India’s tax cut on solar and wind devices to lower clean energy tariff, experts say

[NEW DELHI] India’s decision to cut taxes on solar and wind equipment will lower costs for new plants and pressure existing project developers to reduce tariffs, accelerating the country’s shift to renewable energy, industry experts said.

The government on Sep 3 slashed the goods and services tax on solar photovoltaic modules and wind turbine generators to 5 per cent from 12 per cent, as part of broader tax cuts on hundreds of consumer items.

The tax cut for solar photovoltaic modules and wind turbine generators is expected to reduce the capital cost for solar and wind power projects by about 5 per cent, said Girishkumar Kadam, senior vice-president and group head at ICRA.

India, which aims to expand its non-fossil fuel capacity to 500 gigawatts (GW) by 2030, currently has about 44 GW of renewable projects awaiting firm power supply agreements.

Saurabh Agarwal, tax and new energy partner at EY India, said that the tax change poses “a few short-term challenges”, as projects awarded before the cut may require renegotiation of existing power supply contracts.

Oyster Renewable Energy said the lower tax rate would allow developers to re-engage with utilities at more competitive tariffs, potentially unlocking stuck projects.

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Developers that have not yet procured equipment will likely need to pass on the tax benefit to consumers through lower tariffs, said Sanjeev Aggarwal, founder and executive chairman of Hexa Climate Solutions. Meanwhile, those that already paid the higher rate can justify existing tariff agreements by providing documentation to the federal regulator, he added.

Solar equipment maker Waaree Energies said it would pass on the benefits to customers.