The past few months were marked by substantial speculation around how GST will affect the solar industry. Sunkalp Energy had run a few analyses which had indicated a 12-15% increase in the cost of solar. Further we had made some recommendations for including solar and components in ‘zero’ lists.
This Friday the Government released final Goods and Services Tax (GST) rates under the new indirect tax regime proposed to be rolled out from July 1. Below GST rates will be applicable on solar goods:
- Solar Panel -5%
- Solar Cells -18%
- Solar Batteries-18/28%
- Solar Inverter -5%
- Solar PCU-5%
- Solar Structure-18%
- Solar wires-18%
- Solar I&C-28%
- Solar Power pack-5%
- Solar water heater-5%
- Solar street light-5%
- Solar pump-5%
Considering that many states including Rajasthan, Uttar Pradesh and Haryana had so far exempted solar equipment including solar panels from VAT, the new GST rates will have a direct cost impact on the consumers.
In fact, many EPC companies and distributors alike, had opened offices and warehouses in the states where VAT exemption could be claimed in a bid to reduce the cost per Wp for their customers.
More significantly, cost of solar panels, which contribute to up to 60% of a solar project’s cost is set to increase with a GST rate of 18% on solar cells, with little visibility so far on input tax benefit on the import of solar cells.
Generally, for grid synchronous solar plants, I see the cost increasing by up wards of 5 Rs/Wp. This will likely cause a commissioning rush before July 1st, akin to the one we see in March each year.
More worrisome is the impact that these GST rates will have on RESCO/ PPA projects. Will developers still be able to viably set up solar plants and sell electricity at the aggressive tariffs given that their installation costs are set to rise?