Key takeaways
- Under the CAPEX model, your business owns the solar plant, captures 100% of generation savings, and claims the 40% accelerated depreciation tax benefit.
- Under the OPEX (RESCO) model, a third-party developer installs and maintains the plant at zero upfront cost, selling electricity via a 15–25 year PPA.
- CAPEX delivers the highest total financial return with a typical simple payback of 3 to 4 years and over twenty years of free electricity thereafter.
- OPEX preserves working capital for core business expansion and eliminates performance risk, but requires strong credit ratings and minimum loads (100 kW+).
For commercial and industrial (C&I) enterprises across India, power tariffs of ₹8 to ₹12 per unit represent one of the largest controllable operating expenses on the profit-and-loss statement. Transitioning a manufacturing facility, cold storage plant, hospital, or institutional campus to rooftop solar is proven to cut energy costs by 40% to 80%.
However, the central decision facing commercial decision-makers is not technical—it is financial. Should your enterprise invest capital to purchase and own the solar plant directly (the CAPEX model), or should you partner with a Renewable Energy Service Company (RESCO) to install the system at zero upfront cost and purchase the generated electricity at a discounted tariff (the OPEX model)?
Both frameworks deliver immediate savings over conventional utility grid tariffs. But they differ fundamentally in capital allocation, balance sheet impact, tax advantages, operations and maintenance (O&M) responsibilities, and 25-year cumulative financial yield. Evaluating both models against your business cash flow requirements is crucial before commissioning your rooftop plant.
The CAPEX Model: Direct Ownership and Maximum Lifetime Savings
In the Capital Expenditure (CAPEX) model, your company acts as the outright owner of the solar installation. You finance the project either entirely through equity (internal cash accruals) or through a combination of equity and commercial term debt (typically 20% equity and 80% bank debt via specialized MSME green energy credit lines).
Under CAPEX, your company engages an engineering, procurement, and construction (EPC) partner like Ray2Volt to design, supply, install, and commission the system with high-efficiency DCR modules and grid inverters. Once commissioned, 100% of the electricity generated by the panels belongs directly to your business.
Because there is no ongoing per-unit tariff paid to a third party, your operational energy cost drops to near zero (excluding nominal periodic cleaning and electrical inspections). With commercial grid tariffs in Andhra Pradesh averaging ₹8 to ₹12 per unit, a well-engineered CAPEX installation delivers a rapid simple payback period of 3 to 4 years. For the remaining 20+ years of the plant's 30-year panel warranty, the power produced is essentially free.
The OPEX (RESCO) Model: Zero-Investment Solar via PPA
In the Operating Expenditure (OPEX) or RESCO model, your company makes zero upfront capital investment. Instead, a third-party solar developer (the RESCO) leases your unused rooftop space, funds 100% of the hardware and installation costs, and takes full legal ownership of the solar generation asset.
You enter into a long-term Power Purchase Agreement (PPA) with the developer, typically spanning 15 to 25 years. The agreement sets a fixed or escalated solar tariff—usually ₹4.00 to ₹5.50 per unit—which is 30% to 50% lower than your prevailing DISCOM grid electricity rate.
The RESCO developer handles all regulatory approvals, structural installation, insurance, performance monitoring, inverter replacements, and daily cleaning. You simply buy the solar units generated on your roof, paying a monthly energy bill to the developer just as you would to the state power utility, but at a substantial discount.
Under a standard RESCO PPA, the contract includes a guaranteed generation clause. If the system underperforms due to equipment breakdown or poor maintenance, the developer bears the financial penalty, ensuring your operational power savings remain protected.
