What options for renewable energy in a SIPP?

2 August 2022

As energy costs rise, a business owner wants to employ renewable energy in a property held in a SIPP. Curtis Banks’ Caitlin Southall looks at the challenges that may present and the options available.

We’ve all seen the highly publicised and contentious increase in energy costs and are aware of the challenges that many households will be facing following the energy price cap change in April this year. The increase in the price cap allows energy companies to pass ‘reasonable cost’ increases to consumers, following the record increase of global wholesale gas prices.

It’s not just households that are suffering from the increased energy costs. Businesses aren’t subject to the same price cap that the residential sector is. Essentially for businesses, there is no cap. With that in mind, it is natural for business owners to consider other options to generate sufficient energy for their businesses, rather than entering into a potentially crippling fixed price deal with an energy provider.

For business owners considering renewable energy options for a property held in a pension, we’ve outlined some important considerations below.

Wind Turbines

Wind turbines can vary substantially in design and size, and therefore in the level of energy they generate. There are only certain properties on which a wind turbine is going to be physically possible; generally speaking, they will require a plot of land.

In order to acquire or develop a wind turbine using a pension, the turbine must be a fixed and permanent structure. The criteria for whether an asset is moveable or fixed can be found in the Capital Gains Manual. A term you may have already come across in respect of pension commercial property investment is tangible moveable assets (TMAs). If it were possible to pick up a property and turn it upside down, what fell out would be a TMA. Pensions cannot generally invest in TMAs.

Assuming that a suitably qualified valuer is able to explicitly confirm that the wind turbine is a fixed structure, the pension could acquire the asset without breaching HMRC regulations. In the event that there is excess energy produced by the turbine, the pension cannot benefit from the sale of any energy back to the grid. However, a tenant company could receive these proceeds, and would also be required to pay rent to the pension. In the event that the lease came to an end, the turbine would need to be decommissioned to ensure that the pension did not receive a taxable income.

But what happens if the wind turbine isn’t a fixed structure? This doesn’t mean a tenant can’t place a wind turbine on the property that they are renting from the pension, but they would need to pay for it themselves. Additionally, the tenant would need to remove the turbine when they vacated the property or the lease came to an end. Furthermore, the turbine would need to be disregarded when the property is valued and at key lease junctures, like rent reviews.

Solar Panels

Curtis Banks has regularly received enquiries about acquiring solar panels over the past few years. Generally speaking, solar panels would fall under the definition of a TMA and would therefore not be permissible for pensions to acquire or install.

A pension could look to purchase land, which it could then let to a tenant, who could in turn fund the installation of solar panels. As with a non-fixed wind turbine, a lease would need to be in place, clearly stipulating that the tenant owns the solar panels and benefits from any tariffs directly. The lease would also obligate the tenant to remove the solar panels at the end of their tenancy, making good any damage that these (sometimes substantial) structures could leave behind.

In summary

There are some avenues for pension clients to hold renewable energy sources within a pension environment; however there are additional considerations to take into account.

With the upcoming MEES regulations coming into force next April, the Government is compounding its aspiration to move to a more carbon-neutral and energy efficient framework for commercial properties in England and Wales. Therefore, taking into account the current energy crisis, we would expect to see an increase in enquiries from clients and advisers alike about options for producing renewable energy and increasing energy efficiency.

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