Scottish ministers called to help small hydro schemes after 'calamitous' court ruling leaves rates sky-high
The sector continues to fight what it described as “extraordinarily disproportionate rateable values” for small-scale hydro businesses.
Tucked away on the Isle of Jura in the Inner Hebrides is one of Scotland’s small hydropower schemes — a family-run enterprise and island employer that helps supply businesses, including the whisky industry, with renewable electricity.
Yet despite no change to its physical footprint, the scheme has seen its annual business rates bill soar from about £53,000 in 2016 to more than £450,000 today.
Inver Hydro, the 2MW operation run by the Lithgow family, is one of a number of small hydro schemes caught up in a long-running dispute over the way the sector is valued for business rates.
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.
Across the Sound of Jura, Cour Wind Farm, owned by Octopus Energy, has an installed capacity of 20.5MW, more than ten times that of Inver Hydro, yet has a rateable value of £650,000. On a per-megawatt basis, Inver Hydro is valued at more than 13 times the rate of the wind farm.
John Lithgow, owner of Inver Hydro, said: “It is challenging enough to build and operate a successful business in rural Scotland, let alone on an economically fragile island like Jura.
“We are willing to pay our fair share, but the current level is wholly disproportionate. Ministers now have an opportunity to resolve this once and for all — and must act before more hydro businesses are pushed to breaking point.”
The latest stage in a 13-year legal battle between the small hydro sector and assessors came last month, when Lord Young, sitting in the Upper Tribunal for Scotland in Connell Renewables Ltd v Assessor for Highland & Western Isles Valuation Joint Board, rejected the sector’s case over the rateability of a key component of hydro schemes.
The dispute centred on the penstock - the pipe which creates the pressure needed to drive the turbines.
The tribunal accepted the penstock fitted within one class of the regulations and was exempt plant and machinery. But it also concluded it fell within other provisions covering pipelines and conduits, meaning it was rateable along with its foundations and associated civil engineering works.
Alba Energy, which represents Scotland’s 400 or so independent small-scale hydro operators, has appealed the decision and said the judgment exposed an ambiguity in the legislation.
Alexander Linklater, executive director of Alba Energy, said the ruling had set out the legal framework but was “calamitous” for Scotland’s small hydro sector.
He called on Scottish ministers to act quickly to address the “extraordinarily disproportionate rateable values of small hydro schemes”.
“Many schemes that were designed to generate clean electricity for a century may not survive beyond the Feed-in Tariff period unless something changes,” he said.
“A modest amendment to the regulations would provide clarity to both the hydro sector and the Scottish Assessor, restoring fairness and avoiding years of further litigation.”
The Scottish government highlighted the forthcoming review of non-domestic rates to examine improvements and reforms.
A spokesperson added: “The Scottish Government values the contribution that the Hydro sector makes to the Scottish economy and to our low-carbon ambitions, which is why we offer generous rates relief for renewable generators, including small scale hydro generators.”
Mr Linkalter argued that Scottish Government relief for small hydro schemes was only temporary.
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