Finance Models For Solar Energy Projects

The foundation for the success of a solar energy project is a well-chosen financial model

As a potential buyer of solar power, you typically find two options – investing in a rooftop solar plant or buying solar via power purchase agreement (PPA). In either case, two models can be employed: the capital expenditure model (CAPEX) or the operating expenditure model (OPEX). The purpose of this section is to help you make an informed decision by outlining the differences between the two models, as well as which option is best suited to your business.

CAPEX Model (Capital Expenditure model)

What is the CAPEX model?

The CAPEX or capital expenditure model involves the customer paying capital expenditures for the setup of the solar power plant, i.e. the customer owns the asset. When the business premises has sufficient space for installing solar power plants, & the business can make the upfront investment required to own one, then a solar CAPEX model should be utilized.

Benefits of CAPEX model

Consumers have a lower Levelized Cost of Energy

Consumers have 100% ownership of the product

Consumers have control over the type of technology used

Consumers have control over the quality of components being used

Beneficial to companies/individuals who have excess cash in their books

Suitable for companies/individuals keen on availing depreciation & GST benefits

It is the owners of rooftop solar and solar power plants that benefit from tariff savings.

Commercial & institutional clients can also claim the accelerated depreciation

OPEX/RESCO Model (Operation Expenditure model)

What is the OPEX model?

Under the OPEX model, a Renewable Energy Service Company (RESCO) invests, builds and maintains an onsite solar plant. The customer pays for the power generated under a long-term power purchase agreement (PPA) at an agreed tariff for a fixed tenure. The Opex model mitigates the investment and performance risk that a Capex model has since the customer only pays for the energy generated with no large asset based investment. This makes the Opex model cheaper upfront. Even with a PPA, the power is significantly cheaper than grid power.

Benefits of OPEX model

Better monitoring of load & consumption

No large upfront investments

Government support

Pay only for electricity generated,
no hidden costs

The actual investor and the customer will sign a Power Purchase Agreement (PPA).

Suitable for smaller companies with expansion plans looking to meet their green initiatives

Solar Power Plant is owned by RESCO or ENERCO (Energy Company).

The customer pays only for electricity used on a per-unit basis.