Solar Business Models
Solar energy is the most easily and abundant power source available to humans today. If we were to harness all the energy received from the sun in an hour, it would be sufficient to meet a year’s requirement of energy for all humans on earth.
Over the past decade technology development, government initiatives/policies and easy finance options in the market have made it very cost effective and efficient to capture a large amount of solar energy received on earth. Government of India is encouraging adoption of solar energy by every Indian. To promote convenient adoption and use of solar energy, public sector banks & private banks have been given statutory instruction by Ministry of Finance to offer loan at reasonable cost
The primary constraint of solar energy is the requirement of shadow free space. However if one were to utilize the unproductive commercial, industrial and residential roof space available, the problem of space constraint would be easily resolved.
Today Switching to solar power is a wise decision, a cost-effective in the long run, helps in reduce carbon footprint and supports government to achieve set goal of green energy.
However, there are a lot of underlying technicalities you need to know before making the final move to go green
Two type of business model available in the market for onsite solar power projects.
In this section, the differences between the two business model have been explained in terms of their advantages and disadvantages. This information will help in taking decision and identify suitable business model for solar project.
CAPEX MODEL
The most common solar rooftop financing option. As the name suggests, CAPEX model requires own Capital Expenditure (customer has to pay 100% cost) for setup of the solar power plant and maintain i.e. customer holds ownership of the asset. If premises has ample space for installing a solar power plant and the space owner can make the upfront investment, then a solar CAPEX model should be explored. In CAPEX model, the owner is eligible to claim accelerated depreciation to gain tax savings or claim government subsidy.
In CAPEX model, real savings start after payback period. But the savings & free electricity in CAPEX will always be substantially higher than savings in OPEX.
OPEX MODEL (RESCO/BOOT)
Under the OPEX model, a third party Renewable Energy Service Company (RESCO) finances, installs, operates and maintains the rooftop solar project. A power purchase agreement /lease agreement is signed between the installer and the consumer at a mutually agreed price (tariff). The main advantage of this model is that consumer can install a solar PV system and simultaneously have the choice whether or not to consume the electricity. Accordingly, the model is further divided into two types –
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Rooftop Leasing : In Rooftop Leasing the project developer (RESCO) will be paying a fixed lease payment to a space owner over the time of the lease period for installing the solar panel on the rooftop
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Power Purchase Agreement (PPA) : In Power Purchase Agreement the project developer (RESCO) can sell the power back to the space owner in favor of a lower solar power tariff. The excess power could be sold by the developer to DISCOM.
The OPEX model mitigates the investment and performance risk, because the customer only pays for the energy generated with no investment. This makes the OPEX model cheaper upfront. Even with a PPA, the power is significantly cheaper than grid power.
The OPEX model is also called the BOOT model (Build Own Operate Transfer) since the asset ownership is transferred back to the customer at Zero cost after the PPA tenure.
In OPEX model, real savings start from day 1. But the savings & free electricity in OPEX will be lower than savings in CAPEX.
OPEX (RESCO/BOOT)
CAPEX (EPC)
Zero upfront investment by the customer.
100% investment borne by the customer
Developer is owner of the entire installed asset
Customer is owner of the asset.
Customer pay electricity charges to developer based on agreed PPA @ unit rate lower compare to grid. No Hidden cost
Customer pay to DISCOM only for electricity unit consumed more than unit generated by rooftop solar.
The O&M of the plant is taken care by developer
The O&M by customer manage equipment and downtime losses.
Customer only pays tariff for the consumption of energy generated and enjoys savings on monthly energy bills from day 1
Customer enjoys cheap electricity and overall savings after cost of installation is recovered. Payback period is around 4-5 years
Solution provider bears all the performance and maintenance risk
Customer bears all maintenance and performance risks.
No tax benefits for customer
Customer can claim avail government subsidy
Savings from day 1 (Zero days).
Electricity tariff is 20-40% cheaper than Grid electricity tariff
ROI is approx. 4 years
Investment is repaid though electricity generation.
Developer handle all technical matters
Dedicated team needed at customer’s end to evaluate system design, installation and operation.
Developer prerogative for Regulatory risk and Approvals
Customer prerogative for Regulatory risk and Approvals