Solar tariffs may rise by nearly 10% if current tax exemptions were curtailed in the roll-out of the GST, says a study by Council on Energy, Environment and Water, or CEEW

According to the study, GST could possibly increase capital cost of a solar project by Rs4.5 million per megawatt if current tax exemptions were curtailed. Photo: Reuters

New Delhi: India’s emerging solar sector could see tariffs rise by nearly 10% if current tax exemptions were curtailed in the roll-out of the Goods and Services Tax (GST), said a study released by the Council on Energy, Environment and Water (CEEW), a Delhi-based climate think tank, on Tuesday.

It could also boost domestic manufacturing and jobs.

The study comes just days after India witnessed record lows in solar power tariff, which last week fell to below Rs3 per kilowatt-hour (KwH).

On Friday, Mahindra Renewables Pvt. Ltd, Acme Solar Holdings Pvt. Ltd and Sweden’s Solenergi Power Pvt. Ltd bid Rs2.979 per kWh, Rs2.97 per kWh and Rs2.974 per kWh, respectively, to win contracts to build 250 mega watts (MW) plants each to develop the world’s largest solar power plant of 750 MW in Rewa, Madhya Pradesh.

According to the study, GST could possibly increase capital cost of a solar project by Rs4.5 million per megawatt if current tax exemptions were curtailed, setting back the sector in terms of cost competitiveness by about 18 months.

The study said that, “multiple GST rates and their uncertain applicability to different equipments and services for solar projects is a growing concern from solar project developers and investors”.

“GST could also impact the pace of the second phase of solar park development for additional 20,000 MW capacity announced in the recent budget,” it said.

As per the study, the key contributors to the increase in solar tariffs, as a result of GST, would include increase in operations and maintenance cost, panel costs, and financing costs.

“The increase in solar tariffs would also vary across states; higher for states such as Rajasthan where VAT and Entry Tax exemptions are currently provided for solar equipment, as opposed to Andhra Pradesh and Gujarat where VAT and Entry Tax exemptions are not provided,” it explained.

The CEEW study also finds that GST will give a boost to the government’s ‘Make in India’ initiative, improving competitiveness of Indian manufacturers of solar cells, panels and modules eliminate the cascading effect of the existing tax structure and introduce an input tax credit.

“Increased competitiveness of domestic solar manufacturers could create an additional 37,000 new jobs in the solar manufacturing sector by 2022,” it said.

Solar project developers have already approached the government with requests to ensure that the current tax exemptions applicable to the sector continue so as to not negatively impact the efforts to achieve grid parity.

“With the annual solar power capacity addition expected to be more than 12 giga watt (GW) in 2017-18, it is vital that major hurdles for deployment, such as the potential impact of GST on the sector, be ironed out as early as possible. GST offers many long term benefits, but the Ministry of New and Renewable Energy (MNRE), Solar Energy Corporation of India Limited (SECI) and other related agencies must provide clear guidelines regarding the applicable GST slab for upcoming solar power projects and introduce government mechanisms to offset the short term negative impacts of GST,” said Dr Arunabha Ghosh, chief executive officer, CEEW.

Ghosh stated that if current tax exemptions are curtailed, the impact of the increase in solar tariffs could be partially offset by policy instruments, such as accelerated depreciation benefits or viability gap funding for projects incurring increased capital investments.