Rating of hydro-electric infrastructure: an Upper Tribunal decision
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Background
Issued on 29 June 2026, the Upper Tribunal for Scotland’s decision in Connell Renewables Limited v Assessor for Highland & Western Isles Valuation Joint Board (2026UT55) resolves a long-running dispute over the valuation of ‘run-of-river’ hydro-electric schemes for the purposes of non-domestic business rates (NDR).
The decision concerned the Allt Mor Hydro Scheme, Garrogie, Whitebridge, Inverness - a ‘run-of-river’ plant constructed in 2015 with a total installed generation capacity of 300kW. Specifically, the appeal surrounded a length of underground pipe, known as the “headrace,” and whether such a piece of plant is rateable for the purposes of NDR.
The Assessor had initially valued the scheme at £46,000 on the valuation roll for Allt Mor effective from 1 April 2017. This was appealed by Connell Renewables Limited to the Highland & Western Isles Valuation Committee, before being transferred to the Land Tribunal, and subsequently to the Upper Tribunal. Connell Renewables Limited’s position was that the correct rateable value was instead £25,000.
The headrace is the critical piece of infrastructure in the hydro scheme that channels water under increasing pressure from a collection chamber at the top of the scheme down to the turbine at the powerhouse. As water descends, potential energy is converted into kinetic energy, arriving at the turbine house with significant velocity to drive the turbine and generate electricity. The scheme cannot operate without the complete headrace, so Connell Renewables Limited argued that it functioned as an energy conversion system rather than merely a water pipe and should not be classified as a rateable “pipe-line” or “conduit.”
Heritable property or not?
The appeal ran on four main issues under the Lands Valuation (Scotland) Act 1854 (“the 1854 Act”) and the Valuation for Rating (Plant & Machinery) (Scotland) Regulations 2000 (“the 2000 Regulations”):
- Whether the headrace was heritable property under s.42 of the 1854 Act (and therefore rateable regardless of the 2000 Regulations);
- Whether the headrace was a "penstock" under Class 1(g) of the 2000 Regulations;
- Whether the headrace was a "pipe-line" under Class 3(g) of the 2000 Regulations; and
- Whether the headrace was a "conduit" under Class 4 of the 2000 Regulations.
The Tribunal disagreed that the headrace was heritable property under the common law, holding that the rateability of plant and machinery is governed exclusively by the prescribed classes in the 2000 Regulations, not by common law principles of accession. Any contrary interpretation would undermine the express exemptions for specified sectors, including microgeneration (projects generating <50kW), and would conflict with the plant and machinery rating regimes across Scotland and England.
The Tribunal accepted the industry evidence that "penstock" is a term commonly used within hydro-electricity generation to describe the headrace pipe. However, Class 1 of the 2000 Regulations contains a "consumer exception", that plant and machinery used in the generation of power mainly or exclusively for distribution for sale to consumers is "excepted plant and machinery". As a scheme selling electricity to the grid, Allt Mor fell directly within this exception.
The Tribunal held that the headrace is a "pipe or system of pipes for the conveyance of ‘anything,’ in this case, water under pressure.” Connell Renewables Limited’s argument that the headrace was an "energy conversion system" was not sufficient to take it outside of the broadly drafted definition of a pipe-line in Class 3 of the 2000 Regulations. Because Class 3 of the 2000 Regulations does not contain the consumer exception found in Class 1 of the 2000 Regulations, the headrace remains rateable under this class.
The Tribunal further held the headrace as an artificial channel for the conveyance of water (a "conduit"). It is also a structure in that it is 1.88km long, built from component parts, and intended to remain permanently in situ as long as the scheme operates. Like Class 3 of the 2000 Regulations, Class 4 of the 2000 Regulations does not contain the consumer exception found in Class 1 of the 2000 Regulations, and the headrace also remains rateable under this class.
For these reasons, the appeal was dismissed and the headrace was found to be rateable.
Implications for operators, investors and developers
Operators, investors, and developers in the small hydro sector should be aware of the following:
- While each assessment is on a case-by-case basis and the decision does not automatically mean that any scheme with a buried headrace of significant length will be assessed as rateable, operators should assume and budget for that infrastructure being assessed as not exempt.
- Operators whose headrace is currently not rated may face reassessment.
- An item of plant excluded under one class can still be caught under another.
- Assessors cannot bypass the 2000 Regulations by arguing that buried plant is heritable by nature. This, at least, provides some certainty for operators of other types of buried renewable energy infrastructure.
Crucial in this decision is the inconsistency in how exceptions are applied across the different classes of the 2000 Regulations. The microgeneration exception is carried across each class, meaning that microgeneration plant benefits from a consistent exemption. Conversely, the consumer exception benefitting schemes generating power for distribution to consumers, applies only to Class 1 of the 2000 Regulations.
Preparing for what could be next
The practical effect of this decision is that a hydro scheme's headrace can be recognised as excepted plant under Class 1 of the 2000 Regulations but can still be rateable under Classes 3 and 4 of the 2000 Regulations. This regulatory gap means that operators of small-scale hydro schemes generating above the microgeneration threshold face rates liabilities on their headrace infrastructure that the legislative framework appears, at least on first reading, to have intended to exclude under Class 1 of the 2000 Regulations. There may well be scope for the Scottish Government to extend the consumer exception (or a new equivalent) to Classes 3 and 4 of the 2000 Regulations, particularly for renewable energy infrastructure serving the Government’s Net Zero goals, and clients should keep an eye out for any consultation on reform.
This decision will also be of interest to the wider renewable energy sector, as it illustrates how other renewable technologies with significant buried or structural plant, such as geothermal, battery storage, or ground-mounted solar, could also face similar classification issues under Classes 3 and 4 of the 2000 Regulations.
