Distribution companies (discoms) across India would have to pay solar power developers a one-time compensation totaling Rs 2,000 crore towards Goods and Service Tax (GST) impact, as an outcome of the order passed by the Central Electricity Regulatory Commission (CERC) last month, ICRA has estimated.

Responding to petitions filed by several SPVs of two large solar developers, ACME and Azure Power, CERC, in its order dated October 9, approved the claims under change in law and allowed the relief to solar projects that were not commissioned prior to July 1, 2017. The compensation could be recovered as a one-time payment on the GST front from the power off-takers.

According to Sabyasachi Majumdar, Group Head & Senior Vice-President - Corporate Ratings, ICRA, about 10.9 GW of solar power capacity was commissioned between July 2017 and September 2018, with most of the projects being awarded prior to July 2017.

“Considering 75 per cent of the capacity commissioned during this period to be under the competitive bidding regime awarded prior to July 2017, the one-time compensation towards GST impact to be paid by discoms to solar power developers is estimated at about Rs 2,000 crore on an all-India level,” Majumdar said.

He added, however, that while the order itself is a positive development for the industry, the timely release of compensation by the respective state-owned distribution utilities is crucial.

While the CERC has directed that the claims be paid within 60 days of issuance of the order, noting that any delays beyond this time line would attract late payment surcharge as provided in the power purchase agreements (PPAs), two industry players, who did not wish to be named, told BusinessLine that it remains to be seen whether the discoms are able or willing to release the payments in time.

“It is too early to write-off the GST impact on solar developers, because the ground reality is different when it comes to payments for compensation to be released by discoms,” one of the industry players said.

Analysts note that the new GST regime had a negative impact on solar power projects as it has introduced a tax rate for PV modules, mounting structures and electrical equipment that were earlier exempted from tax and duties or were subsidised. Moreover, there is still ambiguity on whether solar EPC projects would be categorised under the 5 per cent or 18 per cent tax bracket.

According to Gyanesh Chaudhary, MD and CEO, Vikram Solar, GST implementation has been one of the factors that has contributed to the unpredictable environment, which has made investors reluctant to bid for projects in the past one year.

 

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