The domestic rating agency, ICRA in its latest report has said that the new 5 percent rate finalized on solar PV cells and modules under the goods and services tax (GST) regime, which is to be implemented from next month, is likely to have a marginally negative impact on new solar power projects due to an increase in capital cost arising from the higher tax rate.
ICRA has said that with 5 percent GST rate, the impact on capital cost for new solar power projects is estimated to be limited at about 6 percent, which would thus translate into an increase in levellised cost of generation by 11-12 paise per unit for such projects. It also stated that the developers would incur a higher capital cost for the already undergoing solar projects under the competitive bidding route in last six-month period against the cost envisaged at the time of bidding. It added that 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.
Rating agency has mentioned that 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 dropped to Rs 2.44 in May 2017 from Rs 4.4 unit in November 2016 for projects in Badla Solar Park in Rajasthan. It also pointed out that 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.