Capital expenditure (Capex) and operational expenditure (Opex) solar financing models have their own sets of advantages and considerations, making it important for investors and businesses to understand their differences before deciding which approach to take. In this blog, we will explain all the major differences between the Capex vs Opex solar model. Additionally, we will help you understand who should adopt an Opex solar model and who should not.
Comparing Capex vs Opex Solar Model: Which is the Better Investment?
Solar energy has experienced remarkable advancements in recent years, prompting numerous organizations to adopt solar power systems for a variety of benefits, including efficient space utilization, cost savings, and improved building aesthetics. Within the realm of solar energy adoption, two prevalent models have emerged: Opex and Capex.
To understand the difference between Capex vs Opex solar models, you’ll first need to understand what is a Capex solar model and what is an Opex solar model clearly.
What is Opex Solar Model?
By opting for an operational expenditure or Opex solar model, individuals or organizations can install solar panels without the need for upfront capital investment. Instead, they make regular monthly payments to a third-party solar installer or Renewable Energy Solar Company (RESCO) that assumes ownership and maintenance responsibilities for the solar system. In return, the lessee gains access to the electricity generated by the system for their own use.
Consumers are only required to pay for the electricity they consume on a monthly basis. Opting for a solar plant under the Opex model offers multiple advantages. Not only does it require lower capital investment, but compared to conventional grid electricity bills, it also results in significantly reduced solar electricity bills. By choosing this model, you can enjoy guaranteed savings right from day one of utilizing the solar plant.
The relationship between the solar developer and the consumer is governed by a power purchase agreement (PPA). This agreement establishes the terms and conditions, including the per-unit tariff. Your tariff can follow the market or be flat based on the tariff model. After learning what is opex solar model, let’s thoroughly go through its benefits and drawbacks-
Benefits of the Opex Model
- This solar financing model offers zero upfront cost.
- Compared to regular utility bills, it has lower monthly payments.
- Developers are the owners of the solar asset and provide installation and maintenance support. Their revenue is directly linked to the performance of the solar plant, ensuring their commitment to delivering ongoing assistance and upkeep. This saves you from spending installation and maintenance charges.
Drawbacks of the Opex Model
- Since the solar asset owner is a third party, it is eligible for rebates and subsidies.
- No ownership of the solar system.
- In the case of a floating tariff model, price escalations may occur as a result of market rate increases.
Also Read: 13 Best Commercial Solar Financing Companies
What is Capex Solar Model?
The Capex model refers to the approach in which the organization takes ownership of the solar system and includes it as an asset on its own financial records. In this model, businesses have the opportunity to own solar power without any upfront investment, especially when financing it through solar loans. The customers of Capex solar models benefit from favorable incentives and policies, which they otherwise wouldn’t qualify with the leasing model or Opex model. After learning what is capex solar model, let’s thoroughly go through its benefits and drawbacks-
Benefits of Opting for a Capex Model
- You have the ownership of the system.
- Your solar system is eligible for government rebates, subsidies, etc.
- Market price escalations have no effect.
Drawbacks of Opting for a Capex Model
- The initial cost can serve as a deterrent.
- It is capital-intensive and needs high investment.
What is the Difference Between Capex vs Opex Solar Model?
This table represents all the differences between Capex vs Opex solar model-
|Parameters||Capex Model||Opex Model|
|Ownership||Organization owns the solar system.||Third-party providers own the solar system.|
|Investment||Requires upfront capital investment.||Zero or minimal upfront investment.|
|Financing||Organization finances the system independently.||Third-party financing or leasing options.|
|Maintenance||Organization is responsible for maintenance.||Third-party providers are responsible for maintenance.|
|Control||Organization has full control over the system.||Limited control over the system as it is owned by a third party.|
|Risk||Organization bears the risks and rewards||Third-party provider bears the risks and rewards|
|Energy Costs||Reduced or eliminated energy bills||Regular payment for the energy produced by the system|
|Incentives||Eligible for tax credits and incentives||Limited or no eligibility for tax credits and incentives|
How Much Does Solar Opex Cost?
After going through the Capex vs Opex solar model comparison table, let’s learn about solar Opex costs. These costs are associated with maintenance as well as the maintenance of the solar system. It includes expenses such as equipment repairs, maintenance, and labor. According to a survey conducted in 2019, the average lifetime Opex for projects ranges from $13 to $25/kWDC-yr, with operations and maintenance (O&M) cost declining to $5-8/kWDC-yr in many cases. Now, let’s see who should adopt an Opex solar model.
Also Read: 4 Leasing Solar Panels Pros and Cons
Who Should Adopt an Opex Solar Model?
A lot of businesses favor Opex solar model as it is a good fit for them. It is an excellent investment option for many companies because of shareholder and market liquidity issues. The Opex model proves to be an ideal choice for numerous businesses with financial restrictions and low-risk profiles. Now, let’s also find out who should adopt a Capex solar model.
Who Should Adopt a Capex Solar Model?
Any corporation that has the capability to make an initial investment in acquiring a solar power plant can adopt a Capex model. This model offers immense potential, allowing for the development of about 30% equity internal rate of return (IRR) through well-managed Capex projects. Moreover, the project’s payback period is typically as short as one year after five years of operation. Overall, it represents a highly attractive investment opportunity.
In conclusion, choosing between Capex and Opex solar models should be based on your financial capacity, risk tolerance, and long-term goals.
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