Page 46 - Policy Economic Report - September 2025

POLICY AND ECONOMIC REPORT
OIL & GAS MARKET

The rationalization of GST rates across the renewable energy value chain from 12% to 5% will bring down
the cost of clean energy projects, making electricity more affordable and directly benefiting households,
farmers, industries, and developers. For instance, the capital cost of a utility-scale solar project, which
typically amounts to around ?3.5–4 crore per MW, will now see savings of ?20–25 lakh per MW. At the
scale of a 500 MW solar park, this translates into project cost reductions of over ?100 crore, significantly
improving tariff competitiveness.

Lower Costs and Greater Competitiveness

The reduction in GST is expected to lower levelised renewable tariffs easing the financial burden of
electricity procurement for distribution companies (DISCOMs). This could translate into nationwide
annual savings of ?2,000–3,000 crore in power procurement costs. End consumers will benefit from
greater access to affordable clean electricity, reinforcing the long-term sustainability of India’s power
sector.

Benefits to Households, Farmers, and Rural Communities

The reform will make rooftop solar systems more affordable for households. A typical 3 kW rooftop
system will now be cheaper by about ?9,000–10,500, making it easier for lakhs of families to adopt solar
energy and accelerating large-scale uptake under the PM Surya Ghar: Muft Bijli Yojana.

Farmers under the PM-KUSUM scheme will also benefit significantly. A 5 HP solar pump, costing about
?2.5 lakh, will now be cheaper by nearly ?17,500. At the scale of 10 lakh solar pumps, farmers collectively
stand to save ?1,750 crore, making irrigation more affordable and sustainable.

Rural and underserved regions will also gain from cheaper decentralized solutions such as mini-grids,
livelihood applications, and solar water pumps. The shorter payback periods and improved returns will
empower schools, health centres, and small businesses with clean and reliable energy access.

Boost to Domestic Manufacturing and Self-Reliance

Lower GST will enhance the competitiveness of Indian-made renewable energy equipment by reducing
module and component costs by 3–4%, supporting the Make in India and Aatmanirbhar Bharat initiatives.
With India targeting 100 GW of solar manufacturing capacity by 2030, the reform will encourage fresh
investment into domestic manufacturing hubs. Considering that every GW of manufacturing creates
about 5,000 jobs, the reform could support 5–7 lakh direct and indirect jobs over the next decade,
strengthening India’s clean energy industrial ecosystem.

Accelerating India’s Energy Transition

The GST cut will not only reduce the levelized cost of energy but also boost investor confidence, enabling
faster signing of power purchase agreements and quicker project commissioning. Given that India plans
to add around 300 GW of renewable energy capacity by 2030, even a modest 2–3% cost reduction can
free up ?1–1.5 lakh crore in investment capacity. Each GW of solar saves about 1.3 million tonnes of CO2

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