OPEX Solar Model
OPEX or Open Expenditure shifts the responsibility of the solar plant to a third party and makes up for the drawbacks of CAPEX installation.
A consumer who wants to switch to clean energy but doesn’t have the capital ready to make the transition can ask a Renewable Energy Service Company (RESCO) to set up a solar plant.
The consumer provides the space, and the developer invests in the equipment, installation, commissioning, and maintenance of the plant. This type of installation is also called a land lease model.
What does the consumer get out of it? Cheaper and risk-free electricity!
The consumer 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, which would be cheaper than grid power.
Once the PPA expires, the rights of the solar plant get transferred to the consumer at zero cost.
Advantages of OPEX
- The consumer only pays for the electricity
- The investment and performance risk is borne by a third-party
- The developer takes care of the Operations and management of the plant.
Disadvantages of OPEX
- The developer avails the tax benefits and rebates
- Longer breakeven period
- The consumer has no control over the electricity tariff.
Comparing CAPEX and OPEX Solar Model
| Category | CAPEX | OPEX |
|---|---|---|
|
Investment |
Consumer makes 100% Investment |
Consumer only pays for the electricity |
|
Ownership Rights |
Consumer has full ownership |
Third Party Developer has the rights |
|
Electricity Tariff |
Reduced tariff |
Tariff decided by Developer |
|
Operation and Maintenance |
Consumer is responsible for O&M |
Developer is responsible for O&M |
|
Payback period |
Shorter Payback period |
Longer payback period |
|
Tax benefits and Govt. Rebates |
Consumers avails the benefits |
Developer avails the benefits |
How to Choose the Right Model?
Consider the following factors before the big decision:
- Your Budget and Financial Resources: Your biggest consideration when deciding between OPEX and CAPEX models should be financing. If you are prepared to make the capital investment for solar installation, then the CAPEX model is right for you. This investment can also be in the form of EMI payments or a solar loan.
But, if the aim is to decarbonize without investing money into solar, and you have the roof space to set up a solar plant, then the OPEX model is best. - Risk and responsibility appetite: Large-sized solar plants, installed by businesses, often pose a performance risk as solar generation can be affected by multiple factors such as location, panel orientation, weather conditions, product quality, etc.
Moreover, they also require regular maintenance. If you are prepared to shoulder this risk and responsibility then the CAPEX model is right for you. If not, then it’s better to let a third-party developer do the same. - Ownership Rights: Owning the rights to the solar asset comes with certain benefits. For example, commercial and industrial solar installations can avail up to 40% accelerated depreciation on their solar plant.
CAPEX installations allow you to avail such benefits while the OPEX model does not.