The Indian government has reduced the goods and services tax (GST) on solar photovoltaic (PV) modules and wind turbine generators from 12% to 5%.

This move is expected to decrease the capital cost for solar and wind power projects by approximately 5% and accelerate the country's transition to renewable energy, reported Reuters, citing industry experts.

The tax cut is part of a broader initiative to reduce taxes on hundreds of consumer items and is aligned with India's goal to expand its non-fossil fuel capacity to 500GW by 2030.

Currently, India has about 44GW of renewable projects pending firm power supply agreements.

ICRA senior vice-president and group head Girishkumar Kadam emphasised that “the tax cut for solar PV modules and wind turbine generators is expected to reduce the capital cost for solar and wind power projects by about 5%.”

This reduction in costs is, however, likely to put pressure on existing project developers to offer more competitive tariffs.

Projects awarded before the tax cut may need to renegotiate existing power supply contracts to reflect the new rates.

However, the tax change also introduces “a few short-term challenges,” according to EY India tax and new energy partner Saurabh Agarwal.

Oyster Renewable Energy noted that the lower tax rate would enable developers to renegotiate with utilities for more competitive tariffs, potentially freeing up projects.

For developers who have not yet procured equipment, it is expected that they will pass on the tax benefits to consumers through reduced tariffs.

Those who have already paid the higher rate can maintain their current tariff agreements by providing relevant documentation to the federal regulator, explained Hexa Climate Solutions founder and executive chairman Sanjeev Aggarwal.

Waaree Energies, a solar equipment manufacturer, has confirmed that it will pass on the benefits of the tax reduction to its customers.

This move is expected to bolster India's renewable energy sector, which has recently surpassed 100GW of solar PV module manufacturing capacity under the Approved List of Models and Manufacturers.