GST cut on solar, wind equipment to lower project costs, ease RE tariffs: Analysts

New Delhi: The reduction in Goods and Services Tax (GST) on solar modules and wind turbine generators will reduce the capital cost of solar and wind power projects by ~5 percent, said analysts on Thursday. The government on September 3 slashed the GST on solar photovoltaic modules and wind turbine generators to 5 percent from 12 percent as part of a broader tax cut affecting hundreds of consumer items. A notification by the Central Board of Indirect Taxes and Customs said that the objective of the move is to promote renewable energy goods in the country.

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“These goods already faced an inverted duty structure. While reducing the GST rate to 5 percent will deepen inversion, a mechanism for refund arising out of the inverted duty structure is available. In addition, process reforms will ensure expedited refunds,” it said.

Impact of GST rate cut on solar & wind projects

“The rationalisation of GST rates for solar PV modules and wind turbine generators is expected to reduce the capital cost for solar and wind power projects by ~5 percent,” said Girishkumar Kadam, Senior Vice President and Group Head, ICRA Ltd on Renewable Energy.

“This is expected to reduce the cost of generation for solar power projects by ~10 paise per unit and for wind power projects by ~15-17 paise per unit. This would reduce the capital cost for under-implementation projects and also likely to reflect in upcoming bids. This in turn will benefit the power distribution companies in the form of lower power purchase cost, going forward,” Kadam added.

Commenting on the impact, Shirish Garud Consultant (Renewable Energy), The Energy and Resources Institute (TERI) said, “Overall, the reduction in GST is @7 percent which is likely to reduce the renewable energy project capex. Actual reduction in capex will depend on the way cost structure is designed and how much reduction is passed on to the contractors / power off-takers.”

“This reduction will improve the markets for residential home solar systems, Roof top solar systems for C&I segment, new wind projects and battery storage integrated projects. Reduction in GST on Lithium batteries will help in a big way for EV vehicles, and battery storage-integrated RE projects,” he said. However, he added, “I don’t expect any impact on project timelines.” Solar equipment manufacturer Waaree Energies said that it would pass the benefits to customers.

The decision to bring renewable energy equipment in the 5 percent slab comes as India targets Atmanirbharta (self-reliance) in domestic manufacturing of these components. Currently, India has developed the capacity to produce 100 GW of solar modules and around 13 GW of solar cells, driving the expansion of domestic manufacturing capabilities through Production-linked Incentive (PLI) scheme and Approved List of Models and Manufacturers (ALMM). The government is also looking to ramp up capacities for producing solar ingots and wafers, which the country as of now imports from China.

What all does GST rate cut apply to?

The cut in GST rate to 5 percent applies to biogas plants, solar cookers, solar power-based devices, solar power generators, windmills, wind-operated electricity generators (WOEG), waste-to-energy plants and devices, solar lanterns or solar lamps, ocean waves or tidal wave energy devices or plants, and solar photovoltaic (PV) cells, whether assembled in modules or not. Fuel cell motor vehicles, including hydrogen-powered trucks and buses, are also included. This would provide a fillip to plans to develop green hydrogen-based mobility in the country.

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