One of the biggest challenges companies face when going solar is financing. Solar PV systems come with large upfront costs that can be a deterrent for those who find the entire solar installation process expensive and intimidating.
Need a ballpark on solar power plant costs in India? The cost of a 1MW solar power plant can easily fall around Rs. 4 crores, or above. The cost may differ depending on the quality of solar components used and efficiency of the solar system.
If this sticker shock is giving you second thoughts, you are not the only one. Luckily, financial support, like solar loans and solar leases (Capex model), is available for businesses for a little to zero down payments.
Opex vs Capex Solar Model
A solar loan and a solar lease allow businesses to install commercial solar panels without disturbing their cash reserves and cash flow. While you enjoy huge energy savings and reduce your carbon footprint, making the right choice between owning the system (loan/ Capex) vs paying rent (opex) can go a long way.
What all Entails in Renting the Solar System – Opex Model
A solar lease or Opex model allows you to install solar panels by making a monthly payment to a third-party solar installer or RESCO (Renewable energy solar company) that owns and maintains the system while you use the electricity generated. The consumer only pays for the electricity thus consumed on a monthly basis. Having a solar plant through opex model is not only less capital-intensive, but the solar electricity bills generated will also be lower than your conventional grid electricity bills. You will be having guaranteed savings from day 1.
The per unit tariff and other terms are mentioned in a power purchase agreement binding upon the developer and the consumer. Depending upon the tariff model, your tariff can be flat or it can follow the market.
Benefits of Opex Model
- Zero upfront cost
- Lower monthly payments than regular utility bills
- Installation and maintenance support from developers as they are the owners of the solar asset and their revenue depends on the performance of the solar plant
Drawbacks of Opex Model
- Ineligible for subsidies and rebates as the asset owner is a third party.
- Price escalations due to a rise in market rates (if the tariff model is floating)
- No ownership of the system.
Talking about low-cost solar energy options in India, the RESCO model for solar power. RESCO stands for Renewable Energy Service Company, and it is becoming popular for last many years. RESCO model is one of the reasons why commercial and industrial customers adopted solar as they didn’t have to pay for the investment in solar plant upfront but they were saving from Day 1. It’s similar to leasing, as a third-party solar developer does everything from financing the system to installation and maintenance. Currently, it is mainly offered for rooftop solar projects in commercial and industrial segment.
What All Entails in Owning the System – Capex Model
The model where in the organisation owns the solar system and buys it on its own books of account is known as the capex model. This model allows businesses to own solar power with zero investment (initially) if they finance it through solar loans and enjoy significant savings over the system’s lifetime as once you own the system, it will keep generating solar electricity. Moreover, the consumers are eligible to benefit from the incentives and favourable policies, which they otherwise wouldn’t qualify for with opex model or leasing model.
Benefits of Opting for a Capex Model
- Ownership of the system.
- Eligible for government subsidies, rebates, etc.
- No effect from market price escalations.
Drawbacks of Buying Through a Solar Loan
- The upfront cost can be deterrent.
- It is capital intensive and takes high investment to the scale of crores for a MW of solar system
Considering the Financials of your Company
When considering the best solar financing option, the deciding factors can be the duration you intend to run your business at the current location and the availability of funds. If you have the financial stability to set up an on-grid or off-grid solar system, purchasing it is likely to be a sound financial decision. A grid-connected solar system of up to 25 kW can be installed in hospitals, factories, offices, schools and other commercial spaces.
If the electricity bill costs around Rs. 25,000 per month, the savings can be as high as 90%. It will take around 6-8 years to get a full return on your solar investment. This, of course, may differ depending on the type of solar system installed and its efficiency rating. Hence, make sure to discuss the solar costs and other aspects thoroughly with your solar power company.
On the other hand, if you want to quickly get started with solar and enjoy solar energy along with increased financial savings, opex model is the way to go!
What is the Long-term Objective of Your Business
Considering the ownership, both opex and capex model allow commercial and industrial businesses to enjoy utility bill savings, but if the upfront investment is going to be a deterrent for you, you can opt for opex model instead. Capex model might mean a high capital investment in your books of account, but you can keep enjoying the benefits for the system’s lifetime as its owner once the payback period is over. Opex model comes with its own advantages like operation and maintenance, and you can do what you do best, which is your business.
For businesses running on a rental property, having no definite business continuity plans, or lacking funds, an opex model can definitely help you reduce energy costs. Given the considerable savings that solar brings, it is still profitable.
Want to be a part of India’s solar future? Contact Amplus Solar to learn more about various models you can avail to use solar energy, and other government schemes you may benefit from. As a leading, ISO-certified solar energy company in India, we provide businesses, industries, and commercial with customized on-grid solar or off-grid solar systems for their electricity needs. We offer complete clean energy solutions, from battery storage to energy monitoring equipment to maintenance services.