Solar Capex vs Opex


Today, the questions on sustainable energy solutions are no longer about accessibility and availability. With solar being 20% cheaper than grid power, most large C&I consumers have accelerated their plans to adopt onsite solar. Switching to solar helps reduce carbon footprint and supports the CSR goal of going green.

There are two options when turning to onsite solar solutions, either investing in an installation or procuring power at a pre agreed tariff with a developer from an installation at the business premises. Solar Energy Solutions in India are run on these CAPEX or OPEX model..


As the name suggests, CAPEX model requires own Capital Expenditure for setup of the solar power plant i.e. customer holds ownership of the asset. If the business premises has ample space for installing a solar power plant and the business can make the upfront investment in owning a solar power plant, then a solar capex model should be explored.


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.

As there is zero investment and no associated performance risks, the company enjoys considerable risk-free savings. The entire operation and maintenance for the agreed life term of the system is taken care of by the partner.

The OPEX model is also called the BOOT model (Build Own Operate Transfer) since the asset ownership is transferred back to the customer at Zero cost after the PPA tenure.


It is important to evaluate both models for merits and demerits to understand which model suits a particular business better.


Any business that can make the upfront investment in owning a solar power plant can go for a Capex model. A capex investment has a windfall potential in that a well-managed capex project can yield a 30% equity IRR and result in a payback of 5 years. This makes it a lucrative investment. Let us see how:

Generation/utilisation, capital costs and displacement tariff (the price of energy which solar is substituting) are the three biggest factors that impact returns. A 1% change in each of these directly impacts the project IRR and payback periods by the same degree.

Without taking depreciation (setting off 60% depreciation against other company income) benefits, when solar generation is 1.5 lakhs/100 kW/annum, displacement tariff Rs 6.50/unit and capital cost around Rs 45 lakhs/ 100 kW; payback works out to 6 years and project IRR to 15%. The levelized cost of energy is Rs 4.95/unit.

Using depreciation can reduce the payback to 5 years and increase IRR by 3%. Equity IRRs can go as high as 35%! The levelized cost of energy drops to Rs 4.42/unit.

The levelized cost, is essentially, the tariff being paid for solar energy for 25 years.

Assumptions made for these calculations are:

  • The entire solar energy is utilised. For this, net metering should be possible or base load consumption should be higher than the peak solar capacity.
  • Company is bankable and can raise debt at a 10% interest rate for 10 years for 70% of the capital cost. Higher the debt and longer the tenure, greater are the equity returns.
  • O&M costs (Rs 6 lakhs/MW/year with a 5% escalation/year) and insurance costs of 0.15% of the capital cost every year.

A business with serious green ambitions should also definitely look at Capex since a 1 MW solar power plant offsets ~1400 tonnes of CO2 annually. A wholly owned onsite solar plant is a visible commitment to sustainability.


OPEX is a preferred model for a lot of companies that do not want to invest in non-core operations. It’s also convenient for them to manage these assets through a third-party player.

In times of liquidity issues and market slowdown, the OPEX model is a preferred choice for a lot of C&I consumers. Any investment grade company with low risk appetite and with capital constraints can consider the Opex model. If approvals for Capex are likely to be held up at the C suite level, Opex will likely see a smoother approval process. Moreover, an organisation that is unwilling or can’t afford the maintenance and operation of the plant including dedicated personnel for the same will prefer the Opex model.

Energyhive and its partners, with our superior technology and expertise, offer you the best cost-effective processes, management, and support. We can help identify optimal technologies, navigate through regulations, and source proven yet economically competitive service providers.


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