RERC orders solar power developers to pass GST benefits to consumers

Jaipur: In a move aimed at safeguarding consumer interests and reducing power procurement costs, the Rajasthan Electricity Regulatory Commission (RERC) has classified the recent reduction in Goods and Services Tax (GST) on renewable energy equipment—from 12% to 5%—as a “Change in Law” event under power purchase agreements (PPAs) in the state.

In its June 3 order, the Commission directed renewable energy developers to pass on the financial gains arising from the tax cut to distribution companies, ensuring that the benefit ultimately reaches electricity consumers. The GST reduction, notified by the central govt and effective Sept 22, 2025, covers key renewable components such as solar modules, photovoltaic cells, wind turbines, biogas plants and waste-to-energy systems.

The Commission noted that the current reduction mirrors the earlier GST increase implemented in Oct 2021, when the rate was raised from 5% to 12%. At that time, regulators had treated the hike as a Change in Law event, allowing developers to recover additional costs through tariff revisions. Applying the same principle in reverse, RERC held that a tax reduction must similarly benefit consumers.

“The character of the event does not change with the direction of the rate movement,” the Commission observed, underlining that lower project costs due to tax cuts must be passed through transparently.

The order follows guidance from the Ministry of Power and aligns with a similar suo motu directive issued by the Central Electricity Regulatory Commission (CERC) in November 2025. The Ministry had urged regulators across states to ensure uniform implementation and timely transmission of benefits.

According to DD Agarwal, director at Samta Power, the ruling could help reduce the overall cost of renewable energy procurement in Rajasthan while also minimising disputes over GST-related Change in Law claims.

The commission specified that the revised GST benefit will apply to projects where bids were submitted before Sept 22, 2025, but invoices were raised or payments made thereafter. Developers have been asked to submit detailed, project-wise documentation of invoices, tax outflows and net savings, duly certified by a Chartered Accountant or statutory auditor, to enable accurate pass-through of benefits.