GST to have marginally negative impact on new solar projects: ICRA

The GST rate of five per cent on solar PV cells and modules is likely to have a marginally negative impact on new solar power projects, says ICRA.

The GST rate of five per cent is finalised on solar PV cells and modules as per the notification dated June 3, 2017 which thus clears the ambiguity surrounding the applicable rate, the rating agency said in a statement issued here today.

"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," ICRA said.
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According to ICRA's group head and senior vice- president Sabysachi Majumdar, the impact of the GST rate on capital cost for new solar power projects is estimated to be limited at about six per cent, which would thus translate into an increase in levellised 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 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," he said.

Majumdar said given that the competitively bid-based solar tariffs have significantly come down 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.

According to ICRA, the solar project awards in last 5-6 month period stood at about 2.5-3 GW mainly under National Solar Mission route and state policy route, wherein tariffs have fallen from Rs 4.4 unit in November 2016 to Rs 2.44 in May 2017 for projects in Badla Solar Park in Rajasthan.

The viability of such bid tariffs hinges on structuring of debt with longer tenures, competitive funding costs and the ability of the project developers to keep the cost of modules within the budgeted levels, the rating agency pointed out.

"Besides, the timeliness in seeking approvals, land acquisition and development of associated infrastructure remains critical for projects outside the solar park, given the strict timelines for project execution as per PPA," Majumdar said.