As this is a financial resolution, in accordance with Standing Order 210 the debate will be done in Committee style. Accordingly, there is no restriction on the length of time of Members' contributions, but perhaps, with the agreement of the House, we could agree that each Member of the House when speaking will be cognisant of the available time for other Members and that the debate will be brought to a conclusion after half an hour. Is that agreed?
Finance Bill 2023: Financial Resolution
Agreed.
I move:
(1) THAT the rate of value-added tax chargeable on the supply and installation of solar panels on or adjacent to immovable goods, being private dwellings, at present chargeable at the rate of 13.5 per cent, be reduced to zero per cent with effect on and from 1 May 2023, and that accordingly —
(a) Schedule 2 to the Value-Added Tax Consolidation Act 2010 (No. 31 of 2010), which makes provision for the zero rate of value-added tax to apply to the supply of certain goods and services, be amended, in Part 2, by the insertion of the following paragraph after paragraph 13:
"Solar panels
14. The supply and installation of solar panels on or adjacent to immovable goods, being private dwellings.",
and
(b) Schedule 3 to the Value-Added Tax Consolidation Act 2010, which makes provision for the reduced rate of value-added tax to apply to the supply of certain goods and services, be amended, in paragraph 9(1) of Part 2, by the insertion of "other than the supply and installation of solar panels as specified in paragraph 14 of Schedule 2," after "fixtures,".
(2) THAT this Resolution shall have effect on and from 1 May 2023.
(3) IT is hereby declared that it is expedient in the public interest that this Resolution shall have statutory effect under the provisions of the Provisional Collection of Taxes Act 1927 (No. 7 of 1927).
I can be brief to allow time for colleagues to come in and put questions. The purpose of this financial resolution is to reduce the VAT rate on the supply and installation of solar panels for private dwellings to 0% from 1 May 2023. The background to this financial resolution concerns changes made to annex III of the VAT directive in 2022, which added several new categories to which member states can apply a 0% or reduced rate of VAT. One such option is to apply a 0% rate within category 10c, which is for the supply and installation of solar panels on and adjacent to public and other buildings used for activities in the public interest, housing and private dwellings.
At the request of the Minister for the Environment, Climate and Communications, Deputy Eamon Ryan, and following discussion, I agreed to the 0% rate of VAT for the supply and installation of solar panels for households and private dwellings. If passed on to consumers, the Minister's Department estimates it would reduce the average cost for such supply and installation for consumers from €9,000 to €8,000 and would support households in reducing their electricity bills.
This amendment will be introduced on Report Stage of the Finance Bill 2023 later this evening. However, as it is not anticipated that the Finance Bill 2023 will be enacted until mid-May, it is necessary to introduce this financial resolution to give this amendment legal effect from 1 May 2023. The 0% rate of VAT on solar panels and ancillary equipment should result in a significant reduction in the installation costs for households and I believe it will encourage more people to avail of this innovative technology. It is important to note, however, that there is no requirement or guarantee that a reduction in the VAT rate will be passed on to the consumer, especially given the current inflationary pressures and supply chain issues prevalent in the global economy. Such a reduction, however, will hopefully help to counter any increase in prices arising from such issues. It is also hoped that the reduction in the rate of VAT will encourage reduced costs through greater competition in the market. This measure underlines the Government's commitment to helping households to save money on their energy bills, to reduce their carbon footprints and to contribute positively to our national climate change targets. The estimated cost of this measure for the Exchequer is €19 million annually. I can leave it at that by way of introductory comments.
Cuirim fáilte roimh an rún atá os comhair na Dála inniu agus muid ag déileáil leis an ráta VAT ar phainéil a úsáideann grian le fuinneamh a ghiniúint. Beidh seo ina bhuntáiste mór do go leor teaghlaigh atá ag iarraidh na solar panels seo a chur ar a n-árasáin, rud a ísleoidh an costas muna n-ardaíonn an costas ar na painéil iad féin.
I welcome this financial resolution put forward by the Minister. Solar energy has the potential to make a significant contribution to our energy mix, despite only accounting for a very small fraction of our electricity generation to date. Solar energy, however, will play an increasingly important role in Ireland's future energy mix. Despite what we often think, we receive a significant amount of sunlight, particularly in summer, meaning there is great potential for us to harness better solar energy for electricity generation in future. The cost of solar panels has fallen sharply in recent years and, hopefully, we will continue to see these costs coming down. They are becoming increasingly competitive with other energy sources, making them more attractive for investment. Given that solar panels allow for local generation of energy, they provide for greater energy security. In short, any measure that increases the take-up of solar panels is to be welcomed.
