CAPEX vs OPEX vs RESCO: Which Solar Model Fits Your Business?
Under CAPEX, a business buys and owns the solar system, funds it upfront, and claims the depreciation and tax benefits. Under OPEX, also called the RESCO model, a developer funds, owns and operates the system on your site and you buy only the electricity it generates, at a fixed rate under a power purchase agreement. CAPEX delivers the larger lifetime saving. OPEX requires no capital and suits businesses that cannot use the tax benefits.
The one-line version: if you are profitable, have the capital and plan to stay put, CAPEX. If any of those three is missing, model OPEX properly before deciding.
Skip to the decision frameworkThe one-line version
Profitable, capital available, staying put — CAPEX. Miss any of the three and OPEX deserves a proper model.
Model one
What the CAPEX model means
Under the CAPEX model a business purchases the solar system outright, either from its own funds or through debt, and owns the asset from commissioning. It claims accelerated depreciation and GST input tax credit where eligible, keeps the entire electricity saving, and carries responsibility for maintenance and performance either directly or through a service contract.
What you get
- The full value of every unit generated, for the life of the system
- Accelerated depreciation of up to 40% in year one under the Income Tax Act, plus normal depreciation thereafter
- GST input tax credit, where the business is registered and eligible
- An owned asset on the balance sheet with a 25-year design life
- No counterparty to manage for two decades
What you carry
- The capital outlay, or the debt service if funded
- Performance risk. If the system underperforms, that is your problem to pursue under warranty
- Maintenance responsibility, whether in-house or contracted
- The asset itself, including what happens to it if you move or sell
The core CAPEX proposition: you are buying twenty-five years of electricity at today's prices, with a tax benefit in year one. For a business that can fund it and use the tax shield, nothing else comes close on lifetime economics.
Model two
What the OPEX or RESCO model means
Under the OPEX model, also called RESCO, a renewable energy service company funds, installs, owns, operates and maintains the solar system on the consumer's roof or land, and the consumer signs a power purchase agreement to buy the electricity it generates at an agreed rate, typically for fifteen to twenty-five years. There is no upfront capital cost, and the consumer's saving is the difference between the PPA rate and the grid tariff it would otherwise pay.
What you get
- No capital outlay, and no debt
- No performance risk. The developer earns only on units delivered, which aligns their interest with generation
- Maintenance handled by the owner of the asset, because it is their asset
- Operating expense treatment rather than capital, which in many organisations is a materially easier approval
- A saving from day one, without a payback period to wait out
What you give up
- The tax benefits, which the developer claims because they own the asset
- The larger lifetime saving that ownership delivers
- Flexibility. You have committed your roof and your offtake for the PPA term
- Simplicity. You now have a long-term contract and a counterparty
How the saving works
The developer prices the PPA below the grid tariff you currently pay, so you save on every unit from the first month. The gap is your benefit; the rest is the developer's return. Where escalation is built into the PPA, that gap changes over time, which is why the PPA clauses matter as much as the model.
A note on the terms
OPEX and RESCO are used interchangeably in the Indian market. Strictly, RESCO describes the developer and OPEX describes the commercial treatment, but in practice a proposal labelled either way means the same thing: you do not own the system and you pay per unit.
The decision pivot
The question that usually decides it
The single most decisive factor between CAPEX and OPEX is whether the business can actually use accelerated depreciation. Depreciation is only valuable to an entity with taxable income to offset. A profitable company can convert a large share of the capital cost into a first-year tax benefit. A charitable trust, a loss-making company, a newly incorporated entity or an organisation without taxable income cannot, and for them a substantial part of the CAPEX case simply disappears.
Who typically cannot use the depreciation benefit
- Charitable trusts and societies, including most schools, colleges and trust-run hospitals
- Loss-making businesses, or those carrying forward losses that already shelter their income
- Newly incorporated entities without an established profit position
- Organisations under exemption regimes where the tax shield has no value
Who can, and should look hard at CAPEX
- Consistently profitable companies with a real tax liability
- Businesses with capital available or access to reasonably priced debt
- Organisations with a long horizon at the premises
The same question applies to GST input credit
A GST-registered business recovers the GST on the installation. An unregistered entity does not, which makes the tax a genuine cost rather than a recoverable one, and shifts the comparison further.
