Rating Manual section 6: valuation practice

Part 5: practice note 3 - combined heat and power - the valuation for rating (P and M) (England) (Amendment) regulations 2001

The Valuation Office Agency's (VOA) technical manual for the rating of business (non-domestic) property.

1. Introduction

1.1 General

This Practice Note is concerned with, and expands on, the Valuation for Rating (Plant and Machinery) (England) (Amendment) Regulations 2001 (see Annex A) which are the relevant regulations relating to the exemption of specified items of plant and machinery. The equivalent regulations in force in Wales are the Valuation for Rating(Plant and Machinery)(Wales)(Amendment) Regulations 2001, however the English Regulations will be referred to throughout the following text.

This amendment to the P & M Regulations has the effect of offering partial exception from valuation of specific items otherwise within Class 1, where they are used as part of equipment that comprises a certified good quality Combined Heat and Power installation.

Making efficient use of otherwise waste heat when generating electricity in or on a hereditament has been recognised as carbon efficient, hence the Government has sought to incentivise this activity through Rating legislation.

Prior to enactment of SI 2001 No. 846, only electricity generating equipment used to generate electricity for consumption off hereditament enjoyed some relief from Rating, hence this Regulation addresses this.

Exception only extends to specified items, as detailed below, these items are all associated with electrical generation or storage, together with their Accessories.

Exception will only be given by Valuation Officers where a valid, in force, exemption certificate exists, as detailed below.

1.2 General Rateability of Electrical Plant

Plant and machinery for the purposes of and used in connection with, generation, storage, primary transformation or main transmission of power in or on the hereditament is listed in the Valuation for Rating (Plant and Machinery) (England) Regulations 2000 No. 540 under Class 1 Table 1 and is generally rateable.

Class 1 (d) gives exception from valuation to equipment used for the generation, storage, transformation or transmission of power, where the power is mainly or exclusively for sale for distribution to consumers.

SI 2008 No. 2332 offers time limited relief to ‘microgeneration’ equipment.

1.21 Combined Heat and Power

The Finance Act 2000, Schedule 6 at 148 makes reference to Combined Heat and Power (CHP) stations and that occupiers that obtained a certificate under The Climate Change (Combined Heat and Power Stations) Exemption Certificate Regulations 2001 No 486 would be entitled to full exemption from the levy.

Local Government Minister Hilary Armstrong, in a response to a Parliamentary Question stated on 6 March 2000:-

“……. The program will determine the eligibility of CHP schemes for a range of benefits including exemption from Climate Change Levy. The rating exemption of CHP plant and machinery will require a change in secondary legislation which we will publish in draft later in the year”.

The intention was that the de rating of such plant and machinery in CHP installations “will ensure that those items are treated equally across all sectors”.

It is understood that the intention is to treat those generators of electricity making efficient use of (otherwise waste) heat, equally with those generators who feed power directly into the National Grid. As expanded on below.

Combined Heat and Power is often referred to as Co-Generation or simply Co-Gen.

1.3 Specified Items

The Minister added:-

“We have now decided that plant and machinery used to generate electricity (such as turbines and engines) in all Good Quality Combined Heat and Power (CHP) schemes, including those used in wider industry, should benefit from this exemption”.

A hereditament that generates power, where the power is mainly or exclusively for distribution to customers, is, under the Valuation for Rating (Plant and Machinery) (England) Regulations 2000, regarded as containing “excepted plant and machinery” and is not rated under the P & M Regs 2000 [Class 1(d)].

Such hereditaments are rated in accordance with The Electricity Supply Industry (Rateable Values) (England) Order 2000, where, subject to fulfillment of certain conditions, a Prescribed Rate is applied to the Declared Net Capacity of the generating plant ie. £ per megaWatt.

In setting the prescribed rate the Minister, amongst other considerations, excluded specific items of plant and machinery.

The prescribed rates are to be applied to those hereditaments falling to be rated under SI 2000/947 The Electricity Supply Industry (Rateable Values) (England) Order 2000, SI 2000/1163 is applicable for Wales and should not be used to determine the value of the 2001 P & M Regs exemption.

For hereditaments where CHP schemes have been employed but the electricity is solely or mainly for use within the hereditament ie. not exempt under Class 1(d) of the Valuation for Rating (Plant and Machinery) (England) Regulations 2000, there was, in comparison with hereditaments valued under the Prescribed Rate, an imbalance. The Valuation for Rating (Plant and Machinery) (England) (Amendment) Regulations 2001 seeks to address the imbalance.