Side-by-Side Comparison: Financial Structure, Operations, and Risk
Choosing between CAPEX and OPEX requires evaluating several core parameters, including balance sheet capital allocation, tax deductions, long-term operational responsibility, and total lifecycle savings.
| Evaluation Parameter | Self-Financed CAPEX | Debt-Financed CAPEX (Loan) | OPEX / RESCO (PPA) |
|---|---|---|---|
| Initial Capital Outlay | 100% upfront capital | 15% – 20% margin money | ₹0 (Zero capital investment) |
| Effective Cost of Solar Power | ₹0 / unit after payback | Loan EMI for 5–7 yrs, then free | Pre-agreed PPA tariff (₹4–5.50/unit) |
| Tax Depreciation Benefit | 40% Accelerated Depreciation | 40% AD + Interest deduction | None (Claimed by developer) |
| Operations & Maintenance | Building owner responsibility | Building owner responsibility | 100% developer responsibility |
| Balance Sheet Treatment | Fixed capital asset | Fixed asset + loan liability | Operating expense (Off-balance-sheet) |
| Typical Contract Term | None (Permanent ownership) | 5 – 7 Year loan tenure | 15 – 25 Year PPA commitment |
| Minimum Viable Size | 10 kW+ | 20 kW+ | 100 kW to 250 kW+ |
| 25-Year Financial Return | Maximum possible savings | High net savings | Moderate, steady bill discount |
Tax and Accounting Impact: Accelerated Depreciation vs PPA Operating Expense
One of the strongest financial drivers for profitable businesses choosing the CAPEX model in India is the Accelerated Depreciation (AD) tax incentive under Section 32 of the Income Tax Act.
Under current Indian tax laws, commercial entities that install solar energy assets can claim accelerated depreciation at a rate of 40% on a written-down value (WDV) basis. For a profit-making enterprise paying standard corporate tax rates, this tax shield allows you to write off a substantial portion of the asset value against taxable profits within the first two financial years. This accelerated tax write-off substantially reduces income tax liability and reduces the effective payback period by approximately 10 to 14 months.
Conversely, under the OPEX / RESCO model, your company does not own the equipment and cannot claim depreciation. Instead, your monthly payments to the RESCO developer are accounted for as standard operational utility expenses, fully deductible as business expenditures for income tax purposes.
To dive deeper into working examples of depreciation schedules and corporate tax deductions, read our dedicated guide on accelerated depreciation on solar assets.
Tax regulations, depreciation rates, and company tax slabs vary based on corporate entity structure and applicable financial regimes. Ray2Volt provides engineering and equipment installation services and does not provide formal tax, investment, or legal advice. Commercial readers should confirm accelerated depreciation eligibility and accounting treatment with their chartered accountant.
Developer Screening Criteria: Why Not Every Business Qualifies for RESCO
While the OPEX model sounds universally appealing because it requires zero capital outlay, not every commercial facility qualifies for a RESCO agreement. Because the developer commits private capital and takes 15 to 25 years of financial risk, developers enforce strict qualification criteria:
- System Capacity Threshold: Most institutional RESCO developers require a minimum rooftop plant size of 100 kW to 250 kW (requiring roughly 8,000 to 20,000 sq ft of shade-free roof). Projects below this threshold rarely justify transaction and legal overheads.
- Credit Rating and Solvency: Developers require an investment-grade external credit rating (typically CRISIL/ICRA BBB+ or higher) and audited profitable financials for the preceding 3 to 5 years.
- Rooftop Lease and Property Title: The building must be owner-occupied or subject to a long-term unencumbered lease that exceeds the duration of the solar PPA.
- Operational Continuity: The commercial facility must demonstrate consistent 7-day or 6-day daytime load consumption (such as continuous manufacturing, hospitals, or large retail hubs) to absorb solar power on-site.
The Decision Framework: How to Choose the Right Model for Your Facility
To determine whether CAPEX or OPEX aligns with your enterprise strategy, consider the following decision framework:
Choose the CAPEX Model If:
- Your business has surplus cash liquidity or can access low-interest green MSME debt (7.5%–9.5% p.a.). Explore debt terms in our guide to solar loans in India.
- Your enterprise operates profitably and can fully utilize the 40% accelerated depreciation tax benefit.