Amendments to annex III of the VAT directive last year added several new categories that could have reduced or 0% VAT rates applied to them by member states. Up to this point, the standard rate of VAT applied to the supply of solar panels. Under these changes, it is now possible to apply a 0% rate of VAT on the supply and installation of solar panels. This is what this financial resolution provides for and Sinn Féin welcomes this measure. By making their supply and installation more affordable, this reduction in VAT will encourage people in respect of the uptake of solar panels and increase the role of solar energy in our energy mix, thereby reducing our reliance on fossil fuels. The Department of the Environment, Climate and Communications has estimated the measure would reduce the average cost of the supply and installation of solar panels by as much as €1,000 if it was passed on to consumers and would reduce the payback period for installation from seven to 6.2 years. I note the Minister's comments regarding supply shortages and the possibility that prices could go up, but this situation needs to be monitored carefully. I will come to that aspect in a minute. The 0% rate of VAT could also reduce households' energy bills by reducing their reliance on the electricity grid. This measure could provide a spur to the solar energy sector by making it more competitive with other energy sources, leading to the creation of green jobs and investment in the sector.
This measure also has the potential, if it is followed by a greater uptake of solar panel installations, to help us to reach our climate targets by reducing our greenhouse gas emissions and reaching the goal of generating 70% of our electricity from renewable sources by 2030. As the Minister said, it is estimated this tax change will cost approximately €19 million annually. If it is successful in achieving some of the objectives I mentioned, it will be money well spent. I welcome that this measure will now take effect from 1 May 2023 to address any chilling effect this VAT change could have caused. This was an issue my colleague Deputy O'Rourke raised previously. He warned that projects could be paused in anticipation of a reduced rate and that this was causing uncertainty in the industry.
There are, of course, outstanding issues that I would appreciate the Minister addressing. Currently, 233 installers are registered with the Sustainable Energy Authority of Ireland, SEAI. While most players are expected to pass the VAT reduction on to consumers, some have warned there is a risk of price increases as a result of the VAT reduction. How does the Minister plan to monitor and respond to this development, should it play out? Hopefully, it will not.
Furthermore, I note that the Department has said that this 0% rate will apply to the supply and installation of solar panels. The tax strategy group paper on VAT said the 0% rate could only apply to the supply and not the installation of solar panels, so perhaps the Minister could clarify this point for us when he responds. Additionally, can he clarify if the 0% rate of VAT will apply to the supply and installation of storage batteries as well?
We in Sinn Féin welcome this measure. As I said, it can play a very positive role in increasing, hopefully, the uptake of solar panels, reducing household costs and contributing towards achieving our climate action goals.
I too also warmly welcome any measures that will result in a decrease in the cost of installing solar panels. I do not see any good reason in the world all the roofs we have on all the buildings in the country, whether on private dwelling houses or farm buildings, should not have solar panels on them. This would be a sensible aim for the Government and all of us to be promoting. It would certainly be a help in the long term in reducing people's energy costs and a sensible and affordable solution, given proper supports and grant aid being provided to people to install these panels.
I wish to highlight, however, and this aspect was touched on briefly, that we must be careful when an announcement is made. I listened carefully when the Minister for the Environment, Climate and Communications made his announcement in this regard, but then I answered the phone when it lit up like a Christmas tree with the very important people who actually install the solar panels ringing me. If only we knew the chaos that announcement created for a couple of days. This is where common sense and being practical comes into it. I refer to the announcement the Minister made that the cost in this regard was going to reduce by €1,000.
Did he not realise there would have been homeowners who had booked contractors? For instance, contractors would have been due to work on houses next Tuesday. This would have been scheduled into their books and all of a sudden their customers were ringing them up and saying, "Oh my God, the Minister is after making an announcement that there is €1,000 reduction so do not come to me on Tuesday, wait until I get clarity on this." Where was the clarity coming from the Government? There was nothing. There was a loud vacuum coming from you all, to be honest. I am not being critical, I am being factual. All I am trying to do is advise that, in the honour of God, when the Government is making an important announcement like this in the future it would think of the people and the contractors on the ground, who are relied on. The Government must know there are people who do solar panels for just domestic premises and they do not do any for businesses. It affected people's work programmes literally in the hour following the announcement. The next morning, when the men were getting up in their vans and setting off in their vans going to, for example, a Mrs. Murphy's house up or down the road, Mrs. Murphy was on the phone saying, "Whatever you do, do not come to me tomorrow because I do not want you." I would not blame Mrs. Murphy for not wanting them because she would be hoping to get her €1,000 of a reduction.
