Solar power tariff likely to go up next fiscal

A recent increase in the goods and services tax (GST) on renewable energy equipment and a proposed custom charge on imported solar modules could lead to a raise tariff in the coming year, according to a media report.

The Time of India quoting a Crisil report said solar electricity prices might rise from an all-time low of Rs 2 per unit to Rs 2.6-2.7 per unit in the coming fiscal.

The GST Council had recently increased the rate on important components of a solar project, such as photovoltaic cells and modules, from 5% to 12%, with effect from October 1.

Taxes

The total taxation on a solar installation has likewise risen from 8% to 12% and is set to double from this to 30% when customs charge of 40% on imported solar modules kicks in, effective on April 1, 2022.

According to the Crisil report, the rising polysilicon prices have resulted in a commensurate rise in module prices, which have risen to 23-24 cents per watt in the first half of this fiscal year, up from an average of 21 cents per watt last year. Polysilicon is an important component of solar cells.

The news report quoted Crisil Ratings director Ankit Hakhu as saying that the average project cost is expected to rise by 15-20% to Rs 4.2-4.3 crore per MW next fiscal, up from Rs 3.6-3.7 crore per MW in previous fiscals.

Developers of already-bidding projects, on the other hand, are expected to pass on the impact of taxes and duties under the change-in-law provision.

However, in the past, distribution utilities have been reluctant to participate in bids beyond Rs 2.5 per unit. For example, the distribution utilities have yet to sign the manufacturing-related deal for 12 GW, which was bid out in January 2020 at Rs 2.9 per unit.