Experts say that India's tax reduction on solar and wind energy devices will lower clean energy tariff.

India's decision on cutting taxes on solar and winds equipment will lower the costs of new plants, and pressurize existing project developers to reduce their tariffs. This will accelerate India's transition to renewable energy.

On Wednesday, the government lowered the goods and service tax (GST), which was previously 12% on solar photovoltaic panels and wind turbine generators, to 5%. This is part of a broader tax cut on hundreds of consumer products.

Girishkumar KADAM, Senior Vice-President & Group Director, ICRA Ltd., stated that the tax reduction for solar PV panels and wind turbine generators will reduce capital costs for solar and wind energy projects by approximately 5%.

India is currently awaiting agreements on power supply for 44 GW worth of renewable energy projects. The country aims to increase its non-fossil capacity to 500 GW in 2030.

Saurabh Aggarwal, Tax and New Energy Partner at EY India, stated that the tax change presents "a few immediate challenges", as existing power supply contracts may need to be renegotiated for projects awarded prior to the tax cut.

Oyster Renewable Energy stated that the lower tax rate will allow developers to engage with utilities at competitive rates, potentially unlocking projects.

Sanjeev Aggarwal is the founder and executive chairperson of Hexa Climate Solutions. He said that developers who haven't yet purchased equipment will need to pass the tax benefit on to consumers via lower tariffs. Those that already paid a higher tariff rate can justify their existing tariff agreements by submitting documentation to the federal regulatory authority.

Waaree Energies, a manufacturer of solar equipment (WAAN.NS), said that it would pass the benefits on to its customers.

(source: Reuters)