines, all the turbines on a wind farm, plus the associated cables, transformers, regulators and meter should normally be regarded as forming a single hereditament. In circumstances where a wind farm straddles a boundary between billing authorities it remains a single hereditament, and should be entered into the rating list in which the majority of the rateable value is physically located.
Wind farms are usually valued on a receipts and expenditure basis – site surveys may be undertaken by the NVU property inspector team in order to carry out a contractor’s basis valuation.
6.7 Tidal generation schemes
Until recently, no commercial exploitation of tidal energy had been attempted in the UK. The first such station was opened in Scotland in 2000.
Care should be taken regarding the rateability of these schemes as the majority of the property could be beyond the low water mark, where rateability ceases.
The rateable onshore assets of these schemes are valued using the contractor’s basis of valuation – site surveys may be undertaken by the NVU property inspector team in order to carry out a contractor’s basis valuation.
6.8 Solar Power
Photovoltaics (PV) are a method of power generation which converts solar radiation into electricity via the use of solar panels. These panels comprise cells containing photovoltaic material, most commonly silicon. An electrical charge is generated when the silicon is exposed to light and this is then conducted away by metal contacts as direct current.
Commercial PV is a relatively new concept in the UK as historically schemes have been costly to install and relatively inefficient by comparison with other types of renewable energy. However, the introduction of Feed in Tariffs (FiTs) in April 2010 led to a sharp increase in the development of solar power projects, particularly in the South West of England.
New photovoltaic developments will usually comprise either field mounted arrays (ranging generally from a few hundred kilowatts capacity up to as much as 50 megawatts), or roof systems (typically at the lower end of this scale) which are either integrated into buildings, or much more commonly retrofitted to existing structures.
Photovoltaic schemes are usually valued on a receipts and expenditure basis – site surveys may be undertaken by the NVU property inspector team in order to carry out a contractor’s basis valuation.
6.9 Combined heat and power schemes (CHP)
This term refers to schemes whereby the waste heat from the generation process, instead of being dissipated through cooling towers or other devices, is utilised via a heat exchanger for heating or process purposes. Schemes are not limited to any particular fuel type or generator, so long as combustion forms part of the generation process, but rely upon the existence, close at hand, of a suitable customer for the heat produced.
For this reason, many schemes comprise what is often referred to as “embedded” generation. This indicates that the generation plant forms part of a larger site where the energy is consumed. Typically this will be an industrial complex, but other sites, such as hospitals, may also involve embedded generation.
With embedded generation, care must be taken to correctly identify the unit of occupation. The CHP station may often be in the occupation of a different person from the remainder of the site. In such circumstances it will form a separate hereditament and it will be necessary to consider which method of assessment should be applied.
A small number of schemes have been in existence for many years, but environmental considerations led to numerous new developments from the late 1990’s. Such growth was likely to have been encouraged by legislation such as The Valuation for Rating (Plant and Machinery) (England) (Amendment) Regulations 2001 [SI 2001 No. 846] and its Welsh equivalent. This provides for the exception from rating of certain generating plant when installed in Good Quality CHP stations. Full details of these provisions will be found in the section of the rating manual dealing with plant and machinery. From around 2010 it has become common for CHP schemes to be taken over by the operators of the industrial plants in which they sit rather than being occupied by a separate energy company.
Differences in fuel type and potential heat customers result in most schemes being “tailor-made” for particular situations, but as a generality they will be observed to fit into one of three types:
a) The simple waste heat scheme. These tend to be the older installations and function simply as described above. They tend to be inflexible in operation and will generally be found with the power station and the heat customer (usually a single concern, but may be an industrial estate) in close proximity.
b) The variable output scheme. This is typical of the more modern scheme, and enables the proportions of energy produced in the form of heat and energy produced in the form of electricity to be varied in response to changes in demand. The two-stage generation process makes CCGTs particularly suitable for CHP schemes of this type.
c) The high heat output scheme. The main characteristic of this type of scheme is that the boilers are designed to produce a quantity of steam well in excess of anything that the associated generation plant can consume. Such schemes will only be found where there is a steady demand for the excess steam produced. This will either be an industrial user or, more typically in the case of an independent generator, a large district heating scheme.
CHPs are usually valued on a contractor’s basis approach and new sites are referenced by the NVU property inspector team.
6.10 Energy from waste
Energy from waste sites accept the residual municipal solid waste (MSW) which is collected and taken to a facility which must comply with the Waste Incineration Directive (WID).
