The Rajasthan Electricity Regulatory Commission (RERC) has taken a significant step to protect consumer interests and reduce power procurement expenses by classifying the recent reduction in Goods and Services Tax (GST) on renewable energy equipment as a 'Change in Law' event under power purchase agreements (PPAs) in the state. The GST rate on key renewable components such as solar modules, photovoltaic cells, wind turbines, biogas plants, and waste-to-energy systems has been reduced from 12% to 5%, effective September 22, 2025, as notified by the central government.
Order Details and Implications
In its order dated June 3, the Commission directed renewable energy developers to pass on the financial gains resulting from the tax cut to distribution companies, ensuring that the benefit ultimately reaches electricity consumers. The RERC noted that this reduction mirrors the earlier GST increase implemented in October 2021, when the rate was raised from 5% to 12%. At that time, regulators treated the hike as a Change in Law event, allowing developers to recover additional costs through tariff revisions. Applying the same principle in reverse, the Commission 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, emphasizing 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.
Impact on Renewable Energy Procurement
According to DD Agarwal, director at Samta Power, the ruling could help reduce the overall cost of renewable energy procurement in Rajasthan while also minimizing 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 September 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. This move is expected to enhance transparency and ensure that consumers receive the intended financial relief from the tax reduction.
