Higher GST from today is likely to affect solar energy tariffs

The GST Council, at its 45th meeting on September 17, recommended increasing the GST on “specified renewable energy devices and parts” from 5% to 12% with effect from October 1.

This GST hike is expected to raise the cost of capital by 4.5% and comes against the backdrop of the firming of solar tariffs in recent auctions after reaching a record high of ??1.99 per unit as of December 2020. Indian solar tariffs are on the rise due to factors such as rising commodity prices and rising cost of imported solar equipment from April next year .

“The cost of solar (energy) capital and tariffs are expected to increase by about 4.5% and 10 paise respectively. The timing couldn’t be worse as the developers have planned big shipments to take advantage of the duty-free window before the basic tariffs (BCD) start next year. There is unfortunately too much movement in duties and taxes, adding to investor concerns over other issues such as rising equipment prices and environmental issues for transmission lines, ”said Vinay Rustagi, director general of the consulting firm Bridge to India.

Indian green energy projects have faced several challenges. One example is concern over the impact of power lines put in place for green energy projects, which are passing over the habitat of the endangered Indian great bustard.

“I think that’s the reality we have to live with. Whatever impact it has on rates, it has. It also means that the renewable energy market is maturing and does not need support mechanisms to make it attractive. The only problem is that there are so many changes in taxes and duties and in a business model where the tariff is set for the duration of the Power Purchase Agreement (PPA) it takes its toll with returns. ”Said Sanjay Aggarwal, President of Fortum India. Pvt. Ltd, owned by the Finnish public electricity company Fortum Oyj.

Solar power prices in India rebounded from December lows. In addition, rising commodity costs and the 40% BCD on solar modules and 25% on solar cells that will be taxed from April 2022 are influencing auction rounds and developer bids.

“While it is true that changes are covered by changes in the law, the entire industry is struggling to operationalize them. So, as long as the law change issues are resolved quickly without knocking on so many doors and spending undue time and resources to get something that was legally owed to the developer anyway, we have to adapt to the new reality. ”Said Aggarwal. .

India runs the world’s largest clean energy program and aims to reach 175 GW of renewable capacity, including 100 GW of solar power, by 2022.

“Increasing the GST on solar products can have an upward impact on costs. The need for such a tax increase should be carefully weighed against the ultimate impact it may have on project costs and tariffs, ”said Somesh Kumar, Head of Electricity and Utilities , EY India.

[email protected]