Two questions for your auditor, before you evaluate any proposal
Can we use accelerated depreciation this year and next? Can we claim GST input credit on this installation? If either answer is no, model OPEX properly rather than treating it as the fallback option.
A warning worth heeding
Many solar proposals are built from a template assuming the buyer is a profitable company. If yours presents 40% first-year depreciation as central to the payback and your organisation cannot use it, the payback figure in front of you is wrong. That is not always dishonesty; it is often a vendor who never asked.
Side by side
CAPEX and OPEX compared
| CAPEX | OPEX / RESCO | |
|---|---|---|
| Upfront investment | Full system cost, or debt | None |
| Ownership of the asset | Yours from commissioning | Developer's, for the PPA term |
| Accelerated depreciation | You claim it | Developer claims it |
| GST input credit | You claim it, if eligible | Not applicable to you |
| What you pay ongoing | Maintenance | A rate per unit consumed |
| Your saving | Full tariff value of every unit | The gap between PPA rate and grid tariff |
| Performance risk | Yours | Developer's, since they are paid per unit |
| Maintenance responsibility | Yours, directly or contracted | Developer's |
| Balance sheet | Capital asset | Operating expense, subject to accounting treatment |
| Approval route internally | Capital budget | Often operating budget, usually faster |
| Contract length | None beyond warranties | 15 to 25 years typically |
| Flexibility if you relocate | Asset is yours to move or sell | Governed by the PPA |
| Lifetime economics | Larger | Smaller, but from zero capital |
On balance sheet treatment: whether a solar PPA is treated as a lease under applicable accounting standards depends on the specific terms of the agreement, particularly around control of the asset. This is a question for your auditor at the contract stage, not an assumption to make from a website.
Modelling
What to actually compare, and the mistakes people make
CAPEX and OPEX cannot be compared on upfront cost, because one has none. The correct comparison is the total cost of electricity over a common period, typically the PPA term, counting the capital outlay, tax benefits, maintenance and residual value under CAPEX against the cumulative PPA payments under OPEX, with grid tariff escalation applied consistently to both.
| Line | CAPEX | OPEX |
|---|---|---|
| Capital outlay | Yes, year zero | None |
| Tax benefit from depreciation | Yes, if usable | None to you |
| GST input credit | Yes, if eligible | None to you |
| Maintenance cost | Yes, across the term | Included in the PPA rate |
| Inverter replacement | Yes, budget for it | Developer's responsibility |
| Payments to developer | None | Yes, escalating if the PPA escalates |
| Grid tariff avoided | Full value | Full value, less the PPA rate |
| Residual asset value at end of term | Yes, system continues generating | Depends on transfer terms |
| Insurance | Yours | Usually the developer's |
Five mistakes that distort the comparison
| # | The mistake, and how it distorts the comparison |
|---|---|
| 1 | Ignoring inverter replacement under CAPEX. The inverter is unlikely to last the full life of the panels. Budget for it, or the CAPEX case is overstated. |
| 2 | Ignoring PPA escalation under OPEX. A rate rising annually for twenty years is a very different commitment from a flat one. Model the escalation, not the year-one rate. |
| 3 | Counting depreciation the business cannot use. This is the most common error and the largest. See the decision pivot. |
| 4 | Ignoring residual value. Under CAPEX you own a system that keeps generating after the comparison period ends. Under OPEX that depends entirely on the end-of-term clause. |
| 5 | Applying different tariff escalation assumptions to each option. Whatever you assume about future grid tariffs must be applied to both, or the comparison is meaningless. |
The honest summary: for a profitable business with capital, CAPEX almost always wins on total cost across twenty-five years. OPEX wins on capital efficiency, risk transfer and speed of approval. Both can be the right answer, and the model should be built to show which, not to confirm what the vendor sells.
Contract
What to check before signing a solar PPA
A solar power purchase agreement commits a business for fifteen to twenty-five years, and the clauses that determine its real value are the escalation rate, minimum offtake obligations, performance guarantees, termination and exit terms, end-of-term asset treatment, and the roof access rights granted to the developer. These deserve legal review, not a quick read.
01
Tariff escalation
Is the PPA rate flat or escalating? At what percentage, and compounding annually? A modest-sounding annual escalation compounds substantially over two decades, and it determines whether your saving widens or narrows over time.
