Solar PV Power Plants Financing – CAPEX and OPEX / PPA
If you have thought about going solar and exploring options to finance, you would have come across:
1. CAPEX model
2. OPEX/PPA model
What are these models? What benefits do they offer? We have explained them in this blog.
The two models are methods of financing a solar panel system. Installers offer the two models depending upon the needs of customers.
CAPEX stands for Capital Expenditure. In this type of financing model, all the equipment, design, installation as well as commissioning costs are paid up-front by the customer. The customer either chooses to operate and maintain plant on his own or hire a third party for yearly free.
Within CAPEX, Customer can finance the solar power plant in two ways:
1. Upfront cash
2. Mix of loan and cash.
Banks offer up to 70-80% of solar plant cost as a loan. Some of the banks offering solar finance in India are SBI, IDBI, Punjab National Bank, Yes Bank etc.
Benefits of CAPEX
In-terms of benefits, Customer enjoys all the benefits from the installation of a solar power plant. Benefits come in two ways:
1. Savings in electricity bills
2. Tax benefits from Accelerated Depreciation.
The payback period on investment ranges between 2-4 years in CAPEX model; while Return on Investment (RoI) is generally in the higher 20’s (25-30%). Want to know if CAPEX fits your needs? What will be the cost associated with your project? Contact Prodah Solutions to get a detailed solar quotation now.
OPEX model is also called a third-party ownership model where the consumers only provide the premises for the solar plant whereas the plant is owned and operated by the installer companies or the investors.
Customer pays monthly fees at a discount of existing electricity bills for an agreed period. Length of agreement varies from 10-25 years. The discounts offered are generally about 20% of the existing bill. However, the actual discount depends on case to case.
Benefits of OPEX
The model frees capital for the customer to invest in other areas. At the same, it gives access to low-cost power and savings in the electricity bill. While investor gains benefit in the form of Return on Investment.
PPA stands for Power Purchase Agreement, this is the standard agreement made between a customer and the installer of the solar power plant in the OPEX model.
Major terms of PPA are:
A) Electricity prices or Per unit charge
B) Agreement period
C) Escalation in electricity price, if any
D) Guarantees on generation etc.