The waste is taken to the tipping hall and stored in a bunker before being transferred by crane to the furnace where it is burnt ensuring the gases are maintained at a temperature in excess of 850˚C for at least two seconds. In many instances there will be two or more parallel lines each with its own furnace, boiler, Flue gas treatment (FGT) unit and flue in the chimney.
After the tipping hall the main buildings on site will be the furnace/boiler hall, the FGT hall and the turbine hall. Ancillary buildings will included the weigh office and administration unit.
Boilers with their superheater and economiser zones capture the heat and the superheated steam is passed through a turbine to generate electricity. Whilst there may be more than one line it is unusual to have more than one turbine. After the parasitic load is taken off for the site’s own use the electricity is stepped up to 132kV via a transformer for distribution to the national grid. On a few sites the heat is also captured and used in a district heat system.
The combustion gases need to meet stringent requirements of the WID and are treated in the FGT plant before being discharged via a chimney. An air cooled condenser cools the steam to allow water to be returned to the boiler via the economiser which is heated by the hot gases and so improves the efficiency of the closed loop system.
The incinerator bottom ash (IBA) is collected from the base of the furnace by quenching conveyors. The IBA is then transferred to the IBA bunker before being shipped to an ash processing plant which is usually located off site.
Energy from waste facilities are usually valued on a contractor’s basis approach and new sites are referenced by the NVU property inspector team.
6.11 Anaerobic digestion
Anaerobic digestion (AD) is a natural biological processes whereby organic waste material – known as feedstock – is broken down by micro-organisms and converted into energy, known as biogas (a mixture of carbon dioxide and methane).
This methane rich biogas can then be used in a CHP to generate heat and electricity, or cleaned and upgraded for injection directly to the gas grid.
AD has been used to process sewage sludge as far back as the 19th century, but in recent years, the increase in government support for renewable energy, and diversification in farming have led to an upsurge in the development of small AD schemes in the UK.
The feedstock can include waste products such as farm slurry, but increasingly, dedicated crops such as maize may be grown to fuel the process. At the end of the digestion cycle a nutrient rich residue remains which can be used as a fertilizer or soil conditioner.
Anaerobic digestion plants are usually valued on a receipts and expenditure basis.
6.12 Microgeneration
Microgeneration is the production of energy on the smallest of scales, for individual buildings or communities. Microgeneration technologies emit low amounts of carbon dioxide (CO2) or in some cases no carbon dioxide at all, whilst allowing users to generate their own heat and/or electricity.
Microgeneration capacity includes plant and machinery for both the generation of electricity and the production of heat providing the source of energy or the technology is mentioned in section 26 of the Climate Change and Sustainable Energy Act 2006. These are defined by both being named, and having a capacity that does not exceed specified figures.
The technologies covered by Section 26 are biomass, bio fuels, fuel cells, photovoltaics, water (including wave and tidal), wind, solar power, geothermal sources, heat from air, water or the ground, and combined heat and power systems. In addition it is provided that the Secretary of State may, by order, add additional technologies.
The capacity limits outlined in the legislation are 50 kilowatts in relation to the generation of electricity, and 45 kilowatts thermal in relation to the production of heat.
Microgeneration schemes would most commonly involve installations to domestic, commercial or agricultural properties where the power generated is consumed on site rather than sold on for distribution to consumers.
Appendix 1 provides more details regarding the rateability of microgeneration schemes, including the information required to enable this type of property to be valued.
Information gathered from inspection and/or research needs to be captured in a word document, and utilising generic electronic survey sheets where appropriate.
This documentation should be saved within the property folder on the VOA Electronic Document Record Management (EDRM) system.
Power generators are almost invariably owner occupied and so a rentals valuation is not possible. At best there is some site rental evidence available for new wind farm and hydro electric schemes. A site rent may be available at some CHP installations; but in these cases the site rent forms part only of a raft of agreements between the CHP developer/operator and the site owner, who will usually be the main power and steam customer.
Power stations are commercial undertakings and are occupied with a view to making profits. The tenant’s rental bid is likely to be based upon a consideration of the receipts and expenditure arising from occupation of the hereditament. It is certainly possible to identify the costs of generating power at an individual power station and the earnings from sale of that power and other services. Many operators of power stations are currently vertically integrated so that electricity output from their own power stations can be sold by their electricity supply businesses to domestic and industrial consumers of electricity. In these circumstances the value of the output from an individual power station is lost within the performance of the entire fleet and can be accounted for in different ways by the portfolio operator. However there is also a well developed wholesale market for electricity and this is available to a different business model known as “merchant plant”, who can forward sell their output to supply companies and other market participants.
