GST Sparks Cost Escalation Fears For Renewable Energy Sector

The additional financial burden on equipment and accessories after the implementation of the Goods and Services Tax is threatening to disrupt the renewable energy sector.

The tax on machinery, cables and transformers now stands at 18 percent compared from zero in the pre-GST regime. For solar modules, the levy is 5 percent against zero earlier. That’s a substantial jump as photovoltaic panels account for more than half of a project’s total costs, according to Bloomberg New Energy Finance.

“Overall increase in project costs is about 9-10 percent,” said Vikram Kailas, managing director and chief executive officer of Mytrah Energy (India) Ltd., a renewable power producer. Higher project costs will force producers to seek an adjustment in prices in the power purchase agreements with states, he said.

GST-triggered cost overruns may impact the government’s efforts to install 175 gigawatts of renewable energy capacity by 2022. Solar projects comprise nearly 60 percent of the target.

“GST on installation, commissioning has been increased to 28 percent from the earlier service tax of 10 percent. This has made setting up of a project costly,” according to Gajanan Nabar, managing director at Cleanmax Solar, a solar energy firm.

Power purchase agreements provide room for revision in tariffs. While project developers can seek relief from states under this clause, it is unlikely to benefit them much. “The increase in rates may be less than 50 paise per kilowatt hour,” said Jasmeet Khurana, associate director (consulting) at consultancy firm Bridge to India. Also, some developers may not be willing to exercise the provision because that will involve disclosing their purchase details, Khurana said.

For wind power producers, turbines attract 5 percent GST, equivalent to the value-added tax imposed by states earlier. Since some states didn’t charge VAT on turbines, developers had the option of buying the machines from there.

Besides, turbine makers sell a bulk of their products under the engineering-procurement-construction contract, which has increased the tax burden of developers, said Santosh Sonar, executive director, indirect tax, BSR & Associates LLP, an auditing firm. EPC contracts have two components – goods and services.

Prior to GST, goods that were exempted from VAT or excise did not attract service tax. “Now under GST, if you are executing a works contract, it will be classified as a service and the rate will be 18 percent which is leading to an increase in the project cost,” Sonar said.


Trending News

Xiaomi pumps Rs 3,500 crore into India business

BlackBuck's out to raise $150M in new round, valuation likely to jump to $800 M

With $21 Billion, Azim Premji among world’s top philanthropists

Google agreed on a $45M exit package for India-origin exec accused of sex abuse

HSBC pegs Zomato's valuation at $3.6 billion ahead of Swiggy

PayU in talks to acquire online payments firm Wibmo for $60M

Quikr close to acquiring refurbished goods marketplace Zefo in all-stock deal

What life looks like after a layoff from an IT company

General Atlantic & Tencent pump in another Rs 80 Cr in ed-tech unicorn Byju's

US Senator Warren vows to break up Amazon, Facebook, Google

SoftBank extends tech reach with $5B Latin American fund

Coverfox hits the market to raise $50M in new financing round

Cognizant faces US lawsuit alleging discrimination

China's Huawei sues US over federal ban on using its products

Germany's Delivery Hero acquires Zomato's UAE biz, invests in India ops

Ahead of deadline, debate rages on e-commerce policy

Flipkart rejigs reporting of Myntra-Jabong head Amar Nagaram

Grofers raises fresh funds from existing investors, valuation hits $425M

Sachin Bansal invests Rs 250 Cr each in NBFCs Altico & IndoStar: Report

I-bank Wolet files $800k suit over Flipkart’s Upstream buy

Flipkart FY18 revenue up 50%, but losses grow 5x

Pine Labs in talks to acquire Amazon-backed Qwikcilver for $100M

India can become 2nd largest 5G market in 10 years: Huawei

Alibaba rival Pinduoduo seeks to raise $1.5B

Twitter Q4 revenue grows to $909M as video ad sales surge

Mukesh Ambani to invest $1.4B in West Bengal, will help e-commerce expansion

Etail may lose Rs 40,000 crore, retail to get a 3rd of it

Steadview Capital invests $74M in Ola valuing it at around $6B

Byju’s ups revenue to Rs 490 cr in FY 18, losses drop by half

Agritech startups Sabziwala and LivLush merge their business under new entity Kamatan

Avail Finance lands $17.2M from Matrix Partners & Ola, Freecharge and Flipkart founders

RBI suggests tax sops, self-regulation to build fintech space

Swiggy hires new CEO for its Access Service, gets new CFO

Logistics company Delhivery registers 44% increase in FY17 revenues

WeWork to acquire one of the oldest social networks, Meetup

Qualcomm rejects Broadcom's $103 billion offer

EasyRewardz gets $2 million Series-A funding

'Anemic' iPhone 8 demand drags Apple shares lower

Lending platform Lenden Club gets Rs 3.5cr in Equity Investment

On festive sales, Flipkart says 65% clients from Tier-II cities