Which Solar Model is Better to Use?

Solar Model | CleanMax

With the increasing awareness about the efficiency of solar power, more consumers/investors are paving their way into the energy of the future. However, choosing the right business model is very critical, while opting for a solar solution. The choice of the solar business model hugely depends on the reason for the solar energy installation. The type of model also has a huge influence on risk and earnings on investment. Hence, the decision must be taken after much prudence and in-depth evaluation of each solar model type.

In India, there are two prominent forms of solar business models:

Capital Expenditure Model (CAPEX)

In this type, the whole investment (from the installation to the Operations & Management (O&M)) for the plant is funded by the consumer/investor. The investor hires a solar EPC firm to build the plant and make it operational. Once, it is fully functional, the reins are handed over to the investor. This is a form of turnkey project and one of the most common roof-top solar solutions in India.

Some important features of the CAPEX model include:

·         Investment is completely borne by the customer

·         Customer is the sole owner of the asset

·         Once the project is functional, the customer only pays for O&M and not for the electricity generated

·         ROI is in the form of electricity generated

·         ROI can take as long as 4 years

·         Customer will need a full-fledged team to review and operate the plant

·         All risks, losses, breakdowns and downtime are managed by the customer

·         Tax advantages are provided to customers through accelerated depreciation

·         The EPC Company can also be hired for annual maintenance on a mutually agreed cost per annum

Renewable Energy Service Company (RESCO)

A zero-investment solar solution, the RESCO model ensures that the customer only pays for using electricity. The owner of the plant is the RESCO firm or the project developer. In this model, the customer and plan developer agree on a tariff and tenure, which determines the PPA – Power Purchase Agreement.

RESCO model has the following features:

·         The RESCO developer owns the solar model

·         Zero investment by the customer and the payment is only for electricity used

·         Easy to replicate and scale-up

·         O&M cost is borne by the developer

·         Savings begin from the first day itself

·         Design, installation and operation managed by the developer

·         All risks are borne by the developer

·         No tax advantages can be claimed by the customer

The Choice of Model

Overall, the choice of the model depends on the need and the overall objective of the consumer. However, one must:

·         Choose CAPEX for quick payback and 25-30 years of free electricity

·         Choose CAPEX for tax advantages and other indirect benefits such as goodwill, etc.

·         Choose RESCO if the aim is regular cash generation

·         Choose RESCO for cheaper electricity and less risk

·         Choose RESCO if contract terms and obligations seem favorable; however, one cannot switch the service provider until the contract expires

Irrespective of the model, businesses must recognize the power of solar energy and shift to solar solutions to gain long-term environmental and economic advantages.