It is therefore possible to construct a receipts and expenditure valuation model assuming merchant operation, with the power station buying fuel at market prices, converting it to electricity and selling on wholesale markets with a view to making profit. This activity can only be achieved by occupiers of the specialist power generating hereditament having the benefit of s36 and s37 consents to operate.
Bespoke forms of return VO 6056 or VO6076 for renewables have been created to obtain specialist operating data and accounts information for this class and should be issued as required.
Details of this valuation method are included in Rating Manual: section 4 part 2.
Following Hardman (VO) v British Gas Trading Limited [2015] UKUT 0053 (LC) it is important to be aware that should any method of valuation produce an unexpected result, there is a need to consider whether that result should be tested appropriately by using another method of valuation, such as deriving a rent from capital expenditure (sales evidence) or by application of the contractor’s basis of valuation.
Details of the contractor’s basis of valuation are included in Rating Manual section 4 part 3.
This can be a valid method of valuation for those generator types being developed actively at or around the relevant antecedent valuation date (AVD).
Where utilising the receipts and expenditure method of valuation the basic approach is:
- Gross receipts from all sources, less
- Working expenses
- leaving
- A divisible balance, from which is deducted
- The tenant’s share, leaving
- The rental value
These individual stages are examined below with special reference to their application to power stations:
8.1 Gross Receipts
This forecast may include any or all of the following depending on plant type:
8.1.1 Income from electricity sales: this will be the product of electricity output in MWh and average forward wholesale price per MWh. Electricity output will vary widely for different generator types and there are seasonal variations in wholesale price.
8.1.2 Income from ancillary services: varies with plant type and location and includes contracts for black start, standing reserve, frequency response and reactive power.
8.1.3 Income from balancing market: ability to participate in bids and offers varies with plant type.
8.1.4 By-product sales: typically sale of ash by coal stations and also gypsum sales where FGD-equipped. Includes steam/heat sales by CHP plant, and digestate sales from anaerobic digestion plants.
8.1.5 Renewable Obligation Certificates (ROCs): from qualifying renewable energy generators and co-fired biomass.
8.1.6 Feed in tariff (FIT) income and contract for difference (CfD) income.
8.1.7 NFFO Contract Income: for those qualifying renewable generators retaining a residue of their original Non Fossil Fuel Obligation contract.
8.1.8 Receipts arising from qualification under the non domestic Renewable Heat Incentive.
8.1.9 Embedded benefits such as TRIADs
8.1.10 Capacity Payments
8.2 Working Expenses
This forecast is split into direct costs, operating costs and renewal of tenant’s assets.
8.2.1 Direct costs
Fuel costs: this is determined by electricity output in MWh, generator efficiency and average forward fuel price per MWh. The fuel requirement has to be adjusted to be consistent with the assumptions regarding bid and offer activity in the balancing market. For gas power stations there are seasonal variations in fuel price.
Network Use of System and Connection Charges: these will vary with location.
For generators connected directly to the transmission system there are different tariff zones which determine the level of charges.
8.2.2 Operating costs
Most operating costs at power stations tend to be fixed (determined by plant type and generating capacity) rather than variable (determined by electricity output) in nature. Evidence of the cost of repairs to landlord’s hereditament and repair/maintenance of tenant’s non rateable assets must be examined over a number of years to ensure that a reasonable year to year average figure is adopted. For example large coal generating sets are taken out of service for a major outage every four years, with the interim annual outages requiring much less work and expense.
Rating liability is treated as an operating cost.
8.2.3 Renewal of tenant’s assets
The preferred means of calculating depreciation is to take replacement cost of the asset, at the antecedent valuation date and divide by expected total life. Alternatively it is possible to divide present market value of non-rateable assets (reflecting physical state at the material day and value at the AVD) by remaining life.
If the asset register of the power station is made available this can be analysed to provide guidance on asset replacement cost and working lives. Analysis of the asset register will also reveal whether any assets still in use have been fully depreciated in the accounts; this would mean the actual accounting charge may be understated. Rating Manual: section 4 Valuation Methods, part 2 Receipts and Expenditure Method, paragraph 13 stresses that actual depreciation charges in accounts should be treated with caution, being determined by company policy and historic events.
