Capex vs Opex Model in Solar Energy Systems – Which is Better?
Solar energy systems are becoming increasingly popular in homes and businesses around the world. With rising electricity costs, solar energy provides an attractive alternative to traditional energy sources.
With solar power now ~20% cheaper than grid electricity, the majority of commercial and industrial customers have expedited their plans to adopt on-site solar panels. Making the switch to solar also helps reduce carbon emissions and shows commitment to environmental responsibility goals.
One of the most important decisions when installing a solar system is determining what kind of pricing model best fits your needs: Capex or Opex. This article will discuss the pros and cons of each model and help you decide which is best for your solar energy system.
Overview of Capex and Opex Solar Energy Systems
In the context of solar energy systems, Capex (Capital Expenditure) and Opex (Operational Expenditure) refer to different types of payment models.
In a Capex Model, the cost of the solar energy system is paid upfront in a one-time fee.
- Ownership – The system is owned by the customer, so any energy produced by the system belongs to the customer.
- Maintenance – System installation and maintenance costs are covered in the upfront fee.
- Investment – It requires a large initial investment but has long-term savings potential as customers will not have to pay recurring energy bills.
Who Should Consider It?
This model can be more beneficial for those with the upfront capital to invest in their solar energy system.
If your business has the space to install a solar power plant and can make the upfront investment, explore a solar CapEx model.
In an Opex Model, customers pay a fixed monthly fee for the use of a solar energy system without having to purchase it outright.
- Ownership – The energy produced belongs to the purchaser, so no ownership is involved.
- Maintenance – The monthly fee covers installation and maintenance costs as well as energy payments for the energy produced by the system.
- Investment – Customers only pay for generated energy rather than investing in a large asset. The Opex model is less risky for the customer than the Capex model.
Who Should Consider It?
This model is more beneficial for those who do not have access to large amounts of capital but still want to take advantage of solar energy. The customer does not have to worry about long-term costs, as the monthly fee covers all expenses.
Factors to Consider When Choosing Between a Capex or Opex Model
1. Total investment capital available
If you can afford a higher upfront investment, you can consider the Capex Model and vice-versa.
2. Long-term savings potential
Capex Model offers the highest long-term savings potential as customers will not have to pay recurring energy bills. The Capex model also gives customers full ownership of the system, so any energy produced by the system belongs to them. On the other hand, Opex Model has a smaller upfront investment which may be attractive for those who don’t have access to large amounts of capital. However, customers do not own the system so any energy produced belongs to the purchaser and they will have to pay a fixed monthly fee for the use of their solar energy system.
3. Risk tolerance
The Capex Model has a higher risk factor due to the large upfront investment. The customer has to bear all costs upfront and there is no guarantee that they will get a return on their investment. On the other hand, the Opex Model has a low-risk factor since customers don’t have to pay an upfront cost and only have to pay for generated energy. This option is less risky for the customer and can be more attractive for those who don’t have access to large amounts of capital.
3. Maintenance requirements
The Opex Model removes the responsibility of maintaining the system from the customer. The monthly fee covers all maintenance and repairs, giving the customer peace of mind that their system is operating optimally.
4. System size
System size plays an important role in determining which model is best to use. If you are looking for large-scale energy production, the Capex model is more beneficial as costs will be spread out over time. On the other hand, if you are looking for a small to medium-sized system, the Opex model might be ideal as it eliminates large upfront investments.
5. Energy usage patterns and needs
When choosing between a Capex or Opex Model, it is important to consider your energy usage patterns and needs. If you have high energy consumption patterns and are looking for long-term savings potential, then the Capex Model may be the better option. On the other hand, if you have low energy consumption patterns and require flexibility in payment, then the Opex Model may be more beneficial.
6. Potential for future expansions or upgrades
When considering the potential for future expansions or upgrades, the Capex Model is more beneficial as it allows customers to easily incorporate new systems and technologies without incurring additional costs. The customer owns the system so any improvements can be made without having to incur any payments. On the other hand, with the Opex Model, customers are limited as they do not own the system. Any upgrades or expansions will require additional payments and may not be as cost-effective in the long run. It is important to consider how long you plan on using your solar energy system before deciding which model to choose.
7. Tax incentives or credits that may be available
Government incentives and credits can be beneficial when choosing between a Capex or Opex Model. Incentives like the Solar Investment Tax Credit (ITC) are available to customers who opt for the Capex Model and can reduce up to 26% of their total costs. Other financial incentives can be obtained from local governments that offer solar rebates or grants for those who choose the Capex Model. On the other hand, Opex Model customers may not be eligible for these incentives and credits as they don’t own the system. Understanding all available incentives can help customers make an informed decision when choosing between a Capex or Opex Model.