2. The 2001 Regulations

2.1 General

The Valuation for Rating (Plant and Machinery) (England) (Amendment) Regulations 2001 SI. 2001 No. 846 came into force on 1 April 2001 and encompasses, in one statutory instrument, the relevant provisions as to the exemption of specific items of plant and machinery within Class 1 Table 1.

Plant and machinery items, exempt under these regulations, may have associated accessories as set out in the List of Accessories 2(i) to (viii) to the Valuation for Rating (Plant and Machinery) (England) Regulations 2000 (SI 2000 No. 540). Where a Class 1 Table 1 item and its associated Accessories are “excepted plant and machinery “ within Class 1 both the item and the accessories can be considered elsewhere within the Schedule.

Items which are “ excepted plant and machinery “ under Class 1 Table 1 (together with associated Accessories) of the 2000 P & M Regs by virtue of the 2001 P & M (Amendment) Regs are not exempt from further consideration within the Schedule

ie. foundations (List of Accessories to a Class 1 item) can be also considered under Class 4 Table 3 foundations.

2.2 Excepted items

The Valuation for Rating (Plant and Machinery) (England) (Amendment) Regulations 2001 [see Annex A] states:-

(2) In the Schedule, in Class 1, for paragraph (d) substitute -

“(d) “excepted plant and machinery” means plant and machinery on a hereditament used or intended to be used for the generation, storage, transformation or transmission of power where either -

(i) the power is mainly or exclusively for distribution for sale to consumers; or

(ii) (aa) the plant and machinery is that of a combined heat and power station which is fully exempt or partly exempt within the meaning of paragraph 148(2) or, as the case may be, 148(3) of Schedule 6 to the Finance Act 2000(1), and

(bb) the plant and machinery is within head (b), (c), (d) or (k) of Table 1 below, and

(cc) the power is at least in part electrical power.”

2.3 Class 1 Table 1(b), (c), (d) and (k)

The items to be considered as “ excepted plant and machinery “ are Items found in Class 1 Table 1 being:-

(b) Steam engines; steam turbines; gas turbines; internal combustion engines; hot-air engines; barring engines.

(c) Continuous and alternating current dynamos; couplings to engines and turbines; field exciter gear; three-wire or phase balancers.

(d) Storage batteries with stands and insulators, regulating switches, boosters and connections forming part of any such equipment.

(k) Shafting, couplings, clutches, worm-gear, pulleys and wheels.

See Annex D.

2.4 Value to be removed from Valuation - where specifically valued

The rateable value of the “excepted plant and machinery” should be the relevant decapitalised ARC of the specific items as found in the valuation. This figure should be adjusted to take into account any stage 5 allowances providing these are relevant to plant and machinery items.

2.5 Value to be removed from Valuation - where no specific value has been attributed

In many cases, for example, Hospitals, Offices, Local Authority Buildings, the relevant Class 1 items have been included within the overall rental or beacon figure and thus no specific figure appears in the valuation for this plant and machinery. A reduction is nevertheless required in these circumstances and any ERC of the “ excepted plant and machinery “ will have to be adjusted for the site specific circumstances appertaining to the actual hereditament.

3. Certification

3.1 General

The question of issuing CHP certificates and as to what qualifies for such certification is not the responsibility of the Valuation Office Agency. Full details of the scheme can be obtained by occupiers from the CHPQA web-site http://www.CHPQA.com and all such inquirers should be advised accordingly.

The Valuation Officer shall not exempt any item of plant and machinery contained within a CHP scheme unless a valid certificate, The Secretary of State, Climate Change Levy (CCL) Exemption Certificate, is presented. [Annex B]. The certificate should accompany a request for the Valuation Officer to alter the Rating List. (Issue a VOR).

3.2 The Exemption Certificate

The Secretary of State, Climate Change Levy (CCL) Exemption Certificate (see Annex B).

The certificate states:-

Date of Exemption Certificate (this is marked red within Annex B for identification purposes only).

This date is when the scheme received approval from the Secretary of State. The exemption is applicable from the date on the certificate however this will be the subject to the rating year in respect of overpayments. In the case of the presentation of a valid certificate and a request to issue a VOR the application certificate date is to be accepted as the relevant date.

