Hydro sector warns £10bn of investment in Scotland 'at risk' in 13-year business rates dispute

Alba Energy, which represents more than 500 small hydro operators, said ministers have failed to act despite being offered a straightforward solution to the legal matter, leaving the industry facing business rates far higher than those applied to comparable renewable energy developments.

The criticism followed exchanges in the Scottish Parliament this week over the economic and energy security benefits of pumped storage hydro projects across Scotland.

The dispute centres on how Scotland’s business rates legislation treats penstocks, the high-pressure pipes used in hydroelectric generating machinery.

In June, the Upper Tribunal rejected the argument by the Scottish Assessors, an independent body which determines the rateable value of non-domestic properties, that penstocks were rateable simply because they formed part of the land, but ruled that they could still be valued under other provisions covering pipelines and conduits.

It means that some hydro projects have seen dramatic hikes in their bills. Inver Hydro, a 2MW operation on Jura, has seen its annual business rates bill soar from about £53,000 in 2016 to more than £450,000 today. Its 2026 rateable value is £829,500m, which is higher than every other non-domestic property on Islay and Jura and greater than every business on Jura combined.

Alba Energy argued that a minor clarification to the Scottish Government’s own Plant and Machinery regulations could resolve the ongoing dispute.

Answering questions in the Scottish Parliament this week, energy minister Stephen Gethins said pumped storage hydro was “absolutely vital to the energy transition”.

But when MSP Kristopher Leask then asked whether penstocks used in hydroelectric schemes were exempt from business rates under Scotland’s Plant and Machinery regulations, Mr Gethins declined to comment, saying: “I can’t comment on matters related to live ratings appeals.”

He added that non-domestic property valuations were a matter for independent Scottish Assessors, who said they could not comment while legal proceedings were under way.

Alba Energy said its legal advisers confirmed that ongoing court proceedings do not prevent ministers from clarifying the original intention of the legislation.

Alexander Linklater, executive director of Alba Energy, said: “We met the public finance minister last month and handed her a straightforward solution to a problem that threatens the survival of Scotland’s small hydro sector and at least £10 billion of investment in new pumped storage hydro.

“Instead of acting, ministers are hiding behind an ongoing legal process. But this is the Scottish Government’s own legislation, and our senior counsel has confirmed there is nothing preventing ministers from explaining what it was intended to mean.”

Finance minister Hannah Mary Goodlad met representatives of the hydro sector in September, when they argued that a minor clarification to Scottish legislation could settle the dispute without years of further litigation. But Alba Energy said ministers have since failed to take responsibility for the legislation, leaving the industry facing another costly court battle next year.

Mr Linklater added: “The Scottish Government could resolve this issue now, without further costly litigation. Instead, it is putting existing hydro businesses and billions of pounds of new investment at risk.

He warned that without a resolution, many existing hydro schemes could become financially unviable when current business rates reliefs expire and that developers of major pumped storage projects also face potentially enormous future rates bills.