Power Ministry may proposed to reduce GST on Hydro Project Components

The Union Ministry of power is likely to request a reduction in the goods and services tax on hydropower project components.

According to two persons familiar with the situation, the ministry may seek a reduction in higher-slab components such as turbines, steel, and cement.

The recommendations were addressed at a recent ministry meeting and may be pursued with the finance ministry, they added. The Central Electricity Authority (CEA) has also made a case for a GST reduction.

“Because the levy on the components is 18% or higher, the levies must be at least below the 18% slab. The recommendation to the finance ministry would be to include these items in the 5% slab, as suggested by stakeholders,” one of the two persons cited above stated.

While the GST on turbines and steel is 18%, the GST on cement is the highest at 28%.

The demand for GST reduction comes as the ministry is formulating a new hydropower strategy, which will be presented to the union cabinet for approval soon. Under the strategy, governments in the North-east with abundant hydropower potential may be eligible for central funds of up to 4,000 crore to acquire equity holdings in hydroelectric projects.

Tariffs will also be rationalised under the programme. Among other things, the plan to decrease the GST intends to lower rates.

Questions submitted to the ministries of power and finance were unanswered at press time.

The power ministry has been seeking for methods to decrease prices and encourage investment in its ambitious quest of 500 GW installed renewable energy capacity by 2030 and net zero carbon emission by 2070. The power ministry is contemplating suggesting a 5% GST on grid-scale battery storage, according to a report on June 27.

Furthermore, the proposal to reduce GST comes at a time when the government is also attempting to revive numerous stalled hydro projects held by private entities. Last month, 12 delayed hydropower projects in Arunachal Pradesh totaling more than 11 GW were turned over to state-run hydropower companies NHPC, NEEPCO, and SJVNL. These projects had been stalled for more than 15 years.

The country has 52 GW of installed hydroelectric capacity, with another 18 GW on the way. The government intends to increase hydropower capacity to 78 GW by 2030, out of a total installed green power capacity of 500 GW.

In the border state of Arunachal Pradesh and the union territory of Jammu and Kashmir, several hydroelectric projects are under development or in the conceptual stage.

Late last year, the state-owned NHPC Ltd submitted to the CEA a pre-feasibility assessment for the 11GW Upper Siang multipurpose storage project, with a capital investment of 1.13 trillion to create the country’s largest hydropower project.

This project, along with others on the Brahmaputra in Arunachal Pradesh, is part of India’s effort to offset China’s water diversion.

The northern neighbour, which has frequently sparred with India, has been constructing a number of dams upstream of the Brahmaputra, particularly after its intrusions into Indian territory in 2020.

Hydropower is essential for India’s energy transition since solar and wind power are intermittent, but hydropower and pumped storage projects are planned to provide the necessary generation supply at night or at any other time.

The government is also considering combining the country’s largest public-sector hydropower projects. According to the second source, NHPC has already made a request to merge with public sector hydro businesses THDC India Ltd and North Eastern Electric Power Corp. Ltd (Neepco). The combined company is estimated to have a market valuation of around Rs.70,000 crore.