GST likely to impact renewable energy sector: Ministry report

NEW DELHI: While India’s increased focus on renewable energy is generating much global interest, the latest findings reveal that the new GST regime could increase the cost of setting up renewable energy systems in the country by up to 20%. The Ministry of New & Renewable Energy (MNRE) is learnt to have shared the findings of the report with the Department of Revenue, requesting an exemption.

The latest findings from a study commissioned by the ministry — reviewed by ET — have revealed that the implementation of the GST will increase the cost of setting up of all categories of renewable energy systems — from solar to wind to biomass to small hydro power projects.

The renewable energy sector currently enjoys various fiscal incentives like 100% tax holiday on the earnings for 10 years, concessional excise and custom duties and so on. All these incentives will come to an end in the new GST regime. Concerned that the indirect tax reform through the GST could hike renewable energy costs and pricing and hit investors, the MNRE had commissioned a study to assess the same.

The key factors resulting in an adverse impact on the cost of renewable energy are removal of exemption, increase in tax rates and removal of statutory norms. The ministry has argued that a sudden increase in cost would lead to policy disruption, scare away new investors and also make it difficult to retain existing investors.

“We are requesting an exemption. The GST bill has provisions for exemptions by state governments and we believe that renewable energy is a fit case for exemption. We are in dialogue with the Department of Revenue and they do see merit in our argument,” a highly placed official from MNRE confirmed to ET.

As per the draft findings, the cost of Solar PV-Grid could rise by 12-16% and that of Off-Grid systems by 16-20%. Wind energy systems, which are already going through a dull phase, could see an increase of 11-15% in tariff/cost of setting up and operations. The hybrid and solar combination projects are also expected to face an increase of 11-17%.