02
Minimum offtake or take-or-pay
Are you obliged to buy a minimum quantity regardless of consumption? If your operations contract, shift patterns change or the site closes seasonally, this clause decides whether you pay for power you did not use.
03
Performance guarantee
What generation is guaranteed, how is it measured, over what period, and what is the remedy if it is not met? A guarantee without a measurement methodology and a remedy is decoration.
04
Termination rights and exit costs
Can you exit early? At what cost? Termination payments in solar PPAs can be substantial and are often calculated on the developer\u2019s remaining expected revenue rather than on the asset value.
05
End-of-term treatment
At the end of the PPA, does the system transfer to you, at what price, or is it removed? Who pays for removal and reinstatement? This clause materially affects the lifetime comparison.
06
Change of ownership or premises sale
What happens if you sell the building or the business? Does the PPA transfer to the buyer, and can the buyer refuse? An untransferable PPA can complicate a property sale considerably.
07
Roof access and licence terms
You are granting a third party rights over your roof for two decades. Access hours, notice periods, responsibility for roof damage, waterproofing warranties and interaction with your own roof maintenance all need documenting.
08
Curtailment and grid outage risk
If the grid is down or the site cannot take the power, who bears the loss? Are you obliged to pay for generation you could not consume?
09
Insurance and liability
Who insures the asset, who insures against damage it causes, and what happens after a cyclone? In coastal Chennai this is not hypothetical.
10
Developer\u2019s financial standing
You are relying on this counterparty for two decades of maintenance. Check who they are, what they own, and what happens to the agreement if the developer is acquired or fails.
Our position on this, stated plainly
Blues Renewables delivers CAPEX installations and can arrange OPEX structures. We would rather a client took a PPA to a lawyer and signed it slowly than signed it quickly with us. A two-decade contract entered into carelessly becomes a problem for both parties, and usually in year seven.
In between
It is not only a binary choice
CAPEX and OPEX are the two standard structures, but several arrangements sit between them. A solar loan preserves ownership and the tax benefits while spreading the capital cost. A deferred or staged CAPEX aligns payment to commissioning milestones. Partial approaches, where a business owns systems at some sites and takes OPEX at others, are common across multi-site portfolios.
Solar loan, or CAPEX with debt
You own the asset, claim the depreciation and the GST credit, and service debt rather than deploying capital. If the interest cost is below the value of the tax benefit plus the electricity saving, this often outperforms OPEX while keeping ownership. It requires balance sheet capacity and the appetite to take on debt.
Staged CAPEX
Payment tied to milestones, which reduces exposure during construction without changing the ownership position. Standard practice on larger projects and worth asking for.
Mixed portfolio
For a business with several sites, the right answer often differs by site. Owned premises with long horizons suit CAPEX. Leased premises with uncertain tenure suit OPEX. Treating the estate as one decision usually produces the wrong answer somewhere.
Phased CAPEX
Install a smaller system now and expand later. Practical, but plan the inverter capacity, structure and approvals for the eventual size at the outset, because expansion means fresh approvals and retrofitting is more expensive than building headroom in.
Tenure
Who owns the building, and how long will you be there?
Both models assume a long relationship with the premises, so property ownership and tenure shape the decision as much as finance does. A business that owns its site and expects to remain has straightforward options. A business on a lease shorter than the asset life needs to resolve what happens at lease end before installing anything, under either model.
If you own the premises
Both models work. CAPEX gives you an asset that adds value to the property and continues generating after any comparison period. OPEX still commits your roof for the PPA term, which matters if you might sell.
If you lease the premises
- Get the landlord's written agreement before anything else
- Establish who owns the system at lease end, and whether there is a reinstatement obligation
- Consider whether the landlord is the better investor, with the benefit passed through the lease
- Match the structure to the tenure. A PPA longer than your lease is a problem waiting to happen
- Consider a relocatable design, accepting that relocation costs are real and approvals restart
If you may sell the business or the property
Check transferability under both models. An owned system is an asset in the sale. A PPA is a liability the buyer must accept, and one they may not want.
Decision framework
Which one fits you
Answer three questions and the framework below resolves to a likely structure. It is a starting point for the conversation with your auditor, not a substitute for it.
Can you use the tax benefits?
Is capital available?
How secure is your tenure?