I am glad that subsequently, when it was highlighted to the Minister, the Government had a Cabinet meeting this morning, and the Minister raised the issue. He came out from the Cabinet meeting and he did give clarity. That was most welcome. I would ask the Minister, Deputy McGrath, to give even more clarity because there are people who are still nervous about what was announced, the manner in which it was announced, and the timeframe. In other words, if Mrs. Murphy has booked the contractor for next Tuesday, will she get the reduction? What will be the actual workings of the announcement? This is important because we want to keep people working on it and we want contractors who have their order books to not have voids in their days' work. If they are relying solely on the domestic work they cannot say they will go away and go to such a business while Mrs. Murphy is making up her mind as to whether to go ahead or not. All I am asking is for the Government to be very clear about this announcement and other future announcements. I would really appreciate it if somebody could explain this to the Minister for the Environment, Climate and Communications, Deputy Eamon Ryan. It is not rocket science. When one is a Government Minister, one is playing senior hurling; one is not making an announcement to the lads in the corner. This is serious business. One cannot make an announcement without thinking of the implications of what one is saying.
Mrs. Murphy is rarely wrong, in all of our experience. Deputy Healy-Rae is right.
The Labour Party supports the setting of a zero VAT rate on solar panels for domestic use, but the measure must not be exploited by the industry to boost its profits at the expense of the consumer. This reduction in VAT needs to be passed on to the consumer by the industry. The Government needs to be vigilant and make sure this happens. We know from recent experience in areas of the economy where the VAT rates have been reduced, at great expense to the taxpayer, that those savings have not been passed on. It was quite the opposite. The measure before the House this evening would reduce the average cost of installing solar panels on a private dwelling by around €1,000, if the VAT reduction is passed on to the consumer. That is a big "if". It would be a significant saving, particularly at a time when consumers are being fleeced by energy companies on their electricity bills and are looking all the time for alternatives.
I spoke earlier today about the rise of what we term "greedflation" in the food and grocery sector with large corporations across the European Union blaming inflation for rising prices while at the same time their bottom line, coincidentally, grows and grows. We do not have data on Irish supermarkets but we do have data on European Union and UK supermarkets. They do not, unfortunately, separate out their profit margins in the context of their Irish presence. It would be foolish not to assume those same supermarkets are profiting in the same way as their UK partners or their European Union partners.
I do not want to be standing here a month or three months after this VAT reduction is introduced asking why the industry has failed to pass on the savings to the consumer and be told that inflation has wiped out the reduction. I do not buy that. I will not buy it. I hope the Minister will not buy it either. If it is not working it should be reviewed, and reviewed at the earliest opportunity. When I say "not working", I am referring to it not working on behalf of the consumer. This is what this should be about.
Solar photovoltaic, PV, is becoming the lowest-cost option for consumers wishing to switch to renewable energy in most parts of the world but we still have work to do here in Ireland. This is a very welcome initiative we believe and hope will assist in Ireland meeting its climate action targets and goals. Our EU neighbours in the Netherlands are leading the way. They have gone from solar producing 1% of the country's electricity in 2015 to 14% in 2022. Not all of that is delivered through domestic solar panels and some 1 million Dutch consumers are using renewable energy sources delivered through local energy co-operatives, a model I believe we can all agree this country needs to look at more closely.
According to the Irish Solar Energy Association, ISEA, hitting Ireland’s 2030 solar energy targets, of which domestic solar panels are an important part, can deliver significant energy savings to consumers. Last September, the ISEA reported that 24,000 private households in Ireland had solar panels installed. The Government target for 2030 is 250,000 homes, so we are quite a distance away from that target as it stands. We all hope this important initiative, which will cost only €19 million, will assist in that goal. According to the ISEA, a typical household with 2.4 KW of solar panels could generate more than one third of its annual electricity and save around €380 a year in electricity bills, although that figure was calculated before those bills spiralled upwards so the savings now are likely to be much greater than that analysis.
Domestic solar panels are much easier to deliver - as we know - than larger solar farms with all the planning and land procurement, and the investment in community buy-in issues that arise in such larger scale projects. The only real barrier to the widespread installation of solar panels in domestic settings is cost. We have already made the decision to make the installation of domestic solar panels at least somewhat easier by removing the need for planning permission. That is to the Minister, Deputy Ryan's, credit, along with the Minister for Housing, Local Government and Heritage, Deputy O'Brien, and others. That was a very important initiative. I have spoken with many local business people in my own community who are considering introducing solar panels into their businesses. They did so very easily and very quickly because of the removal of that bureaucratic red tape. It is not that planning is ever red tape but in the context of the installation of solar panels it was one less barrier, one less obstacle, and one less expense for them in doing that. It has worked very well for those who have done it over the past period of time. Reducing the VAT to a zero rate should serve as further encouragement to the ordinary consumer and the ordinary householder to switch to the technology. It is a measure that helps the environment and potentially delivers real savings to households across the country but only if the industry plays fair and passes on these savings to its customers.
