Value-Added Tax Revenue as Incentive for Renewable Energy Development: Palestine as Case Study

Abstract

Net billing of renewable energy electricity is a new regulation in Palestinian territories. Net billing system includes several implementation scenarios, sale of the entire production, self-consumption with the possibility of exporting energy to the grid, and self-consumption with the permission to store and export electricity. The household sector is considered final consumer in the VAT system, this system allows for double taxation, whether on equipment or purchased electricity. This research aims to conduct an analytical comparison between the VAT revenues of the net billing scenarios for government in residential sector. The possibility of utilizing the surplus VAT to incentivize renewable energy in household sector is examined. A five years’ period is considered in the analysis, since regulations are changing from time to time, to determine the difference in VAT revenues and potential of incentives. The carried-out analysis shows that there is a tangible difference in VAT revenues in favor of the government between the various cases of net billing. It is recommended to utilize the difference in VAT revenues, to incentivize Photovoltaic investments in the household sector. In the most optimistic scenario, considering 10% subsidy, around 60 MW was expected to benefit from the incentives. Based on the obtained results, an incentive policy for the household sector was recommended, taking advantage of differences in value added tax. The proposed incentives in this study provide a basis for decision-makers to develop a sustainable national renewable energy policy to stimulate investment in renewable energy in the residential sector.