Connell Renewables Ltd v Assessor for Highland & Western Isles Valuation Joint Board (Upper Tribunal for Scotland (Lands Chamber), UTS/VR/23/0276, 29 June 2026) Hydro Appeal – Penstock / Headrace Decision
Background
Under the Valuation for Rating (Plant and Machinery) (Scotland) Regulations 2000, items of plant and machinery are classified into a number of different Classes which determine whether they form part of the rateable lands and heritages. In broad terms, certain plant used in connection with electricity generation may benefit from exemption, whereas other items, depending upon their function and characteristics, remain rateable. The classification of major hydro-electric infrastructure such as penstocks, pipelines and conduits can therefore have a material impact on rating valuations.
Summary of the Decision
The appeal concerned the rateability of a headrace forming part of a run-of-river hydro-electric generating scheme. The principal issue was whether the headrace formed part of the rateable lands and heritages or qualified as exempt plant under the 2000 Regulations.
The appellant argued that the headrace was, in industry terms, a penstock and therefore fell within Class 1 of the Regulations. As the undertaking generated electricity for distribution and sale to consumers, it was contended that the penstock constituted excepted plant and machinery and was therefore not rateable.
The Tribunal accepted that the disputed item was properly described as a penstock. However, it confirmed that classification under one Class does not conclude the enquiry. Applying the sequential approach established in earlier authorities, the Tribunal went on to consider the remaining Classes of the Regulations.
The Tribunal concluded that, notwithstanding its classification as a penstock, the headrace also satisfied the definition of a pipeline under Class 3, being a system for the conveyance of water. As the exemption contained within Class 1 does not extend to Class 3, the headrace was held to be rateable together with its associated supports, foundations and civil engineering works.
The Tribunal also concluded that the headrace was capable of falling within Class 4 as a conduit or structure. Whilst this finding was not determinative, given the conclusion reached under Class 3, it provided an additional basis upon which the structural elements would have been rateable.
The parties had previously agreed that the appropriate NAV would be £25,000 if the headrace was held to be rateable and £6,700 if it was not. As the Tribunal determined that the headrace was rateable, the agreed NAV of £25,000 applied.
Practical Implications
The principal significance of the decision is not the relatively modest monetary outcome, but the clarification of how the Plant and Machinery Regulations should be applied. The Tribunal confirmed that an item may satisfy more than one Class of the Regulations and that exclusion from one Class does not automatically render it non-rateable. Instead, each relevant Class must be considered in turn.
For larger hydro-electric and pumped storage schemes, this may have more significant valuation implications. Where penstocks, headraces or similar water conveyance systems are treated as rateable, they will generally form part of the hypothetical landlord's lands and heritages rather than the hypothetical tenant's assets. This may reduce the level of tenant capital requiring depreciation and replacement allowances and may also influence the assessment of tenant's share by reducing the capital investment required of the hypothetical tenant.
As with all plant and machinery appeals, the decision turns upon the facts of the particular asset under consideration. The Tribunal emphasised that the classification exercise depends upon the nature, function and characteristics of the individual item of plant and machinery.