In conclusion, I will ask two questions. To repeat what Deputy Doherty asked about the installation piece, he is right that the tax strategy group papers had clearly said previously that any VAT rate reduction or zero rating could not be provided to installers. Perhaps the Minister will explain how that position has changed in a short period of time. Will the Minister also provide us with figures from his Department in the context of the research and analysis that would have been undertaken to inform this decision, including the number of households the Minister believes might benefit from this particular initiative over the next full calendar year during which this measure will be enjoyed. This would be very useful for us in considering how the Government plans to assist householders to meet that 250,000 installation target over the next few years.
Three further Deputies are offering, so perhaps they could take about two minutes each, and then the Minister would have a chance to respond.
I thank the Minister, Deputy McGrath. It is broadly welcomed, generally, by everybody here today to see a VAT reduction in the supply and installation of solar panels. It has been brought in as a financial resolution and I thank the Minister for explaining that as I did not realise it is so that we can implement this on 1 May, prior to the Finance Bill being passed. This demonstrates the speed and the commitment of this Government to act on renewables and address cost-of-living expenses for people to help them with those energy bills, to help them with future-proofing their housing, and in making them more energy efficient and energy resilient.
Deputy Nash referred to the planning exemptions, which were quite important for people. They were not that onerous or difficult but it was another step to overcome that might have been off-putting for people. We introduced other measures as well, including a substantial grant scheme that was introduced by the Sustainable Energy Authority of Ireland, SEAI, to allow people to do energy efficiency works on their houses, including the installation of solar panels. There is a substantial grant for that. We have also introduced the feed-in tariff. Where there is excess energy that a person may not be using at a certain time or on a particular day, he or she will get paid for it at a fairly reasonable unit rate per kWh. Free solar panels are going onto schools. It all points to the fact that solar energy is here. Not much happened with regard to solar panels in the past and we have seen a real acceleration in Ireland in the past three years, through this Government. Solar energy has always worked in Ireland. Deputy Doherty said that solar energy will be important but it is being delivered at the moment. I see more and more rooftops across the country with solar panels going up on them. The first grid-connected solar farm is in my own constituency of Wicklow. It all demonstrates progress and an acceleration to zero. We need to accelerate to net zero and all of these measures will help.
I have a couple of questions for the Minister, which I will raise during the debate on the Finance Bill, which will start shortly. We are tight for time. We can apply a VAT reduction to supply and install panels but is it possible under that EU Council directive to apply that reduction to heat pumps and domestic battery energy storage systems? That would seem to align with what the EU is assisting us with in terms of energy resilience and dealing with energy costs, inflation, reliability and resilience. Does this measure mean the VAT rate is only available on a package? If I, as a homeowner, wanted to go to an electrical wholesaler or supplier, could I buy solar panels over the counter with a zero VAT rate and employ my own roofer and electrician to install them or is this exemption only available as part of a package? Will that package be dependent on installation by an SEAI-approved installer? There are ways and means we can consider to do all of these things. The grant package is very helpful for people to be able to go out and get an approved installer but there are others out there with the capability to do self-installation. That is possible and perhaps the Minister will clarify the situation for me.
I too welcome the decision the Minister has made. As the last speaker mentioned, we have gone solar. Táimid iontach ar fad. It is fabulous that the sun is shining. We must do something meaningful because for too long we could cross the Border into Northern Ireland and see solar panels on many buildings, domestic and otherwise. I note this measure is confined to domestic use. We are being dragged kicking and screaming across every line with everything here, despite the drastic and punitive measures that are being put on people. Any supports are dragged from the Government while it is kicking and screaming. This measure is for domestic use, and I welcome it, but when are we going to have such a measure for farm and commercial buildings? We all know hoteliers and other people who looked at the available schemes and left them there because they were Mickey Mouse schemes that were not viable and would not justify the outlay or expense.
I welcome this 13.5% VAT rate. Other speakers have asked that if Mary or Joe Bloggs walk into a wholesale shop to buy some equipment, can they get the VAT rate or will it be confined to builders or suppliers. I would like the Minister to answer that point.