Which Model Is Better?
In the end, it all comes down to what fits best with your individual needs and budget. When deciding between a Capex or Opex model for your solar energy system, consider the pros and cons of each model to determine which is best for you.
It’s always good to consult with an experienced player in the solar energy industry to find the best recommendation for your specific purpose and needs.
India’s Latest Solar Energy Policies
Jawaharlal Nehru National Solar Mission
- The National Solar Mission was launched in 2010 with the goal of creating a system of incentives and subsidies to promote solar energy development in India.
- It sets targets for increasing solar power generation capacity in the country, as well as providing financial assistance for solar projects and research into new technologies.
- The mission also seeks to create an enabling environment for the private sector to invest in solar energy projects and reduce the risks associated with them.
Under this, there are several benefits offered for rooftop solar PV plants through,
Accelerated depreciation – If you’re a solar plant developer and want to take advantage of the benefits that come with accelerated depreciation, know that under the Income Tax act, an 80% rate is available for rooftop solar PV systems. This can create significant savings, especially if you have enough profits against which the depreciation can be charged.
MNRE Subsidy – The Ministry of New and Renewable Energy (MNRE) offers Central Financial Assistance through subsidies for capital costs and/or interest rates (depending on the applicant’s needs).
Renewable Energy Certificates (RECs) – Renewable Energy Certificates (RECs) are a way to make more money from your rooftop solar PV plant. RECs are available for rooftop plants that have a capacity of 250 kW or more. Every 1 MWh (1,000 units) of energy generated is eligible for 1 REC. These RECs are traded on power exchanges, where they are sold to organisations that need to satisfy a Renewable Purchase Obligation (usually utilities).
Pradhan Mantri Sahaj Bijli Har Ghar Yojana (Saubhagya)
- Pradhan Mantri Sahaj Bijli Har Ghar Yojana (Saubhagya) is an Indian government scheme that was launched in 2017 to provide electricity access to every household in India.
- The program aims to achieve universal electrification through the installation of solar photovoltaic (PV) systems in rural areas and providing subsidies to install grid-connected electricity for rural households.
- Under the scheme, the government provides financial assistance in the form of loans, grants and other incentives to help meet the upfront costs associated with solar PV installations.
- The scheme also supports research into new technologies, such as solar microgrids, to ensure that electricity is provided in a reliable and efficient manner.
Pradhan Mantri Kisan Urja Suraksha evam Utthaan Mahabhiyan (PM-KUSUM)
- Pradhan Mantri Kisan Urja Suraksha evam Utthaan Mahabhiyan (PM-KUSUM) is an Indian government scheme launched in 2019 to promote the use of solar energy among farmers.
- The scheme aims to enable the installation of solar pumps and provide financial assistance (subsidies and loan schemes at reduced interest rates) for rooftop solar plants to be set up on agricultural land.
- In addition, it encourages farmers to generate additional income by selling surplus electricity generated from their solar pumps to the grid.
Renewable Energy Distribution Companies (REDCs)
The Indian government has set up Renewable Energy Distribution Companies (REDCs) to facilitate the development of renewable energy projects in the country.
- REDCs are responsible for providing access to renewable energy sources, such as solar and wind power, at competitive prices to consumers across India.
- REDCs are required to purchase any surplus energy generated from renewable sources and feed it into the grid.
- REDCs are also responsible for providing subsidies to those investing in renewable energy projects, as well as providing technical assistance and training to local communities.
- The Indian government has been encouraging REDCs to invest in new technologies such as smart grids in order to improve the efficiency and reliability of renewable energy sources.
- The Indian government has made it mandatory for all state governments to set up at least one REDC in order to promote the development of renewable energy projects.
Solar Parks and Ultra Mega Solar Projects
write points to explain the schemes under solar parks and ultra mega solar projects
- The Indian government has launched solar parks and ultra mega solar projects to promote investment in large-scale solar energy generation.
- Solar parks are dedicated areas set aside for the installation of large-scale solar projects, providing greater visibility and accessibility for investors.
- Ultra Mega Solar Projects are a form of public-private partnership, which involve the construction of large-scale solar projects with the help of public funding.
Apart from these, India’s individual states have also introduced policies that provide even more incentive to install solar panels on rooftops.
Overall, these initiatives are expected to lead to a significant increase in the share of renewable energy sources in India’s total electricity generation, helping the country move towards its goal of increasing renewables capacity to 500 GW by 2030.