Although the GST rate on solar panel equipment has been downward to 5%, the recent solar power projects which saw bidders quoting record low prices may face the heat as the levelised cost of generation for such projects is expected to rise by 11-12 paise per unit.
Sabysachi Majumdar, group head & senior vice-president at rating firm Icra, said, "With 5% GST rate, the impact on capital cost for new solar power projects is estimated to be limited to about 6%, which would thus translate into an increase in levelised 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 the 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."
Earlier, under the GST regime, 18% tax was proposed on solar panel equipment. However, Revenue Secretary Hasmukh Adhia later on clarified that it will attract the lowest tax slab of 5%.
As per the earlier proposal, GST rate on coal was lowered to 5% as against the existing rate of 11.69%. This had raised concerns from the renewable power industry players. On June 3, a notification cleared the ambiguity on the applicable rate.
At present, the tax on solar energy devices is only up to 1.5%.
"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," said a statement by Icra.
The aggressive bidding done in the recent past for solar power projects is a cause of concern.
For example, in May 2017, Rs 2.44 per kilowatt-hour (kWh) was the lowest tariff during the bids for Bhadla Solar Park in Rajasthan. Earlier during the same week of May 2017, the reserve price set was Rs 3.01 per unit for 250 megawatt, but the lowest bid was at Rs 2.62 a unit. Whereas, in 2010-11, the per unit price was as high as Rs 10.95 to Rs 12.76.
According to Majumdar, given that 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 change in law, remains crucial from developers' perspective.
An industry player shared that in order to recover the higher capital cost, higher plant load factor will prove to be fruitful in reducing the increasing input costs.
SUN SHINES
- Earlier, under the GST regime, 18% tax was proposed on solar panel equipment
- This had raised concerns from the renewable power industry players
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