UPERC Declares GST Reduction on Solar Equipment a ‘Change in Law’ for PM-KUSUM Component-C2 Projects

Regulatory Ruling and Legal Context

The Uttar Pradesh Electricity Regulatory Commission (UPERC), through a Suo Motu order dated June 23, 2026 (Petition No. 75/SM/2026), has recognized the reduction in Goods and Services Tax (GST) on renewable energy equipment from 12% to 5% as a ‘Change in Law’ event. This decision aligns with Ministry of Power letter No. 40/22/2025-R&R, dated December 31, 2025, which advised regulatory bodies to acknowledge the GST rationalization to ensure administrative consistency across the renewable energy sector.

As defined under Article 12.1.1 of the Power Purchase Agreement (PPA), a ‘Change in Law’ constitutes any change in the rates of taxes occurring after the last date of bid submission that has a direct financial effect on the project. The Commission determined that the Ministry of Finance notification dated September 17, 2025, which rationalized tax rates across the value chain, meets these contractual criteria.

To qualify for regulatory relief under this order, projects must adhere to the following eligibility parameters:

• Bid Timeline Alignment: The last date for bid submission must be prior to September 22, 2025. Specifically, the PM-KUSUM Component-C2 projects qualify because their bid deadline was January 9, 2025, significantly predating the tax revision.
• Invoice Timing: Invoices for the procurement of goods or services must have been raised on or after September 22, 2025.
• Payment Timing: Payments for such goods or services must have been made on or after the effective date of September 22, 2025, regardless of whether the consideration was paid wholly or partly.

Financial Impact and Benefit Allocation

The reduction in GST from 12% to 5% has a quantifiable impact on project capital expenditures. Based on figures from the Ministry of Finance and the Press Information Bureau (PIB), the rationalization is projected to:

• Lower module and component costs by approximately 3–4%.
• Reduce capital costs for utility-scale solar projects by an estimated ₹20–25 lakh per MW.

The Commission has mandated that the commercial benefits of this reduction must be passed on to the procurer, Uttar Pradesh Power Corporation Ltd (UPPCL), and ultimately to end consumers. This benefit transfer is to be realized through a downward revision or an adjustment/refund of the monthly tariff. Under Article 12.1.3 of the PPA, the Commission has specified that if a developer fails to comply with the necessary Change in Law filings to pass on these gains, UPPCL is authorized to withhold monthly tariff payments on an immediate basis until compliance is achieved.

Implementation Mechanism and Expert Committee

To ensure a uniform approach across the state, UPERC has directed the constitution of an Expert Committee for each Distribution Company (Discom). For the sake of consistency, the officers representing UPNEDA and UPPCL on these committees must be the same for every Discom.

Committee Composition

• UPNEDA Representative: The Director of UPNEDA (or an officer not below the rank of Senior Project Officer).
• UPPCL Representative: A Chief Engineer level officer.
• Discom Representative: A Chief Engineer level officer from the relevant Discom.
• Financial Representative: A Finance Officer from the relevant Discom (not below the rank of Deputy General Manager).

Developer Obligations and Procedural Timelines

Project developers must adhere to the following sequence and timelines to finalize tariff adjustments:

1. Data Submission: Within 45 days of the Commercial Operation Date (COD), developers are required to share calculations regarding the GST impact and all supporting documents with the Expert Committee.
2. Verification Requirements: Submissions must include invoices and payment records. An Auditor’s Certificate is mandatory to verify a “one-to-one correlation” between the specific project and the claimed tax savings, preventing the use of general corporate expenses for project-specific relief.
3. Tariff Revision: The Expert Committee will determine the revised tariff (Rs./kWh) based on the actual benefit accrued to the project.
4. Supplementary PPA Execution: Prior to approaching the Commission for finality, UPPCL and the developer must execute a Supplementary PPA incorporating the agreed-upon revised tariff.
5. Final Regulatory Approval: The complete assessment exercise must be submitted to the Commission within 90 days of the project’s COD for a formal prudence check and final approval.