India’s Energy Transition: The Impact of the Goods and Services Tax on Solar Photovoltaic and Coal Power Costs

The introduction of the GST in India has created a relative bias in favor of coal-based power by increasing the cost of solar PV generation while reducing the variable costs for existing coal plants. While total tax subsidies for both sources decreased, the absolute level of support for coal remains more than double that for solar PV. The analysis indicates that the GST increased the LCOE for solar park projects by 5.84% and decreased the variable LCOE for coal plants using domestic coal by approximately 1.6%.

• The implementation of the GST reduced total tax subsidies for both solar PV and coal thermal power by 15.6% and 16% respectively, although the absolute volume of support for coal remains more than double that for solar PV.
• The GST is likely to cause a significant increase in the cost of generation for new solar PV plants, with the Levelized Cost of Electricity (LCOE) for solar park projects increasing by 5.84% compared to pre-GST levels.
• Existing coal-fired thermal power plants experienced a reduction in variable costs under the GST; the variable LCOE decreased by almost 1.6% for plants using only domestic coal and by 1% for those using a mix of domestic and imported coal.
• The GST Council's method of applying taxes to Solar Power Generating Systems (SPGS)—deeming 70% of contract value as goods (5% GST) and 30% as services (18% GST)—is described as arbitrary and contributes to the increased LCOE.
• The transition to GST effectively disbanded the National Clean Energy and Environment Fund (NCEEF) because the Clean Environment Cess on coal was merged into the GST Compensation Cess, redirecting revenues to compensate states for tax losses.
• The overall effect of the GST is a relative bias in favor of coal-based power over solar PV, which may influence investment decisions and potentially constrain India's goal of 100 GW of installed solar capacity by 2022.

APA

Soman, A., McCulloch, N., Kaur, H., & Beaton, C. (2019). India’s Energy Transition: The Impact of the Goods and Services Tax on Solar Photovoltaic and Coal Power Costs. International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/indias-energy-transition-goods-services-tax-coal-solar.pdf

Chicago

Soman, Abhinav, Neil McCulloch, Harsimran Kaur, and Christopher Beaton. India’s Energy Transition: The Impact of the Goods and Services Tax on Solar Photovoltaic and Coal Power Costs. International Institute for Sustainable Development, 2019. https://www.iisd.org/system/files/publications/indias-energy-transition-goods-services-tax-coal-solar.pdf.

Wikipedia

{{cite report |last1=Soman |first1=Abhinav |last2=McCulloch |first2=Neil |last3=Kaur |first3=Harsimran |last4=Beaton |first4=Christopher |title=India’s Energy Transition: The Impact of the Goods and Services Tax on Solar Photovoltaic and Coal Power Costs |publisher=International Institute for Sustainable Development |date=March 2019 |url=https://www.iisd.org/system/files/publications/indias-energy-transition-goods-services-tax-coal-solar.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{soman2019indias, author = {Soman, Abhinav and McCulloch, Neil and Kaur, Harsimran and Beaton, Christopher}, title = {{India’s Energy Transition: The Impact of the Goods and Services Tax on Solar Photovoltaic and Coal Power Costs}}, institution = {International Institute for Sustainable Development}, year = {2019}, month = mar, url = {https://www.iisd.org/system/files/publications/indias-energy-transition-goods-services-tax-coal-solar.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }