GST reforms to bring down thermal and renewable power costs

The Government's decision to slash GST on renewable power equipment and the removal of the compensation cess on coal will help reduce power prices and the cost of developers.

The GST Council yesterday reduced GST rates on solar equipment and batteries to 5% from 12%, effective September 22, making clean energy installations significantly cheaper. It further removed the compensation cess on coal and merged it into a GST rate of 18%.

The rationalisation of GST rates for solar PV modules and wind turbine generators is expected to reduce the capital cost for solar and wind power projects by 5%. “This is expected to reduce the cost of generation for solar power projects by 10 paise per unit and for wind power projects by 15-17 paise per unit,” said Girishkumar Kadam, Senior Vice President & Group Head, ICRA Ltd. on Renewable Energy.

In the thermal business, particularly where plants utilise domestic coal, the rationalised GST (removal of Compensation cess of ₹400/T) will help lower fuel costs, thereby reducing the cost of thermal power. This will help to reduce the cost of base load for the country and would also help to improve financial health of Distribution companies.

“The reform will ease cost pressures across the power value chain, strengthen the financial viability of projects, and accelerate India’s clean energy transition,” said Sharad Mahendra, Joint MD & CEO of JSW Energy.

“This would reduce the capital cost for under-implementation projects and is also likely to reflect in upcoming bids. This in turn will benefit the power distribution companies in the form of lower power purchase cost, going forward,” he said.

For the renewables portfolio—including wind, solar and hydro—lower GST on turbines, solar modules and balance-of-plant equipment will reduce project costs and improve returns, Mahendra noted.

“These savings will enable more effective capital deployment towards JSW Energy’s ongoing capex programme, facilitating faster execution of its ambitious capacity expansion pipeline,” he said.

“We commend the GST Council for its transformational and forward-looking reforms that strengthen both 'Ease of Doing Business' and 'Ease of Living'. The reduction of GST rates on solar equipment and batteries will lower electricity costs, enhance industrial competitiveness, and accelerate India’s clean energy transition,” said Sumant Sinha, Founder & CEO, ReNew, one of India's leading renewable energy companies. Broader rationalisation will further stimulate domestic consumption and encourage export sectors, he said.

This significant reform greatly increases the accessibility of solar installations for households, businesses, and farmers across the country, said Gautam Mohanka, Director, Gautam Solar, one of the leading solar equipment makers in India.

“The fiscal nudge from 12% to 5% for renewable devices shall help in accelerating the adoption of renewable energy and building robust manufacturing ecosystem toward achieving our National goals of NetZero and Atmanirbhar Bharat,” said Girish Tanti, Co-Founder & Vice Chairman, Suzlon Group.

The GST reduction from 12% to 5% is a decisive step that will significantly reduce power tariffs, making clean energy more affordable for consumers and improving project economics for developers. In wind energy, lower taxation on turbines, nacelles, blades, and balance-of-plant components will cut capital intensity and the levelized cost of energy—enabling faster commissioning, stronger investor returns, and greater capacity additions, said JP Chalasani, CEO, Suzlon Group.