8.3 Divisible balance (DB)
The divisible balance is the sum available to be shared between the landlord and the tenant. It comprises two main elements:
8.3.1. The tenant’s share - to provide a return on any tenant’s capital employed and a reward to the tenant for his venture reflecting the extent of the risk and need for profit. This is deducted from the divisible balance to leave:
8.3.2. The landlord’s share i.e. the rent payable (which becomes the rateable value)
8.4 Tenant’s share
The preferred approach for power generators is determining the tenant’s share as a fixed proportion of the divisible balance based on the percentage split of assets between the tenant and the landlord.
The percentage split between the landlord’s (rateable) and tenant’s (non-rateable) assets varies between generator types.
8.5 Rateable Value
Deducting the tenant’s share from the divisible balance leaves the sum available to be paid as rent – the “landlord’s share”.
Although the tenant’s share may be regarded as the first charge upon the divisible balance, it does not follow that the landlord’s position should be ignored. In determining the tenant’s share, and hence the rateable value, the relative negotiating strengths of the two parties and the quantum of their respective investments will be relevant. The hypothetical landlord will have invested significant capital in the property, and will expect an adequate return. Where there is insufficient profit available for both the tenant and landlord to achieve their desired level of return a compromise will be required.
As with other forms of valuation, it is necessary to “stand back and look” at the final figure and consider whether in all the circumstances it correctly shows the rent which would be paid under the statutory terms. In this regard it may be helpful to analyse proposed rateable value in terms of generating capacity, total receipts and gross profit (income less direct costs).
8.6 Where generation plant exists, but it has a total output capacity less than 10 kilowatts, it should be treated as de minimis.
The R&E valuations for power generators utilise bespoke standalone spreadsheets developed by NVU Utilities, Transport and Telecoms Team for each generator type.
CB valuations are carried out using the “Other generic contractor’s basis valuations” template on the VOA non bulk server application. Stage 1 construction costs should be based on advice from rating cost guide and stage 2 allowances for physical obsolescence should use the VOA scale for industrial allowances.
This appendix provides specific guidance in relation to the rateability of renewable power generators supplying domestic or non-domestic property.
1. Domestic property
Domestic property is not subject to rates, but is liable to council tax. The definition of domestic property is contained in Section 66 of the Local Government Finance Act 1988, which was amended in April 2013 to specifically address the issue of domestic microgeneration installations. Currently this legislation applies to England only.
The Non-Domestic Rating and Council Tax (Definition of Domestic Property and Dwelling)(England) Order 2013 inserted new paragraphs 6(1)A and 6(1)B, and now reads as follows
(1A) Property in England is also domestic if –
(a) it is used wholly or mainly for the activity mentioned in subsection (1B), and
(b) it is situated in or on property which is –
(i) used wholly for the purposes of living accommodation, or
(ii) a yard, garden, outhouse or other appurtenance belonging to or enjoyed with property used wholly for the purposes of living accommodation.
(1B) That activity is the generation of electricity or the production of heat by a source of energy or a technology mentioned in section 26(2) of the Climate Change and Sustainable Energy Act 2006(a), where –
(a) the majority of the electricity or heat is generated or produced for use by such persons as may be in the living accommodation, or
(b) the plant or equipment used to generate the electricity or produce the heat has a capacity not exceeding 10 kilowatts or 45 kilowatts thermal, as the case may be.
Installations covered are therefore any system of up to 10kW electrical or 45kW thermal or larger installations where the majority of the electricity or heat is used by the occupiers of the living accommodation. Please note that this living accommodation may comprise more than one residential unit e.g. where the installation is for the benefit of a block of flats.
The effect of this legislative change is that the site of such installations in England will be domestic property, either forming part of the dwelling (where the householder owns the installation and retains the Feed in Tariff), or comprising domestic property outside the dwelling (where a third party operates the installation and retains the Feed in Tariff).
From a valuation point of view, installations in the former category should normally give rise to a possible ‘material increase’ which may affect the Council Tax banding, however in practice there is no evidence that in the 1991 market in England or the 2003 market in Wales, such equipment would have materially increased the freehold or leasehold value of properties.
Installations in the latter category will not be subject to council tax or non-domestic rates in a similar fashion to domestic garages or domestic stores.
It is at least theoretically possible that a generator could be so oversized relative to the domestic demand that it actually exports most of the power produced. In this scenario the generation of electricity or production of heat would not be domestic and would require assessment.
