GST: Solar Projects Likely To Take A Hit?

In the scenario of rock bottom solar prices, comes the hammer of GST. More than 10 GW of ongoing utility scale projects would be hit badly by the new rates, according to the study by Bridge to India, a solar consultancy.

The industry was taken by surprise, on the announcement of the final Goods and Services (GST) rates, where the tax rate for solar modules was an announcement at 18 per cent, in comparison to the present effective rate of zero. Though the states levy a VAT of 5 per cent on solar modules, but the actual tax comes down to zero, owing to the tax waivers on import duty and the overall tax.

“The new regime will result in an increase of 18 per cent in module cost, about 12 per cent in inverter cost and 3 per cent in all service costs – increasing overall project cost by about 12 per cent”, states the report which predicts around 10 GW of the ongoing utility scale projects to be hit by the new tax regime, posing a threat to their viability.

Apart from this, for most other renewable projects and equipment including windmills, waste to energy plants, tidal energy plants and biogas plants and even solar power based devices or generating systems, the tax rate have been classified under the 5 per cent rate bracket.

The expectation was that the industry would be insulated from any GST impact by passing the burden to the off-takers. The report, however, states the process much more complicated and challenging than assumed.

The first and the foremost argument is the multiplicity of templates for Power Purchased Agreements (PPAs) in the country with huge variation in change in law provisions.

Second, comes the argument of the resistance. The companies would be under tremendous pressure to pass on the cost implication on the tariff, as the DISCOMs are not willing to accept any increase in the same. There have already been cases where the DISCOMs are forcing the bidders to replicate the Record tariffs achieved in Rewa or Badla and refusing to sign new PPAs.

“The entire process for tariff determination, ratification and documentation amendments would easily take up to 6 months or even more. Meanwhile, developers will be under pressure to complete projects on time and lenders will be unwilling to fund extra costs. It wouldn’t be surprising if this process leads to cancellation of some projects altogether”, according to BTI.
With the new structure, as the cost of import of raw materials, including cells and wafers go up, the domestic manufacturing is also likely to face the heat.

The experts’ however also feel that the long-term prospects of the country would not be impacted by the GST, as the increase in the taxes will be offset by the falling costs.

Moreover, a sharp reduction in equipment costs and solar tariffs seems to have convinced the government that the sector doesn’t need any more financial incentives. As articulated by the Union Power Minister, Piyush Goyal, himself at a recent press conference, “We don't need the support of lower taxes to encourage renewable energy. By itself, it is good for the nation.

The GST regime is designed to help bring down costs. The GST will help bring one nation one tax and help the nation to reduce corruption and difficulties in operation and also bring simpler tax regime”, said the minister.