Impact of GST is marginally negative for new solar power projects: ICRA

The GST rate of 5% is finalised on solar PV cells & modules as per the notification dated June 3, 2017, which thus clears the ambiguity surrounding the applicable rate. This, in turn, is expected to have a marginally negative impact on new solar power projects due to an increase in capital cost arising from higher tax rate applicable under GST, given that the solar energy sector has been availing various exemptions and concession rates in indirect taxes.

Mr. Sabysachi Majumdar, Group Head & Senior Vice President – ICRA Ratings said “With 5% GST rate, the impact on capital cost for new solar power projects is estimated to be limited at about 6%, which would thus translate into an increase in levelled cost of generation by 11-12 paise per unit for such projects. With this, the developers who have already won solar power projects under the competitive bidding route especially in last six month period, where the execution is under progress would incur a higher capital cost as against the cost envisaged at the time of bidding. Given the fact that the competitively bid-based tariffs have significantly come down in the solar power segment over the last 4-5 month period, timely approval by regulators for pass-through of any higher cost incidence due to change in taxation which is permitted under a change in the law remains crucial from developers’ perspective”.

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