Capex vs Opex: Choosing the Right Financing Model for On-Site Solar Energy
As businesses shift towards renewable energy, on-site solar power has become a preferred solution for reducing energy costs and carbon footprints. However, one critical decision in implementing a solar energy system is choosing the right financing model: Capital Expenditure (Capex) vs. Operational Expenditure (Opex). Each approach offers distinct advantages, depending on a company’s financial strategy, risk appetite, and long-term energy goals.
Understanding Capex and Opex Models
Capex (Capital Expenditure) Model: Ownership-Based Approach
Under the Capex model, the business makes an upfront investment to purchase and install the solar power system. The company owns the asset and benefits from long-term energy savings, government incentives, and tax benefits.
Key Features of the Capex Model:
- Upfront Investment: High initial cost for system procurement, installation, and commissioning.
- Ownership: The company owns the system and reaps all financial and operational benefits.
- Long-Term Savings: Once installed, the system provides free electricity for decades.
- Government Incentives: Eligible for capital subsidies, accelerated depreciation, and tax benefits.
- Maintenance Responsibility: The business is responsible for system maintenance and performance.
Opex (Operational Expenditure) Model: Pay-As-You-Go Approach
In the Opex model, businesses opt for a third-party-owned solar system under a Power Purchase Agreement (PPA) or lease arrangement. The company pays for the power consumed rather than the solar system itself.
Key Features of the Opex Model:
- Zero or Low Upfront Investment: No capital investment required; payment is based on energy consumption.
- Third-Party Ownership: A solar developer owns, installs, and maintains the system.
- Predictable Energy Costs: Fixed or variable tariff rates for solar electricity over a contract period.
- No Maintenance Hassles: The service provider manages all operational aspects.
- Flexibility: Ideal for businesses that prefer to avoid capital investment and focus on core operations.
Financial Comparison: Capex vs Opex
| Feature | Capex Model | Opex Model (PPA/Lease) |
| Initial Investment | High (₹3-5 Crore per MW) | Zero or minimal |
| Ownership | Business owns the system | Third-party ownership |
| O&M Costs | Business responsibility (₹5-8 Lakhs per MW per year) | Managed by service provider |
| Government Incentives | Tax benefits, depreciation benefits | Limited or passed to provider |
| Electricity Tariff | Free after ROI period (~4-6 years) | Fixed or escalated rate (~₹3-5/kWh) |
| Long-Term Savings | Higher savings post-payback period | Moderate savings |
| Flexibility | Less flexible; capital locked | Higher flexibility; no ownership risk |
Which Model Should Your Business Choose?
- Choose Capex if:
- Your business has sufficient capital for upfront investment.
- You want long-term energy savings and tax benefits.
- You can manage system maintenance or hire an O&M contractor.
- Choose Opex if:
- Your business prefers a low-risk, no-investment approach.
- You want a hassle-free solar solution with no maintenance responsibility.
- You have a shorter lease term for the premises and cannot invest in a permanent solar installation.
Conclusion: Making the Right Decision
Both Capex and Opex models provide cost-effective solar solutions, but the choice depends on a business’s financial strategy and long-term energy goals. Large enterprises with strong financial reserves may benefit from Capex by maximizing ownership benefits, while companies seeking asset-light operations may find Opex more attractive for immediate energy cost reductions.
Consulting a solar energy expert can help determine the best approach tailored to your business needs, ensuring optimal savings and sustainability.
For customized solar financing solutions, reach out to our experts today on [email protected]!