Two Policy Changes That Are Improving EPC Margins Right Now

A Policy Change Most EPCs Have Not Yet Priced Into Their Proposals

India's GST Council voted in September 2025 to cut the tax rate on solar energy equipment from 12% to 5%. The change took effect on September 22, 2025, and applies across the full renewable energy value chain — solar cells, modules, panels, windmills, biogas plants, and associated equipment. GST on coal and lignite was simultaneously raised from 5% to 18%, making the competitive economics of solar relative to thermal power significantly more favourable in a single policy move.

For EPCs, the headline number — 12% down to 5% — understates the real impact because solar projects are not billed at a flat goods rate. Under the 70:30 composite valuation rule that governs EPC project contracts, 70% of the project value (the goods component) attracts the goods rate and 30% (the services component) attracts the standard 18% service rate. Before September 2025, this produced an effective combined rate of approximately 13.8%. After the cut, the same formula produces an effective rate of 8.9% — a reduction of 4.9 percentage points on the total project cost.

What This Means at Each Scale

The savings arithmetic is straightforward once EPCs understand the 70:30 rule applies to the full contract value. On a 100 kW commercial rooftop with a total project cost of approximately Rs 40 lakh, the 4.9% cost reduction translates to roughly Rs 2 lakh in saved tax exposure — which can be passed directly to the client, improving the payback period by several months, or retained as margin. On a 1 MW ground mounted commercial project, the savings reach Rs 20 to 25 lakh. For EPCs who were already quoting these projects, the GST cut means every project completed after September 22 cost less than your pre cut proposal price assumed — which either improved your margin silently or left money on the table if you had already submitted a competitive bid.

The most significant downstream effect is on LCOE (Levelised Cost of Energy). According to PV Magazine India, the 5% capex reduction from the GST cut translates to approximately Rs 0.10 per kWh lower generation cost — enough for developers to lower their bids by around 4.3% in utility auctions. This flows through to DISCOMs in the form of lower power procurement costs and to commercial and industrial clients in the form of a wider gap between solar LCOE and their current grid tariff.

The Battery Duty Relief — The Second Change EPCs Are Missing

Alongside the GST cut, a second policy change has gone largely unnoticed by many EPCs. In February 2026, the government extended the customs duty exemption on capital goods used in lithium ion battery cell manufacturing through to March 2028. This exemption directly reduces the input cost for domestic battery manufacturers producing cells for BESS projects, and the savings flow downstream to EPCs who are including storage in their project proposals.

The practical implication is that hybrid solar plus storage projects have become meaningfully more cost competitive than they were twelve months ago. The combination of the solar GST cut and the battery duty relief has compressed the cost gap between pure solar projects and hybrid projects that include storage — making the business case for adding BESS to commercial and industrial installations easier to present to clients. For EPCs who have been hesitant to propose storage because of cost concerns, now is the right time to revisit that calculation.

How to Use These Changes in Your Next Proposal

Update your BOM and proposal templates immediately if you have not already done so. Any proposal still using pre September 2025 cost assumptions is understating the client's actual savings and overstating the project's payback period. The corrected financials — with the lower effective GST and updated BESS input costs — will produce a shorter payback period and a stronger IRR, both of which help close the deal.

Use the policy context explicitly in your client conversation. Most commercial and industrial clients making capital allocation decisions want to understand why now is a better time to invest than last year. The answer, in 2026, is specific: GST at 5% versus 12%, battery duty relief extended, and a 44.61 GW installation year that signals the infrastructure ecosystem is maturing rapidly. The EPC who can explain these policy tailwinds with specific numbers is not just selling a system — they are demonstrating market knowledge that builds the client's confidence in the proposal and in the EPC who wrote it.

For residential and PM Surya Ghar projects, the Rs 9,000 to 10,500 reduction on a 3 kW rooftop is a meaningful improvement in affordability for households at the lower end of the income range who were previously marginal customers. If your residential pipeline includes households that declined in 2024 because of upfront cost concerns, a follow up conversation now — with updated pricing that reflects both the GST cut and any subsidy adjustments — could convert previously lost leads into installations.

Sources

• Ministry of New and Renewable Energy (MNRE) via PIB — pib.gov.in — "GST on Renewable Energy Devices Rationalised to 5%" (September 17, 2025, effective September 22, 2025)
• Mercom India — mercomindia.com — "New GST Rates on Renewable Energy Goods Likely to Reduce Costs and Tariffs" (September 2025) — 70:30 rule, 8.9% effective rate confirmed
• PV Magazine India — pv-magazine-india.com — "GST on Solar Cells, Modules Cut to 5%" (September 4, 2025)
• PV Tech — pv-tech.org — "India cuts GST on renewable energy components from 12% to 5%" (September 2025)
• MNRE FY2026 Annual Report — mnre.gov.in — Battery customs duty exemption extended February 2026 to March 2028 (released April 8, 2026)