2. Non-domestic property (renewable power mainly or exclusively consumed on the premises)
In April 2022, The Valuation for Rating (Plant and Machinery) (England) (Amendment) Regulations (SI 2022/405) came into effect, and from 1 April 2024 in Wales (SI 2023/1229). These regulations concern rateable Plant and Machinery (P&M) used for the generation, storage, transformation or transmission of power where the source of energy relied upon is defined as ‘renewable’. Until 1 April 2035 the regulations act to except from rateability such P&M where the power generated is consumed within the hereditament. Pre-existing exceptions relating to P&M in these categories where the power generated is primarily exported from the hereditament are unaffected by this change.
Therefore, the value of any named class 1 plant, where the source of energy is renewable, is not to be included in the valuation of the hereditament. The land and settings accommodating this plant remain rateable, although on smaller installations, say less than 50kW, the residual value is likely to be de minimis.
In the vast majority of situations, the type of plant impacted by the 2022 regulations in England (2023 regulations in Wales) will be solar photovoltaic installations and wind turbines that are currently assessed together with a host hereditament. For example, a solar array on the rooftop of an industrial unit supplying electricity mainly for consumption by the occupier of that industrial unit.
For installations above 50kW a value will need to be calculated by the UTT team to reflect the residual elements of the installation which are still rateable, such as the supports and brackets.
3. Non-Domestic Property (power generated mainly or exclusively for sale to grid, or export to a third party or host hereditament[s])
Where the power generated from a generation plant is wholly or mainly for export and greater than 10kW, it will normally constitute a separate hereditament which will require assessment. Such scenarios may arise in the following circumstances:
(a) A new stand-alone hereditament, for example a developer renting a field and assembling a solar array to exclusively generate electricity for the transmission or local DNO network
(b) Where an existing occupier allows a third party to install generating P&M to a hereditament. For example, an energy company installs PV panels to the roof of a factory with the power generated wholly or mainly exported to the transmission or local DNO network. In return the factory owner receives rent and/or cheap electricity
(c) As (b) above but the factory owner installing the PV himself, again with the power generated being wholly or mainly exported to the transmission or local DNO network. In this scenario, rating law suggests that the two separate hereditaments may exist, even if there is only one occupier, due to the wholly different nature and purpose of the two occupations.
If the total generation output capacity from such plant is less than 10 kilowatts it should be treated as de minimis.
4. Survey requirements
The following details are required in order to determine rateability and value:
- What is the installed capacity in kilowatts?
- What date was the scheme fully commissioned?
- Does the occupier receive the Feed in Tariff (FiT)? If not, please provide details of any third party who maintains & operates the generator and retains the FiT.
- Is the majority of power consumed on site rather than exported to the transmission or local DNO network. If so, is it used mainly for domestic, non-domestic, or agricultural purposes?
Using this information, the flowchart below will provide guidance on rateability and who is responsible for valuation. Reference in the flowchart to “grid” should be taken as referring to the transmission network or (more likely in practice) the local DNO network or a 3rd party host to whom the electricity is sold.
Where valuations are required, please refer to the relevant rating list practice note.
1. Market appraisal
1.1 UK electricity generation in 2020 was 312.0 terrawatt hours (TWh) which can be compared with 339.0 TWh in 2014. Electricity demand has fallen generally since 2015, attributable in part to increasing energy efficiency, but reduced economic activity due to the Covid pandemic resulted in further significant depression of demand for electricity from March 2020. The majority of UK electricity demand is met by gas, nuclear and renewable generation, with a continuing shift away from coal. Renewables’ share of total generation reached a record high in 2020 at 134.6 TWh (65 TWh in 2014), and for the first time this exceeded the contribution from fossil fuel generation at 117.8 TWh (202 TWh in 2014). Overall UK generating capacity reduced in 2020 to 75.8 gigawatts (GW) compared with 84.9 GW in 2014. The change in 2020 was because increases in renewable capacity, particularly offshore wind, were more than offset by closure of large capacity coal power stations and a nuclear site. Comparison capacity and output figures are sourced from the Digest of UK Energy Statistics 2021 (DUKES) and the corresponding 2015 edition of DUKES.
