Subscribe to read:

India’s plan to tax solar panels higher than coal prompts alarm

Upgrade your account to read:

India’s plan to tax solar panels higher than coal prompts alarm

India Politics & Policy

India’s plan to tax solar panels higher than coal prompts alarm

Renewables sector and foreign investors complain GST will drive up prices

A security guard walks between solar panels in the Indian state of Gujarat © Reuters

India is at risk of undermining its own ambitious solar power targets, executives have warned, after it emerged that the government intends to tax parts for solar panels at more than double the rate of coal under a new national goods and services tax.

Photovoltaic cells will be taxed at 18 per cent under plans for the new GST, which comes into force on July 1, whereas coal will face a 5 per cent levy.

The plans, agreed over the weekend, have triggered accusations of hypocrisy from the solar industry, which warns the move will drive up prices.

“Quite simply, this will drive up costs by 18 per cent,” said Inderpreet Wadhwa, chief executive of solar developer Azure Power. “It will create scepticism in the market, and investors will wonder whether the country plans to make it easier or harder for solar in the future. It will definitely slow down the sector’s growth.”

India has set itself some of the world’s most ambitious targets for installing new solar power capacity, with Narendra Modi, the country’s prime minister, aiming for 100 gigawatts of solar power by 2022. At the end of last year the country had just 7.5 gigawatts.

This is part of a wider push to build new renewables capacity, with a target of installing 225GW by 2022. This would put India on course for green energy to account for as much as 57 per cent of electricity capacity by 2027, well ahead of its Paris target of 40 per cent by 2030.

“We’re fully committed [to the Paris agreement] irrespective of what anyone else does,” Piyush Goyal, power minister, said in an article published by the Financial Times on Tuesday. “It’s Prime Minister Modi’s commitment and his government’s commitment — not because someone else is telling us to do it but because we believe in it.”

The speed of new solar installations has increased in recent months as equipment prices have plummeted. 

This month Acme Solar Holdings accepted just Rs2.44 (4 US cents) per kilowatt-hour to build 200 megawatts of a new 500MW solar plant in Rajasthan. Solar tariffs have fallen two-thirds in the past three years and for the first time are cheaper than coal-fired generation.

Projects such as these have attracted strong international interest. The company building the other 300MW of capacity at the Rajasthan plant is a joint venture between Japan’s SoftBank, India’s Bharti Enterprises and Taiwan’s Foxconn.

But foreign investors are warning the new tax system will make them think twice about India’s solar power sector. 

“This is a glaring contradiction with what the government’s policy is. It does not line up with what they say they are doing,” said Michael Sabia, chief executive of CDPQ, one of Canada’s largest pension fund managers. “It will create question marks among foreign investors.”

However, Mr Goyal defended the policy, telling reporters that “the rise will be compensated by the decline in corruption and operational difficulties”.

Copyright The Financial Times Limited . All rights reserved. Please don't copy articles from FT.com and redistribute by email or post to the web.