Discoms to save Rs 3,000 crore annually from GST cut on green energy

NEW DELHI: Reduction of GST (goods and services tax) from 12% to 5% across the renewable energy value chain is expected to bring down the power procurement costs of discoms (distribution utilities) across the country by roughly Rs 3,000 crore annually, the government said on Wednesday.

The savings may not lead to reduction in consumer tariffs as they do not fully reflect costs due to inadequate upward revisions. Rating agency ICRA on Tuesday said as per the tariff revisions for 2025-26 cleared by 23 out of 28 states till August put the median hike at the all-India level at 1.9% against 2.1% in 2024-25.



Still, the lower GST will contribute towards narrowing the gap between discoms’ cost of supply and revenue realisation, which ICRA pegged at 45 paise per unit. While factors such as line losses and billing inefficiencies also contribute to the gap, reduced power purchase costs will bring some relief for discoms, which ICRA said, have a gross debt burden of Rs. 7.4 lakh crore as of March 2024, up from Rs. 6.6 lakh crore a year earlier.

Beyond the immediate, the real benefit of lower GST will become more noticeable as levelised tariffs for green power become more competitive as project costs come down. The renewable energy ministry reckons the cost of a grid-level solar project, which typically hovers around Rs 4 crore per MW, will come down by Rs 25 lakh. At the scale of a 500 MW solar park, this translates into project cost reductions of over Rs 100 crore.

Lower GST will energise prime minister Narendra Modi’s rooftop solar scheme by bringing costs within reach of more households, especially among those with modest or lower incomes. A typical 3,000-watt rooftop solar system is expected to become cheaper by Rs 9,000–10,500, the ministry said. Farmers will also benefit by way of lower costs for solar pumps covered under the PM KUSUM scheme, as will off-grid projects in rural or remote areas.

The biggest benefit will be for the renewable energy manufacturing sector as reduced GST will make them competitive due to a drop of 3-4% in component costs. This is expected to boost rapid expansion in domestic manufacturing, leading to more job creation.