1.2 Proposals for decarbonisation are expected to drive major changes in UK and European wholesale electricity markets. The Energy White Paper released in December 2020 included a target of 40GW of offshore wind by 2030 (including 10GW of floating), a target of 5GW of low carbon hydrogen capacity by 2030 and a commitment to explore financing solutions for new nuclear power stations. Also, in December 2020 the Parliamentary Committee on Climate Change published recommendations for the UK’s Sixth Carbon Budget. These are based on a pathway requiring 78% reduction in UK emissions from 1990 levels by 2035. The implication for the power generation sector is full decarbonisation by 2035, requiring deployment of low carbon electricity at scale and phasing out unabated gas fired generation. Unabated being plants, primarily coal stations without any carbon, sulphuric or nitrogen capture systems or other catalytic fittings.
1.3 Between 2015 and 2019 there was a phased removal of both Renewable Obligation Certificates (ROCS) and Feed in Tariffs (FITs). These were subsidy and incentive schemes to encourage the building of renewable generation plants.
1.4 Some technology-specific renewable subsidies remain available, such as the Renewable Heat Incentive (RHI). For example, anaerobic digestion (AD) sites may operate a “gas to grid” model. This involves injecting the gas produced by AD units into local gas distribution networks rather than using the gas to generate electricity for the wholesale market. Observation suggests that the development of new renewable generators is currently at a low level.
1.5 The battery storage market has seen growth since 2015, with rapid development of stand-alone electricity storage facilities and co-location of batteries at solar and wind farms.
1.6 Coal’s share of generation continued to decline, with many power stations closing in the period between 2015 and 2021.. Generation from coal was 101 TWh in 2014 but was only 5.2 TWh in 2020. The Government announced on 18 November 2015 that it intended all unabated coal fired power stations would close by 2025, with their usage restricted from 2023, and it appears that full closure by 2025 will happen.
1.7 In 2020 gas-fuelled power stations were the leading contributors to total generation, supplying 111.4 TWh. Historically power generation providers with a mixed portfolio would switch their output between coal and gas dependent upon the relative economics of the fuels. Electricity generated from gas is now routinely despatched after renewables and nuclear, leaving very limited demand for coal stations. The older and less efficient stations within the combined cycle gas turbine (CCGT) fleet are required to operate more flexibly and run only at peak times. Several have either closed since 2015 or switched to open cycle mode.
1.8 To meet demand for electricity at peak times the power reserve market (using diesel and gas engines) has grown in significance. These are generally embedded (connected to local distribution networks) rather than connected to transmission networks. The majority of new capacity added since 2015 has come from the power reserve market, often supported by capacity market (CM) contracts.
1.9 The objective of the capacity market was to achieve long-term security of supply. It was introduced in the Energy Act 2013 alongside Contracts for Difference (CfD), Carbon Price Floor and Electricity Demand Reduction to deliver low-carbon energy and reliable supply, while minimising the cost to consumers. It offered capacity providers an additional revenue stream in the form of ‘capacity payments’ in return for a commitment to deliver energy in periods of system stress (or face penalties if they fail to deliver). Auctions are held with contracts awarded either four year (T-4) or one year (T-1) ahead of delivery. New sites can bid for 15-year contracts, refurbished sites for three-year contracts, and unrefurbished existing sites for one-year contracts.
1.10 The T-1 auction held on 2 March 2021 for delivery in 2021-22 cleared (sold) at £45/MW and awarded contracts for 2.25 GW of capacity. This was split 63.37% to existing plant (mainly coal, CCGT and gas/diesel engines), 12.9% to new build plant (mainly gas/diesel engines and batteries), 13.1% to existing interconnectors and 10.63% to demand side response (DSR). DSR is where large power users elect to temporarily reduce their consumption to assist in balancing the system. Together with previous auctions the T-1 auction brought total procured capacity for delivery in 2021-22 up to 56.92 GW. The bulk of this capacity was procured in the T-4 auction on 8 February 2018 at a clearing price of £8,400 per MW per year (£8.40 per kW per year).
1.11 The T-4 auction closest to AVD, held on 10 March 2021 for delivery in 2024-25 cleared at £18,000 per MW (£18 per kW) and awarded contracts for 40.82 GW of capacity. This was split 76.29% to existing plant (mainly gas, nuclear and pumped storage), only 4.25% to new build plant (mainly gas/diesel engines and batteries), 8.22% to existing interconnectors, 8.62% to new interconnectors and 2.61% to demand side response (DSR).
1.12 At the 1 April 2021 AVD the nuclear generating fleet has reduced in number since 2015 but the remainder continue to provide baseload generation. Any variations in output are therefore due to maintenance outages rather than market conditions. The advanced gas cooled reactor (AGR) stations are approaching the end of their operating life and elements of the fleet are expected to cease generating and commence decommissioning prior to 1 April 2023.
