Alba Energy Appeals Connell Renewables Decision on Hydro Penstocks

The Upper Tribunal for Scotland has issued an important decision in Connell Renewables Ltd v Assessor for Highland & Western Isles Valuation Joint Board – and the hydro sector has already responded: Alba Energy has lodged an appeal at the Lands Valuation Appeal Court. 

Connell Renewables vs the Highland Assessor is a test case brought by Alba Energy, the membership organisation for Scotland’s independent hydro operators, which has been seeking to resolve the rating of small hydro schemes through the courts for thirteen years, from the well-known Old Faskally appeals onwards. The Allt Mor run-of-river scheme near Inverness was a sample case, selected to resolve a generic question affecting every hydro scheme in Scotland: whether the penstock - the pressurised pipe at the heart of a scheme’s generating machinery - is exempt plant and machinery, or rateable under the Valuation for Rating (Plant and Machinery) (Scotland) Regulations 2000. The answer will determine 252 hydro appeals sisted behind the case. 

The Background: The dispute dates from the Assessor’s 2010 valuations and became acute after rates reliefs were removed in 2016 and the 2017 revaluation exposed operators to much higher liabilities. Increases in RVs for individual schemes in the 2017 valuation soared as high as 622% of those of 2010. The comparison with comparable sectors showed hydropower being hit harder than any other. Independent analysis of the 2017 figures showed rateable values for onshore wind averaging 10% of gross turnover, stand-alone solar 6%, and 9% across the wider business sector. For small hydro the figure was 24%, a proportional disparity of 140% over and above the nearest comparable technology. The disparity has since widened: hydro RVs reached 28% of turnover at the 2023 revaluation and now exceed 30% following further upward adjustments. It was this disproportion that persuaded ministers to introduce 60% hydro relief in 2018. 

The scale for individual schemes is stark. Inver Hydro, a 2MW scheme on Jura, carries a 2026 rateable value of £829,500. This is higher than every other non-domestic property on Islay and Jura, and almost eight times its 2016 value despite no physical change to the scheme; its annual rates bill has risen from around £53,000 to over £450,000. Per megawatt of installed capacity, its valuation is thirteen times that of the neighbouring Cour Wind Farm. 

The Decision: The Tribunal accepted much of the appellant’s case. It agreed that the buried “headrace” (the term adopted by the court) is properly a “penstock” within Class 1 of the Regulations, noting that “penstock” and “pipeline” are used interchangeably within the industry, and that it is excepted plant, being used to generate power for sale to consumers. It also rejected the Assessor’s preliminary argument that rateability could be determined by common-law concepts of heritable property, confirming that the Regulations remain central to the assessment. Applying the sequential approach, however, the Tribunal held that the same item is also a “pipe-line” under Class 3 and a “conduit” in the nature of a structure under Class 4, and therefore rateable together with its foundations and associated civil engineering works. The agreed net annual value accordingly remained £25,000 rather than the £6,700 that would have applied had the penstock been found non-rateable. 

The Appeal. Alba Energy has now lodged grounds of appeal at the Lands Valuation Appeal Court. The grounds contend that an item found to be a penstock under Class 1 cannot simultaneously be a pipe-line under Class 3 or a conduit under Class 4; that the Tribunal misunderstood the penstock’s function (the expert evidence being that its purpose is to create pressure energy, rather than simply conveying water from one place to another); that the Tribunal failed to have proper regard to the structure of the Regulations and the Wood Committee reports, under which “tools of the trade” are exempt unless expressly brought back into rating as in the case of turbines, generators and conduits (penstocks were not); and that insufficient weight was given to the expert evidence on the function and purpose of this key component of hydro engineering. 

The stakes are considerable. If the appeal succeeds, a large number of outstanding hydro appeals dating back to the 2017 Revaluation could have to be revisited, potentially giving rise to significant rebate claims. Viewed another way, however, this presents an opportunity for the Scottish Government. Rather than waiting for further litigation to run its course, ministers could use legislation to provide clarity on the treatment of hydro infrastructure, reducing uncertainty for operators, investors and Assessors alike while also limiting the risk of substantial retrospective liabilities. 

More fundamentally, the dispute raises issues that have remained unresolved since Alba Energy first challenged the Assessor's valuations in 2013, amid concerns that hydro bore a disproportionately high rating burden compared with other renewable technologies. While the courts will determine how the existing legislation should be interpreted, the wider policy question is whether the resulting valuation outcomes support Scotland's economic, energy and environmental objectives. Against a backdrop of repeated commitments by the Scottish Government to create a non-domestic rates system that supports growth, investment and job creation, the Connell appeal may provide a timely opportunity to consider whether the current treatment of hydro-electric infrastructure is delivering those objectives in practice. If the aim is to provide businesses with the clarity, confidence and incentives needed to invest for the long term, there is a strong argument that the uncertainty surrounding hydro valuations should be resolved through policy rather than left solely to the courts.