“The new recommendation by the GST council, increasing the proposed tax to 12 per cent for renewable energy projects, will create a fresh set of challenges for the sector to address. Compared to the earlier 5 per cent, this is a significant increase and is bound to impact both the ongoing and upcoming projects.
Utility scale, Open Access and OPEX projects will be the most affected. The PPA (Power Purchase Agreement) tariffs for all of these projects will also have to be increased to accommodate the new tax structure. Due to inverted duty structure, wherein there is no GST levied on the sale of power, the GST that is paid for renewables project becomes a cost.
Under the earlier tax structure, the GST component of the project cost was 8.9 per cent, which has now been increased to 13.8 per cent. An overall cost escalation of 4.9 per cent is bound to influence consumer sentiments negatively. There will be prolonged tariff change applications by all developers under the change in law mechanism. DISCOMs, which have been averse to any cost escalation in solar tariff, might find the new tariffs unattractive. Over 1 GW of projects across the rooftop and open access segments will be adversely affected.
For a country looking towards net-zero emissions and increased dependency on renewable resources for energy generation, we are taking three steps backwards for each step taken forward. This becomes even more pertinent since the renewable energy sector has been deemed a priority sector by the government. We have seen multiple rulings and policies recently that have forced the industry to realign involuntarily, creating unprecedented uncertainty. The ripples of dissent from the net-metering policy, duty-free period, and other policy flip flops are already felt throughout the industry. This will only aggravate the situation for businesses and customers alike.”
Animesh Damani expressed this view on the proposed increase in GST on renewable energy projects from 5 per cent to 12 per cent. The GST Council’s 45th meeting was held on September 17, 2021, in Lucknow under the chairmanship of the Union Finance & Corporate Affairs Minister Ms Nirmala Sitharaman. The GST Council inter-alia made several recommendations relating to changes in GST rates on supply of goods and services and changes related to GST law and procedure: Among the several recommendations made was that of increasing GST on “Specified Renewable Energy Devices and Parts” from 5 per cent to 12 per cent.