Where the Secretary of State’s approval is before 1 April 2001 the relevant date is 1 April 2001, any certificate signed and dated after 1 April 2001 will have as its relevant date the date of signature.

3.3 Additional Information

The qualifying CHP scheme may include several areas within a hereditament where power is being generated. These areas have to be identified by the Valuation Officer and the relevant items of plant and machinery have to be given the exemption.

To gain a Secretary of State (exemption) Certificate, the occupier’s CHP Scheme must be registered and certified under DEFRA’s Combined Heat and Power Quality Assurance programme (CHPQA), which requires completion of a CHP Scheme Description (Form F2). Sections 1, 2, 3 and in particular 4 are helpful to the Valuation Officer. (See Annex C).

In order for the Valuation Officer to determine the extent of the qualifying scheme boundaries a Form 2 Section 4 [SCHEME DETAILS (LIST OF EQUIPMENT)] can be requested, this will provide a List of Equipment that is included in the certification. See Annex E - Form 2.

This list does not form a schedule of items to be regarded as “ excepted plant and machinery “ and therefore exempted from valuation but is of assistance to the Valuation Officer in determining the extent of the items within the qualifying scheme.

The list does however include all items under certification and gives survey references both of which may be of assistance to the VO in determining the extent of the scheme.

4. Procedure

4.1 Receipt of an application for the Valuation Officer to alter the List or an IPP

Ensure that accompanying a request to issue a VOR is a valid Secretary of State Climate Change Levy (CCL) Exemption Certificate which should be signed and having a Date of Exemption entered.

Request of the occupier a Form F2 - CHP Scheme Description Section 4 in order to assist the recognition of those areas that are included in the CHP scheme.

On the receipt of the above the Valuation Officer should consult the relevant records and raise a Valuation Office Report and serve a Valuation Office Notice on the occupier to amend the list as appropriate.

Where a scheme qualifies for exemptions under the CHPQA Scheme the certificated occupier should receive prompt reimbursement for the items exempted from rating.

Annex A – The Statutory Instruments

Statutory Instruments

The Valuation for Rating (Plant and Machinery) (England) (Amendment) Regulations 2001 No 846

The Valuation for RATING (Plant and Machinery) (Wales) (Amendment) Regulations 2001 No 2357 (W.195)

Annex B – Climate Change Levy: Combined Heat and Power Exemption Certificate

Department for the Environment, Transport and the Regions logo

Paragraph 148 Of Schedule 6 To The Finance Act 2000

Climate change levy: combined heat and power exemption

Certificate

For the CHP Scheme referred to below the Secretary of State certifies that:

CHPQA Scheme Reference Number:

Certificate Type:

Efficiency Percentage:

Date of Exemption Certificate:

Signed by authority of the Secretary of State

Signature:

Name in block capitals:

Notes

1) This Exemption Certificate is issued according to the Climate Change Levy (Combined Heat and Power Stations) Exemption Certificate Regulations, which also specify the conditions under which this Certificate may be varied or revoked.

2) This Certificate is valid from the tax year 2001/2002 onwards, unless varied or revoked.

3) Efficiency Percentage has the same meaning as the Power Efficiency stated on a CHPQA Certificate.

4) The terms fully exempt and partly exempt combined heat and power station are defined in the Finance Act 2000, Schedule 6, paragraph 148.

5) Variation of this Certificate will be required if a combined heat and power station which was previously certified as being partly exempt subsequently satisfies the conditions for full exemption, and vice versa, or if its efficiency percentage falls below or rises above the prescribed threshold efficiency percentage.

6) This Certificate will be revoked if

i) The combined heat and power station ceases to operate;

ii) The operator fails to send a copy of the current CHPQA certificate relating to the station to the Secretary of State by 30 June in each year after the year in which the application was made for an Exemption Certificate; or

iii) The operator makes a written request to that effect to the Secretary of State.

7) This Exemption Certificate remains the property of the Secretary of State and must be returned if revoked or varied.

Department for Environment, Food and Rural Affairs

Paragraph 148 of schedule 6 to the finance act 2000

Ccl : combined heat and power exemption certificate

For the CHP Scheme referred to below the Secretary of State certifies that:

CHPQA Scheme Reference Number:

Certificate Type:

Efficiency Percentage:

Date of Exemption Certificate:

Signed by authority of the Secretary of State

Signature:

Name in block capitals:

Notes

1) This Exemption Certificate is issued according to the CCL (Combined Heat and Power Stations) Exemption Certificate Regulations, which also specify the conditions under which this Certificate may be varied or revoked.

