New Delhi, February 15: Solar tariffs in India may rise by nearly 10 percent if current tax exemptions are curtailed under the proposed Goods and Services Tax (GST) regime, a local think-tank dealing with energy and environment issues has said.
“India’s emerging solar sector could see tariffs rise by nearly 10 per cent if current tax exemptions were curtailed in the roll out of the GST,” the Delhi-based Council on Energy, Environment and Water (CEEW) said in a statement on Tuesday, citing its study.
This comes in the backdrop of solar tariffs falling to record lows last week when major players, including foreign firms, won separate contracts for building a 750 MW solar plant in Rewa, Madhya Pradesh, with bids to supply power at less than Rs 3 per unit.
The 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 CEEW study said.
“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,” it said.
“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.
“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 added.
CEEW said that solar project developers have already approached the government with requests to ensure that the current tax exemptions applicable to the sector continue.
The study found that GST will give a boost to the government’s Make in India initiative, helping to improve the 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.
“GST offers many long term benefits, but the Ministry of New and Renewable Energy, Solar Energy Corporation of India Limited 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,” CEEW Chief Executive Arunabha Ghosh said in the statement.
Ghosh also said 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.