- You want to maximize total rupee savings over 25 years and achieve zero-cost power after year four.
- Your system size is under 100 kW, where RESCO developers typically do not bid.
Choose the OPEX (RESCO) Model If:
- Your capital is fully deployed in high-margin core business expansion with hurdle rates exceeding 25%.
- You have a strong corporate credit rating, roof space for 100 kW+ (8,000+ sq ft), and long-term property ownership.
- You prefer zero operational and maintenance obligations, passing all generation risks to a third-party specialist.
- You want immediate 30% to 40% power bill reductions without adding capital debt to your balance sheet. For institutional options, visit our investor opportunities page.
The Debt-Leveraged Hybrid: Many growing MSMEs in Andhra Pradesh choose a bank-financed CAPEX structure. By investing only 15% to 20% margin money and servicing the remaining 80% through a 5-year loan, monthly electricity savings cover the loan EMI. After 5 years, the business enjoys 100% free power and complete asset ownership.
In Andhra Pradesh, solar plants generate roughly 4 to 4.5 units per kW per day on an annualised basis (approximately 1,400 to 1,600 units per kW annually). Sizing the installation precisely against your load profile is essential under either model. For factories with significant daytime machinery loads, see our specialized analysis of solar for manufacturing plants.
Commercial tariff rates, system payback estimates, and accelerated depreciation benefits mentioned above are indicative and vary based on your facility's load profile, credit profile, and applicable tax bracket. Project developers and property owners should verify specific contract terms, current equipment pricing, and tax eligibility with their chartered accountant or financial advisor before signing a PPA or CAPEX contract. Ray2Volt Solar provides solar engineering and turnkey EPC services and does not offer formal tax, legal, or investment advice.
Frequently asked questions
What is the primary difference between the CAPEX and OPEX (RESCO) solar models?
In the CAPEX model, your business purchases, owns, and maintains the rooftop solar plant, retaining 100% of generated power savings and tax benefits. In the OPEX (RESCO) model, a third-party developer installs and maintains the plant at zero upfront cost to you, selling generated electricity at a pre-agreed per-unit tariff under a long-term Power Purchase Agreement.
Which model delivers higher financial returns over a 25-year system lifespan?
The CAPEX model provides significantly higher total financial savings. Once capital payback is achieved (typically within 3 to 4 years), the system produces free electricity for the remaining 20+ years of its 30-year panel warranty. In contrast, under OPEX you continue paying for each unit generated throughout the 15 to 25 year agreement term.
Can a business claim 40% accelerated depreciation under the OPEX / RESCO model?
No. Under the OPEX model, the third-party RESCO developer owns the physical asset and claims the 40% accelerated depreciation tax benefit under Section 32 of the Income Tax Act. The consumer books solar power payments as regular operational utility expenses.
What minimum system capacity is typically required for a RESCO OPEX project?
Most RESCO developers require a minimum plant size of 100 kW to 250 kW to justify the financial structuring, legal diligence, and ongoing operations and maintenance costs. Facilities with smaller loads (under 100 kW) are generally better suited for direct CAPEX ownership or MSME solar loan financing.
What happens to the rooftop solar plant when a RESCO PPA contract expires?
At the conclusion of the PPA term (typically 15 to 25 years), ownership of the solar installation is customarily transferred to the building owner at a nominal residual cost (often ₹1 or scrap value). The business then enjoys free electricity for the remaining operational life of the equipment.
Ray2Volt Solar Private Limited
We design, install, and service rooftop solar for homes and businesses across Tirupati district and Andhra Pradesh — from PM Surya Ghar residential systems to commercial and industrial plants. Every enquiry starts with a free power audit.
Evaluate CAPEX vs OPEX for Your Business
Share your electricity bills and rooftop dimensions with Ray2Volt. We provide side-by-side financial models comparing direct ownership against RESCO PPA options tailored to your facility.