1.13 The GB electricity market is open to a degree of competition via interconnectors with neighbouring countries. Electricity can be transferred across interconnectors to take advantage of supply/demand imbalance and price variations in local markets. Transfers are limited by interconnector capacity but there are currently five major transmission system interconnectors between England/Wales and external markets, (plus intra-UK links) with additional ones opening around and after the AVD.
1.14 Factors affecting wholesale electricity prices are generally agreed to include fuel price, plant outages and weather. Since 2015 the trend has been upward in fuel prices. Future electricity price projections are difficult to predict since they are influenced by a large range of factors, though for the fossil fuel sector, fuel and carbon prices play an important role in baseloads spreads. Carbon prices being the cost of a permit to emit one tonne of carbon dioxide, the permits traded on the emissions trading system (ETS). Spreads are the difference between the wholesale price and the cost of fuel and carbon.
2. Changes from last practice note
There are no major changes from the practice note issued for the 2017 rating list.
3. Ratepayer discussions
Prior to publication of the draft 2023 rating lists meetings will take place with representatives of power generator trade bodies to examine evidence of revenue streams, operating costs and construction costs at the AVD.
4. Valuation scheme
4.1 The Utilities, Transport and Telecoms (UTT) team of the National Valuation Unit (NVU) should prepare a valuation model for each of the various types of generator. In the case of power generators valued on the receipts and expenditure basis (R&E) this will reflect analysed evidence of the revenues and costs relevant for the particular type of generator. This includes for example renewable generators (hydro, wind, solar PV, biomass and AD) and nuclear power stations. The UTT will engage with trade bodies and ratepayers to try and agree the valuation models.
4.2 The level of value for CCGTs should have regard to a range of valuation approaches which follows the reasoning adopted in Hardman (VO) v British Gas Trading Ltd [2015] UT(LC) including the R&E and the contractor’s basis.
4.3 In the case of power generators valued on the contractor’s basis, the valuations should be prepared principally using stage 1 costs from the VOA Rating Cost Guide 2023 together with other evidence for specialist items. Adjustment for physical obsolescence at stage 2 should apply the VOA scale of age related allowances for industrial property shown in Rating Manual section 4 part 3 practice note 1 2023 the Contractor’s Basis age and obsolescence allowances para 7.0: Stage 2 allowances. Land value at stage 3 should be based on generally prevailing levels of industrial land value in the locality, adjusted to reflect any advantageous electricity network or gas connection, unless there is class-specific evidence available. For example, land values for the power reserve class must have regard to site rents across the country with an enhancement for the value and cost of enabling a connection to the electricity network. Land evidence for CCGT sites must have regard to transactions involving prospective new CCGT sites, adjusted to reflect any locational impact from variable transmission charges.
4.4 Generation of power for on-site consumption – (England only)
4.4.1 In April 2022 The Valuation for Rating (Plant and Machinery) (England) (Amendment) Regulations (SI 2022/405) came into effect. These regulations concern rateable Plant and Machinery (P&M) used for the generation, storage, transformation or transmission of power where the source of energy relied upon is defined as ‘renewable’. With effect from 1 April 2022 until 1 April 2035 the regulations act to exempt from rateability such P&M where the power generated is consumed within the hereditament. Pre-existing exemptions relating to P&M in these categories where the power generated is primarily exported from the hereditament are unaffected by this change.
4.4.2 Therefore the value of any named class 1 plant, where the source of energy is renewable, is not to be included in the valuation of the hereditament. The land and settings accommodating this plant remain rateable, although on smaller installations, say less than 50kW, the residual value is likely to be de minimis.
4.4.3 In the vast majority of situations, the type of plant impacted by the 2022 regulations will be solar photovoltaic installations and wind turbines that are currently assessed together with a host hereditament. For example, a solar array on the rooftop of an industrial unit supplying electricity mainly for consumption by the occupier of that industrial unit.
4.4.4 For installations above 50kW a value will need to be calculated by the UTT team to reflect the residual elements of the installation which are still rateable.
4.5 Generation of power on site (Wales only)
4.5.1 Microgeneration schemes in Wales are outlined in Appendix 1 to Rating Manual section 5a, section 530 (where the power produced is wholly or mainly consumed on site) are to be dealt with by Regional Valuation Units (RVUs).
