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Business Model Comparison
Switching to solar power is a commendable move for your business, and a cost-effective one too in the long run. However, there are a lot of underlying technicalities you need to know before making the final move to go green.
When you are considering buying solar power, you would generally find two options in the market – Investing into a rooftop solar plant or buying solar power under a power purchase agreement (PPA). Both the options can be availed under two models: the capital expenditure (CAPEX) model or the operating expenditure (OPEX) model. In this section, we help you make an informed decision by highlighting the differences between the two in terms of their merits and disadvantages, and which model suits your business better.
CAPEX
Customer owns the asset
Upfront investment
Capital repaid through generated electricity
Payback less than 6 years and full saving from generated electricity for the coming years
Tax benefit (income tax, VAT)
Other benefits (if any i.e. carbon credit, incentives, etc.)
OPEX
Developer owns asset
No upfront investment, only provide roof (in good condition)
Saving generally 10% from generated electricity
Contract 25 years, penalty for prematurely termination
No tax benefit
Other benefits taken by developer
Chart on the left shows typical comparison between CAPEX and OPEX
Any corporation that can make an upfront investment in purchasing a solar power plant can go for a CAPEX model.
A CAPEX investment carries huge potential in that you can develop a 30% equity IRR with well-managed CAPEX projects, and your project payback time after 5 years is typically only 1 year.
It’s a great investment.
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