Bay Farm Power v Prescott: Upper Tribunal cuts anaerobic digester rateable values and rejects sector-wide tone argument

The Upper Tribunal (Lands Chamber) has allowed appeals by two anaerobic digester operators against non-domestic rating assessments in the 2017 list, reducing the rateable values of both plants and rejecting the valuation officer's argument that a methodology applied consistently across the renewable energy sector could constitute a "tone of the list."

In Bay Farm Power Ltd and Oak Grove Renewable Energy Ltd v Bob Prescott (Valuation Officer) [2026] UKUT 238 (LC), heard as test cases for the valuation of anaerobic digester (AD) plants in the 2017 rating list, Martin Rodger KC (Deputy Chamber President) and Mrs Diane Martin MRICS FAAV held that the standard receipts and expenditure template used by the Valuation Office Agency required material adjustment to reflect the particular risks of the AD sector and to account for working capital omitted from the primary valuations.

Background

Bay Farm Power Ltd operates a 2.176 MW gas-to-grid AD plant at Worlington in Suffolk. Oak Grove Renewable Energy Ltd operates a 2.444 MW electrical AD plant at Scottow in Norfolk. The plants convert organic feedstock into biogas, which is either processed into biomethane for supply to the gas grid or burned in combined heat and power engines to generate electricity. Both hereditaments had been assessed using the Valuation Office Agency's "2017 model", a receipts and expenditure template applied across the renewable energy sector.

The Valuation Tribunal for England had dismissed the Bay Farm appeal, confirming a rateable value of £285,000, and partially allowed the Oak Grove appeal, reducing its rateable value to £140,000. Both operators appealed to the Upper Tribunal.

The valuation dispute

The parties agreed on the divisible balance for each plant, derived from inputs negotiated and recorded in two Memoranda of Agreement signed in 2021. The central dispute concerned how that divisible balance should be apportioned between the hypothetical landlord and hypothetical tenant. The valuation officer, Mr Bob Prescott, adopted option (c) from the Joint Rating Forum's 1997 Guidance Note, splitting the divisible balance by reference to the notional capital contributions of the hypothetical parties, derived from the agreed ratio of rateable to non-rateable plant and machinery. He applied a standard 10% risk enhancement to the tenant's share, producing tenant's shares of 49.5% at Bay Farm and 44% at Oak Grove. The appellants' expert, Mr Blake Penfold FRICS, favoured option (a), calculating the tenant's share as a percentage return on the hypothetical tenant's capital, applying a rate of 9%.

Tone argument rejected

The Tribunal rejected Mr Prescott's contention that the consistent application of the 2017 model across the renewable energy sector had established a tone relevant to the choice of valuation methodology. Applying Lord Pearce's observation in Dawkins (VO) v Ash Brothers and Heaton Ltd [1969] 2 AC 336, the Tribunal confirmed that tone is a standard of comparative value between hereditaments, not a justification for adopting a particular technique. The widespread acceptance of the 2017 model in sectors with more favourable rateable-to-non-rateable asset ratios, such as solar, did not translate into an obligation to apply the same methodology in the AD sector.

Working capital and risk adjustment

The Tribunal found that neither Mr Prescott's primary valuation nor the 2017 model made any allowance for the hypothetical tenant's requirement for working capital, which was substantial given the need to purchase and store twelve months' worth of feedstock. Crediting working capital to the tenant's share lifted the starting percentage of the divisible balance from 45% to 48.61% at Bay Farm and from 40% to 43.59% at Oak Grove.

Beyond that correction, the Tribunal accepted evidence from Edward Bastow and David Kinnersley of Fisher German that AD plants carried materially greater commercial and operational risks than established renewable technologies such as wind and solar, including exposure to grid export restrictions, biological process failure, imported plant with long parts lead times, and subsidy income subject to quarterly government review. At the antecedent valuation date of 1 April 2015, the sector was relatively immature, lending rates for AD projects ran at around 13% and the Green Investment Bank had identified access to EIS financing as being withdrawn from the sector. The Tribunal was satisfied that Mr Prescott's standard 10% risk enhancement was insufficient and that 15% was appropriate, though it declined to accept Mr Penfold's proposed 20% in the absence of sufficient evidential support.

The return on capital method was set aside because it produced a negative rateable value for Oak Grove, calling its utility for this type of hereditament into question.

Result

Both appeals were allowed. The rateable value of the Bay Farm gas-to-grid plant was reduced from £285,000 to £270,000 with effect from 9 April 2017. The rateable value of the Oak Grove electrical AD plant was reduced from £140,000 to £129,000 with effect from 1 April 2017.

Daniel Kolinsky KC (instructed by DMH Stallard LLP) appeared for the appellants. Cain Ormondroyd (instructed by HMRC Legal) appeared for the respondent.