2) This Certificate is valid from the tax year 2001/2002 onwards, unless varied or revoked.

3) Efficiency Percentage has the same meaning as the Power Efficiency stated on a CHPQA Certificate.

4) The terms fully exempt and partly exempt combined heat and power station are defined in the Finance Act 2000, Schedule 6, paragraph 148.

5) Variation of this Certificate will be required if a combined heat and power station which was previously certified as being partly exempt subsequently satisfies the conditions for full exemption, and vice versa, or if its efficiency percentage falls below or rises above the prescribed threshold efficiency percentage.

6) This Certificate will be revoked if:

i) The combined heat and power station ceases to operate;

ii) The operator fails to send a copy of the current CHPQA certificate relating to the station to the Secretary of State by 30th June in each year after the year in which the application was made for an Exemption Certificate; or

iii) The operator makes a written request to that effect to the Secretary of State.

7) This Exemption Certificate remains the property of the Secretary of State and must be returned if revoked or varied.

Annex C : Quality Assurance for Combined Heat & Power Form F2 - CHP Scheme Description

NOTES:

  • On this form you need to declare details of the scheme for which you are applying for chpqa certification

  • You need to re-submit this form only if there is an addition or change to the scheme

  • Form f1 needs to be kept up-to-date and must relate to the chp scheme applying for certification in this form

  • The most up-to-date version of the chpqa standard and guidance notes can be found on ………

  • Guidance note gn2 has been written to help you complete this form

  • Information provided on this form will be stored electronically and treated in the strictest commercial confidence

Only the government or its agents will use it, for the sole purpose of the chpqa programme including collection and collation of national statistics

  • This form should be completed and returned to, the administrator, chpqa programme, etsu, harwell, didcot, oxfordshire ox11 0qj

1. Scheme identification

Site Name: Site ref.*

Company Name: Scheme ref. [Office use only]

  • The Programme Administrator will provide you with this Site ref. once Form F1 is processed.

2. Economic sector

2.1 Which sector best describes the site on which your Scheme is located.


eg. Iron & Steel See GN12.1 for list

3. SCHEME DESCRIPTION

3.1 Scheme applying for Certification is? (tick box)

Existing  Proposed or under construction 

3.2 CHP fuel billing period (tick box or Other)

Quarterly  Monthly  or Other ………….

The following Attachments are required to accompany this form: See GN12.2 to GN12.5

Drawings attached

Drawing No.

Check boxes

3.3 Scheme Line Diagram

 

Enclosed (tick box) 

3.4 Scheme Energy Flow Diagram

 

Enclosed (tick box) 

3.5 Annual Heat Profile

 

Enclosed (tick box) 

3.6 Daily Heat Profile

 

Enclosed (tick box) 

3.7 Heat Load Duration Curve

 

Enclosed (tick box) 

Note:

3.5, 3.6 & 3.7 Are only required for Schemes with a heat rejection facility.

CHPQA Form F2 Page 1

FED 1416 Draft v3 © Crown Copyright 2000

4. Scheme Details (list of equipment)

Use this table to itemise all prime movers and boilers within your Scheme boundary.

See GN12.6

Identify each prime mover and boiler on your Scheme Line Diagram and in the table below by tag number using the notation in the Guidance Notes. See GN12.3

Include electrical equivalent of any mechanical power outputs (mechanical power x 1.05) and mark with an asterisk. See GN15.4 to 15.6 & 22

Tag Number

Manufacturer

Model/Type

Year commissioned

Capacity (referenced to ISO conditions)

       

Heat

kW

Power

kWe

       

kW

kWe

       

kW

kWe

       

kW

kWe

       

kW

kWe

       

kW

kWe

       

kW

kWe

       

kW

kWe

       

kW

kWe

       

kW

kWe

       

kW

kWe

       

kW

kWe

       

kW

kWe

       

kW

kWe

       

kW

kWe

Total Power Capacity (as electrical output) = CHPTPC

kWe

CHPQA Form F2 Page 5

FED 1416 Draft v3 © Crown Copyright 2000

Annex D : Quality Assurance for Combined Heat & Power Form F2 - CHP Scheme Description - Example

4. Scheme Details (List of Equipment)

  • Use this table to itemise all prime movers and boilers within your Scheme boundary.

