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Understanding the Two Solar Business Models: CAPEX & RESCO

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Solar Energy is one of the most reliable sources of renewable energy available to us today. The world is currently racing to make this technology widespread, especially with the ever-looming threat of global warming. Renewable energy, which has minimal to none carbon footprint, is essential to make our world and our environment a better and healthier place to be in.

The government of India is encouraging every Indian to opt for clean and green solar energy. To promote convenient adoption and use of solar energy, public and private sectors have been informed by the Ministry of Finance to offer a loan at the minimal interest rate for encouraging Solar Ideology to every home, business, office, and other places. It is vital for the customer and investor that they choose the right business model to minimize the risk and maximize the Return on Investment.

There are two Solar Business Models in India, and both models have their pros and cons. It all depends on your objectives. An in-depth analysis is very important to find out which solar business model is suitable for your business. As per the project size, investment amount, and different financial needs, two solar business models are followed in India.

1. CAPEX Model.

It is the most common model form of the solar power plant business model in India. In this model, the customer generally hires a solar EPC (Engineering, Procurement, and Construction) company that provides the installation of the entire solar power system and hand over access to the consumer. One of the major advantages of this model is that the customer is eligible to claim the accelerated depreciation to gain tax savings from the government.CAPEX Business Model

Highlights:

  • Allows Residential, Industrial, and Commercial to own the system.
  • The customer sets up the rooftop solar project with the intent to reduce his power costs.
  • The customer bears the entire capital expenditure of the project.
  • The customer gets benefit by selling the surplus power generated to the DISCOM.
  • The gains from tariff savings accrue to the roof and solar power plant owner.
  • Commercial & Institutional clients can also claim the accelerated depreciation.
  • EPC also performs the annual operation and maintained (O&M) of the plant on mutually agreed cost per annum. 

       

2. RESCO Model.

Renewable Energy Service Company is an energy service company which provides energy to the customer from renewable energy sources usually from Solar Photovoltaic, Wind Power or Hydropower. RESCO about pays as you consume electricity. Since it is operated and maintained by the RESCO, it carries a longer production run than the CAPEX model.Highlights:

  • Solar Power Plant is owned by the RESCO and ENERCO (Energy Company).
  • The customer service does not own any rights on the solar energy system.
  • Customers have to sign the Power Purchase Agreement (PPA) with an actual investor at a mutually agreed tariff and tenure.
  • The customer only pays for electricity consumed as per units for power basis.
  • RESCO developer is responsible for its annual operation and maintenance.
  • RESCO gets the benefit by selling surplus power generated to the DISCOM.

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