Likely structure
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Choose CAPEX if most of these are true
- Consistently profitable with a real tax liability
- Capital available, or debt at a reasonable rate
- You own the premises, or hold long secure tenure
- You intend to remain at the site medium term at least
- Comfortable holding performance risk and arranging maintenance
- You want the largest lifetime saving
Choose OPEX or RESCO if most of these are true
- Cannot use accelerated depreciation, being a trust, loss-making or newly formed
- Capital is better deployed elsewhere
- Operating expenditure approval is materially easier than capital
- You want performance risk transferred rather than held
- Tenure is uncertain, or shorter than the asset life
- You want a saving from month one without a payback period
Look at a solar loan if
- You can use the tax benefits but prefer not to deploy capital
- The cost of debt is below the combined value of the tax benefit and the electricity saving
And model both properly if you are unsure. The comparison is not difficult once the inputs are honest, and the answer is frequently clearer than people expect.
No obligation, no quotation unless you ask
Have both options modelled against your numbers
Send us twelve months of electricity bills and tell us your tax position, whether the premises are owned or leased, and how long you expect to be there. We will model CAPEX and OPEX side by side against your actual consumption, with the depreciation position stated rather than assumed, and tell you which fits. If that turns out to be OPEX, we will say so.
What you receive
- CAPEX and OPEX modelled on your own consumption over a common period
- The depreciation and GST position stated honestly for your entity type
- Inverter replacement and maintenance included in the CAPEX case
- Escalation applied consistently to both
- A view on which structure fits your tenure and approval process
- No obligation, and no quotation unless you ask for one
Common questions
CAPEX, OPEX and RESCO, common questions
Under CAPEX the business buys and owns the solar system, funds it upfront and claims the depreciation and tax benefits, keeping the full value of every unit generated. Under OPEX, also called RESCO, a developer funds, owns and operates the system and the business buys only the electricity it generates at an agreed rate under a power purchase agreement. CAPEX delivers the larger lifetime saving; OPEX requires no capital.
RESCO stands for renewable energy service company. The developer installs, owns, operates and maintains the system on the consumer's premises, and the consumer signs a power purchase agreement to buy the generated electricity at a fixed rate, typically for fifteen to twenty-five years. In the Indian market RESCO and OPEX are used interchangeably.
Neither is universally better. CAPEX wins on total cost across the asset's life for a profitable business with capital and secure tenure. OPEX wins where the organisation cannot use accelerated depreciation, where capital is better deployed elsewhere, where operating expenditure is easier to approve than capital, or where tenure is uncertain. The tax position is usually the deciding factor.
The developer, because they own the asset. This is central to the comparison: a business choosing OPEX is giving up the accelerated depreciation and GST input credit that ownership would provide. For an organisation that could not use those benefits anyway, such as a charitable trust, nothing is actually being given up.
Only if it has taxable income to offset. Depreciation is a deduction against taxable profit, so an entity without a tax liability derives no benefit from it. This is why trusts, societies and similar organisations should model OPEX seriously rather than treating it as the fallback. Confirm the position with your auditor.
The OPEX or RESCO model requires no upfront capital. The developer funds the system and you pay per unit consumed under a power purchase agreement. It is genuinely zero capital, but not free: you are paying for the electricity over the contract term, and giving up the tax benefits and the larger lifetime saving that ownership provides.
The tariff escalation rate, any minimum offtake or take-or-pay obligation, the performance guarantee and how it is measured, termination rights and exit costs, what happens to the system at end of term, transferability if you sell the premises or business, roof access and licence terms, who bears curtailment risk, insurance responsibility, and the developer's financial standing. A PPA is a fifteen to twenty-five year contract and warrants legal review.
Commonly fifteen to twenty-five years, aligned to the expected life of the system. Shorter terms are possible but usually carry a higher per-unit rate, since the developer recovers their investment over fewer years.
It depends entirely on the PPA. Some agreements include a buyout option at defined points or at end of term, at a stated price or a formula. Others do not. If ownership matters to you eventually, negotiate the buyout terms before signing rather than assuming they will be available later.
Yes, and it is often overlooked. A solar loan preserves ownership, so you keep the accelerated depreciation and GST input credit, while spreading the capital cost. Where the cost of debt is below the combined value of the tax benefit and the electricity saving, this frequently outperforms OPEX while retaining the asset.