  • Identify each prime mover and boiler on your Scheme Line Diagram and in the table below by tag number using the notation in the Guidance Notes.

  • Include electrical equivalent of any mechanical power outputs (mechanical power x 1.05) and mark with an asterisk.

Tag Number

Manufacturer

Model/Type

Year commissioned

Capacity (referenced to ISO conditions)

Heat

kW

Power

kWe

FB2(CS)

Sultzer

(Clark Chapman Ltd)

Water Tube Boiler

1978

58,148kW

kWe

FB3(CS)

Shultzer

(Clark Chapman Ltd)

Water Tube Boiler

1981

79,788kW

kWe

HRB1(NO)

Alston/Gas Engine

Gas Turbine G2300

1999

kW

40,750kWe

ST1(BP)

ABB

Reaction

1999

159,855kW

31,500kWe

ST2(BP)

ABB

Reaction

1997

kW

13,400kWe

kW

kWe

kW

kWe

Total Power Capacity (as electrical output) = CHPTPC

kWe

CHPQA Page 5

FED 1416 Draft v3 © Crown Copyright 2000

Annex E: (P&M) (England) Regulations 2000 Class 1 Table 1 and List of Accessories

1.a) Steam boilers (including their settings) and chimneys, flues and dust or grit catchers used in connection with such boilers; furnaces; mechanical stokers; injectors, jets, burners and nozzles; superheaters; feed water pumps and heaters; economisers; accumulators; deaerators; blow-off tanks; gas retorts and charging apparatus; producers and generators.

2.b) Steam engines; steam turbines; gas turbines; internal combustion engines; hot-air engines; barring engines.

3.c) Continuous and alternating current dynamos; couplings to engines and turbines; field exciter gear; three-wire or phase balancers.

4.d) Storage batteries with stands and insulators, regulating switches, boosters and connections forming part of any such equipment.

5.e) Static transformers; auto transformers; motor generators; motor converters; rotary converters; transverters; rectifiers; phase converters; frequency changers.

6.f) Cables and conductors; switchboards, distribution boards, control panels and all switchgear and other apparatus on any such equipment.

7.g) Water wheels; water turbines; rams; governor engines; penstocks; spillways; surge tanks; conduits; flumes; sluice gates.

8.h) Pumping engines for hydraulic power; hydraulic engines; hydraulic intensifiers; hydraulic accumulators.

9.i) Air compressors; compressed air engines.

10.j) Windmills.

11.k) Shafting, couplings, clutches, worm-gear, pulleys and wheels.

12.l) Steam or other motors which are used or intended to be used mainly or exclusively for driving any of the plant and machinery falling within this Class.

13.m) Aero-generators; wind turbines.

14.n) Solar cells; solar panels.

List of accessories

1) Any of the following plant and machinery which is used or intended to be used mainly or exclusively in connection with the handling, preparing or storing of fuel required for the generation or storage of power in or on the hereditament -

cranes with their grabs or buckets; truck or wagon tipplers; elevating and conveying systems, including power winches, drags, elevators, hoists, conveyors, transporters, travellers, cranes, buckets forming a connected part of any such system, and any weighing machines used in connection with any such systems; magnetic separators; driers; breakers; pulverisers; bunkers; gas-holders; tanks.

2) Any of the following plant and machinery which is used or intended to be used mainly or exclusively as part of or in connection with or as an accessory to any of the plant and machinery falling within Class 1 or Class 2 -

(i) foundations, settings, gantries, supports, platforms and stagings for plant and machinery;

(ii) steam-condensing plant, compressors, exhausters, storage cylinders and vessels, fans, pumps and ejectors; ash-handling apparatus;

(iii) travellers and cranes;

(iv) oiling systems; earthing systems; cooling systems;

(v) pipes, ducts, valves, traps, separators, filters, coolers, screens, purifying and other treatment apparatus, evaporators, tanks, exhaust boxes and silencers, washers, scrubbers, condensers, air heaters and air saturators;

(vi) shafting supports, belts, ropes and chains;

(vii) cables, conductors, wires, pipes, tubes, conduits, casings, poles, supports, insulators, joint boxes and end boxes;

(viii) instruments and apparatus attached to the plant and machinery, including computers, meters, gauges, measuring and recording instruments, automatic or programmed controls, temperature indicators, alarms and relays.