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 Wednesday slashed the goods and services tax (GST) on solar photovoltaic modules and wind turbine generators to 5% from 12%, part of broader tax cuts on hundreds of consumer items.

The tax cut for solar PV modules and wind turbine generators is expected to reduce the capital cost for solar and wind power projects by about 5%, said Girishkumar Kadam, Senior Vice President & Group Head, ICRA Ltd.

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

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

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

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

Solar equipment maker Waaree Energies (WAAN.NS) said it would pass on the benefits to customers.