OPEX vs CAPEX Solar Model – Which is Better?

If you are a commercial enterprise in India trying to adopt solar power and lower your carbon footprint and costs in the process, you must have come across the terms ‘OPEX and CAPEX’. Two models describe the two different ways of investing in solar power systems.

Despite the differences between the two expenditure models, OPEX and CAPEX help reduce your energy costs. It would be important to have a closer look at both these models and find out which one of them can address your business needs. 

What is the CAPEX Solar Model?

The cost of the equipment, maintenance and installation of the solar energy system is paid by the consumer under the CAPEX or the capital expenditure model. The CAPEX model solar grants the consumer full ownership rights to their solar asset. These privileges consist of the choice of returning excess energy to the utility and getting paid tax and depreciation advantages. 

Additionally, consumers can choose to take advantage of solar loans, which reduce the cost of solar investment without sacrificing its advantages. 

According to a report by Mercom India for residential systems, a 1kW solar system under the CAPEX model will incur costs between ₹45,000 to ₹85,000. Similarly, a 5 kW solar rooftop system will cost between ₹2,25,000 to ₹4,25000. These values are for residential solar rooftop systems and include taxes and solar subsidies.

For consumers who have the necessary funds to invest fully in solar energy, the CAPEX model is a great choice. The CAPEX project works as an asset on the balance sheet and enables customers to get depreciation benefits. They can regain their initial investment in 5–6 years through cost savings.

What are the advantages and disadvantages of the CAPEX solar model?

Advantages of CAPEX 

• The owner can modify, improve, and expand the system without relying on anyone.    
• Taxes, subsidies, rebates, and other related benefits may be accorded to this type of solar energy generation setup.
• Provides tax depreciation benefits on your balance sheet
• Protects the customer from the increase in electricity tariffs in the future.

Disadvantages of CAPEX 

• High initial expenditure 
• The consumer is responsible for the operation and maintenance of the plant. 

What is the OPEX Solar Model?

Under the operating expenditure (OPEX) model, the responsibility of the solar plant is shifted to a third party or the installer. If a business seeks to switch to green energy with little or no capital, it can collaborate with a Renewable Energy Service Company (RESCO) to install a solar power plant.

The RESCO, or a developer, sets up an SPV (Special Purpose Vehicle) for the project and, through that, finances the equipment, installation, commissioning, and upkeep of the plant. The space (land or the rooftop) for the project can be given by the offtaker (the consumer) or the RESCO arranges for the same through the SPV.

The OPEX model can be further classified into Captive and Third Party Models based on whether the customer takes ownership in the SPV or not. To read more on this – https://sunsure-energy.com/captive-vs-third-party-open-access-ppas-for-green-energy-in-the-indian-power-market/

In the Opex model, the consumer typically enters into a Power Purchase Agreement (PPA) with the solar developer for a fixed tenure (between 15-25 years). During this period, the developer will provide them with energy at a negotiated tariff.

Advantages and Disadvantages of OPEX Solar Model

Pros of OPEX:

• Zero upfront cost
• Only the cost of electricity is borne by the consumer. The operations and maintenance costs are borne by the RESCO. 
• The developer is responsible for the running and managing of the plant.
• The consumer is not exposed to the performance and operation risk of the plant.

Cons of OPEX:

• The consumer can’t avail of tax incentives and rebates from the asset.
• Longer break-even period
• Tariff of electricity is not in the control of the consumer

Key Differences Between Opex Vs Capex Models

Understanding the major differences between OPEX vs CAPEX Capex solar models is crucial for making an informed decision for your business. Here’s a breakdown of the key features to consider:

How to Choose the Right Model for Your Business?

It’s necessary to consider your long-term objectives, risk tolerance, and financial limits when choosing a solar business plan.

If you desire tax benefits and incentives in addition to increased control over your energy supply, the CAPEX model can be the best option. You immediately profit from government solar subsidies and accelerated depreciation because you own the system under CAPEX. By doing this, you can optimise your savings over the panels’ lifespan. However, you will be responsible for additional upkeep and that the initial fees will be higher.

The OPEX model is particularly attractive to companies who wish to avoid making significant upfront investments. The upfront panel and installation costs are covered by the third-party finance provider, allowing you to begin enjoying the benefits of solar power immediately. Over time electricity rates are marginally higher than in the CAPEX model. And the RESCO is in charge of maintenance.

How Can Sunsure Energy Help?

Sunsure Energy offers customized OPEX model services for varying requirements of commercial establishments in India. With the help of our team, you will be able to ascertain what is the suitable model for youyr, and thus select the right option for your company and its development. 

We serve commercial and industrial (C&I) clients with open access solutions including solar, wind, hybrid and BESS technologies. Our experience lies in utility-scale and distributed RE projects.  .

Partner with Sunsure Energy and take advantage of renewable sources of power that will help you reduce your energy bills and embrace a green energy source. For more information about the services that we offer today to make the most out of solar energy.

Frequently Asked Questions

What is the main difference between the Opex and Capex solar models?

OPEX model shifts the cost of setting up the solar plant to a third party while the customer provides the space. On the other hand, the CAPEX model requires the customer to pay for everything related to the solar setup, including equipment, installation, and upkeep.

Which model is more cost-effective in the long run?

The cost-effectiveness of the solar model depends on several key factors, including the energy use of your organization, available government incentives, and the risk involved. The CAPEX solar model can be the most cost-effective due to lower electricity costs and possible tax benefits. However, if you want to avoid up-front charges and have limited maintenance responsibilities, the OPEX model is suitable.

What are the risks associated with the Capex model?

There are also a few risks associated with the Capex model, such as

Equipment Failures: Solar systems suffer equipment failures, leading to costs for repairs or replacements.

Maintenance Costs: Maintaining a solar system can be very costly, including the cost paid to professionals on repairs or upgrades.

Regulatory Changes: Any change in government policy or regulations may influence the solar system’s financial benefit.

Are there any tax benefits associated with either model?

Both OPEX and CAPEX models qualify for tax benefits. A Capex model provides tax benefits due to depreciations and potential tax credits. The OPEX model presents tax advantages, governed by local regulations.