4.5.2 For schemes identified by the flowchart in Rating Manual section 5a, section 530 Appendix 1 which no longer benefit from microgeneration exemption, the following will apply in the 2023 Rating List.
4.5.3 Wind and solar PV installations in Wales forming part of larger rateable hereditaments should be valued using the rating cost guide and added to the value of the main hereditament value as rateable plant and machinery. For stage 1 replacement cost of the item valuers should search on code 206S9 within the 2023 Rating Cost Guide to find the relevant entries. For stage 2 allowances the plant class within the VOA scale of age related allowances for industrial property, as shown in Rating Manual section 4 part 3 Practice Note 1 2023: the contractor’s basis age and obsolescence allowances para 7.0 Stage 2 allowances should be applied. The applicable decapitalisation rate will follow the mode or category of use of the main hereditament - the lower decapitalisation rate will apply if the microgenerator is an addition to, for example, a qualifying health or educational hereditament.
4.5.4 For advice in respect of all other types of generation forming part of larger rateable hereditaments or where installations form part of otherwise exempt agricultural hereditaments which require valuation, please contact the UTT Team via the prescribed channel.
1. Market appraisal
In the years preceding the AVD, a number of large efficient gas stations has been commissioned and renewable generation such as wind, solar, biomass and anaerobic digestion had expanded significantly as a result of substantial government incentives.
Set against this increase was the closure or reduction in operating hours which applied to the bulk of the coal station fleet, together with the mothballing, conversion or closure of older CCGT plant. It was announced by the government on 18 November 2015 that all coal fired power stations would close by 2025, with their usage restricted from 2023.
The net effect on capacity at the AVD is to be determined but reports indicate that plant margin (i.e. excess of capacity over demand) shrank from 20% in the days of the Central Electricity Generating Board (CEGB) to less than 2% in the winter of 2014 - this was a very mild winter.
On 8 July 2015 the government announced that the exemption from Climate Change Levy for renewable source electricity, which is supplied to business or public sector consumers under the terms of a renewable source contract, would cease.
Against this background it might be expected that electricity prices would rise, but the conundrum faced at the AVD is that the electricity market was towards the lower end of the electricity commodity cycle.
Another factor relevant to the Revaluation is the effect of the Industrial Emissions Directive (IED) which will greatly reduce the load factors of the whole (excepting Ratcliffe) of the coal fleet. This reduction is equivalent to around 10% of the total generating capacity available from all sources and the effect of this legislation on electricity prices needs to be carefully considered.
2. Changes from last practice note
There are no major changes from the practice note issued for the 2010 rating list
3. Ratepayer discussions
Early meetings are taking place with the trade body Energy UK together with each of the interested agents to narrow areas of difference and ensure that the VO has a detailed understanding of the industry view of the market at the AVD.
4. Valuation scheme
The Utility and Transport (U&T) team of the National Valuation Unit (NVU) will prepare a valuation model for each of the various types of generator reflecting the importance of differing inputs which enables a measure of agreement to be reached.
4.1 Microgeneration
Microgeneration schemes as outlined in Appendix 1 to RM Section 530 where the power produced is wholly or mainly consumed on site are to be dealt with by local offices.
For schemes identified by the flowchart which no longer benefit from microgeneration exemption, the following levels of value will apply in the 2017 Rating List.
For Wind and solar PV Installations forming part of larger rateable hereditaments should be valued using the cost guide, and included in the main hereditament’s value search on 206S9 within the 2017 cost guide.
For advice in respect of all other types of generation forming part of larger rateable hereditaments, or where installations form part of otherwise exempt farm hereditaments which require valuation, please contact the Utilities & Transport Team.
Any problems or difficulties in interpreting the flowchart should be referred back to the U&T Team.
Microgeneration
Microgeneration schemes as outlined in Appendix 1 to RM Section 530 are to be dealt with by local offices.
For schemes identified by the flowchart for valuation in this way, the following levels of value will apply in the 2010 Rating List.
Solar power installations forming part of larger rateable hereditaments - Value at Rateable Value of £8 per kilowatt of installed capacity (e.g. 50kw PV installation £400 RV, and include in the main hereditament’s value. )
All other types of generation forming part of larger rateable hereditaments where the power produced is wholly or mainly used on site, should be valued using the cost guide, and included in the main hereditament’s value.
Where installations form part of otherwise exempt farm hereditaments, please refer to the Utilities & Transport Team
Please refer any problems or difficulties in interpreting the flowchart should be referred back to the U&T Team.