RERC Classifies GST Reduction on Renewable Energy Equipment as “Change-in-Law” Event

The Rajasthan Electricity Regulatory Commission (RERC) has officially recognized the reduction of Goods and Services Tax (GST) from 12% to 5% on renewable energy equipment as a “Change-in-Law” event. This ruling, effective from September 22, 2025, aligns state-level regulation with the Central Electricity Regulatory Commission (CERC) and Ministry of Power guidelines, specifically impacting projects under the PM-KUSUM scheme (Components A and C). By applying the principle of “Regulatory Symmetry,” the Commission ensures that downward tax shifts are passed to consumers with the same statutory rigor previously applied to upward tax escalations.

Core Directives and Pass-Through Beneficiaries

The Commission has established a mandatory framework for the transmission of financial gains, emphasizing that developers cannot retain tax-rate savings as corporate profit.

• Mandated Action: Renewable energy developers and generators must pass through the full financial benefit of lower tax outflows to their respective procurers.
• Primary Beneficiaries: Initial savings will be credited to the Rajasthan Urja Vikas Nigam Ltd (RUVNL) and state DISCOMs (JVVNL, AVVNL, and JdVVNL).
• End-User Impact: Distribution utilities are required to transmit these savings to the end electricity consumers to lower the average cost of supply.
• Legal Basis and Enforcement: The directive is grounded in Section 171 of the GST Act regarding anti-profiteering. Under these provisions, developers who fail to pass on the 5% rate benefits face a 10% penalty on the retained profit amount.

Applicability and Timing Criteria

The reduced rate applies to specific project timelines and equipment categories, with the financial trigger determined by the earliest point of transaction.

Financial Impact Parameters (B2B Analysis)

From a regulatory and competitive standpoint, this ruling significantly shifts the economic landscape for renewable energy versus thermal power.

• Composite Valuation Rule: Under the 70:30 rule, 70% of project value (goods) is taxed at 5%, while 30% (services) remains at 18%.
• Effective Rate Shift: The effective project tax rate has decreased from approximately 13.8% to 8.9%, representing a 4.9 percentage point decrease in total capital expenditure.
• LCOE and Bidding Impact: The capex reduction translates to a decrease of approximately Rs 0.10 per kWh in the Levelised Cost of Energy (LCOE), potentially allowing for 4.3% lower bids in upcoming auctions.
• The Competitive Flip: While solar GST was cut, the GST on coal was simultaneously raised to 18% (merging the compensation cess), significantly widening the economic gap between renewable and thermal generation.
• Quantified Savings:
  • Utility-Scale: Rs 20–25 lakh savings per 1 MW project.
  • Rooftop Solar: Rs 9,000 to Rs 10,500 reduction for a standard 3 kW residential system.

Reconciliation and Compliance Mandate

The Commission has mandated strict adherence to the Electricity (Timely Recovery of Costs due to Change in Law) Rules, 2021, to ensure transparent settlement.

• Statutory Timelines: Developers must file a “Change in Law” claim within 30 days of the event’s impact. The Commission then has a 60-day window to verify calculations and adjust the monthly tariff.
• Documentation Standards: Developers must provide comprehensive project-wise documentation, including a one-to-one correlation between specific project assets, supplies procured, and corresponding invoices.
• Verification: All submissions must be accompanied by an Auditor or Chartered Accountant certification to substantiate the actual reduction in capital expenditure and prevent inflated claims.
• Adjustment Mechanism: Recoverable amounts will be adjusted against monthly energy bills or settled via an annuity-based model. In Rajasthan, DISCOMs may seek to use these savings to offset existing regulatory assets rather than providing a direct immediate tariff cut to consumers.