I welcome this initiative. As a contractor myself, I wish to ask the following. When I buy something off the shelf, it includes 23% VAT. If I fit it, there is 13.5% VAT. The 23% VAT rate is removed and the 13.5% rate is applied. If somebody comes in off the street and buys a solar panel at 23% VAT before getting his or her own installer, does the grant cover that?
Farmers have many rooftops. We are talking about filling rooftops with solar panels, with which I agree. If a farmer is not registered for VAT, will he or she qualify under the scheme? Will farmers be allowed to do more than 6 kWh, which is the limit for a household? The maximum for a household is 6 kWh. I know of households that can give 20 kWh but the grid is not able for it. At the moment, the grid cannot accept 20 kWh from a house. The maximum is 6 kWh. Will the Minister clarify the situation? Farms or businesses may have extra roofs but are not registered for VAT. Anyone who is in business is registered and can claim the VAT rate. However, can anyone who is not registered for VAT also supply solar panels with a zero VAT rate? We need to ensure there are solar panels for all. We do not want it to be like Housing for All, which does not provide for everyone. Will the solar panel scheme provide for all?
I thank all Deputies for their contributions and overall support for this measure. I will seek to address a number of the questions that have been raised. One question related to the reason the installation of solar panels is now permitted to attract a zero rate. That is a specific change that was made as a result of the 2022 VAT directive. One of the options that directive provides for is that a zero rate would apply within category 10c. That directive is for the supply and installation of solar panels on and adjacent to public and other buildings used for activities in the public interest, housing and private dwellings. That addresses another question that was raised about farm buildings. Farm buildings are not permitted under the VAT directive to have the zero rate applied to them. It is, in effect, for public buildings, housing and private dwellings. The change we are making here relates explicitly to residences and private dwellings. That is the change we are making.
I note the points made by Deputy Michael Healy-Rae about the announcement of the measure. I took the proposal to Cabinet on 5 April and formally announced the measure at that point. I also announced the details of the date on which this change would come into effect. I was aware, of course, of the questions that had been raised in the days leading up to the announcement and we sought to address those as best we could when the Cabinet made its formal decision. I made my first public comment on the issue when we had a Government decision in that regard.
It should be recognised that we are making a lot of progress in respect of the supply and installation of solar panels. Approximately 50,000 homes in Ireland now have solar panels. Approximately 17,000 solar installations were connected with the grid last year. By any measure, that is significant progress. Deputies Nash and Matthews have acknowledged the removal of the requirement for planning permission for the installation of panels in private homes. That has been a positive development. We are seeing the growing success of the microgeneration support scheme and the increasing number of applications through the domestic solar PV scheme operated by the SEAI. There is an enormous amount of potential for further development.
I too have received correspondence from providers and people who have recently paid for and had solar panels installed. They have asked whether this change can be applied retrospectively. The answer is that it cannot. As we know, VAT operates on two-monthly cycles and that is why I am using the financial resolution, subject to the approval of the Dáil this evening, to allow this important measure to come into effect on 1 May, which is the start of the next VAT period. It is not possible to apply this change to the previous VAT period, which began on 1 March.
I have answered the question about farm buildings. They are outside the scope of the EU VAT directive and, therefore, a zero rate cannot be applied to such buildings.
There was also a question about price and the impact this measure will have. It removes the VAT but does not, of course, control the pre-VAT price. That is where we need competition to have an impact. Of course, we want consumers to benefit from the elimination of VAT.
This is an investment by the State. It is an investment by taxpayers by way of tax forgone. This is a tax expenditure that the Government is proposing and hopefully the House will approve this evening. We will have a further opportunity in a moment when the Finance Bill is going through to tease out some of the other questions. The reduction in the VAT does not only apply to an SEAI-registered installer; this is the application of a change in taxation law. Therefore, it applies across the board in that respect. There are some other questions that we will get a chance to come back to as we debate the Finance Bill over the next hour and a half.
What about supply and fit?
We can come back to that during the Finance Bill debate.
It is supply and fit, and not supply only.
It is not supply only so someone can go in and-----
Therefore it is 13.5% VAT and not 23%.
Someone can go into a shop and purchase a solar panel, and the VAT will be zero on that.
We must move on.
I want to raise a point of clarification, which will be very brief, 30 seconds, to be clear on the timeframe of what happened. The Minister was prudent and did his job properly. He went to Cabinet, made his announcement and gave clarity. What actually happened and caused chaos the length and breadth of the country was that another Minister tried to upstage him by going a couple of days beforehand and making the announcement, trying to be ahead of the Minister for Finance.
We cannot go into that.
Just to be clear, that is what happened. One Minister tried to upstage the Minister for Finance and he caused chaos.
Please-----
It is a fact.
Question put and agreed to.