A business model in case of solar power plant is the method by which the consumer or the investor generate the revenue by selling the generated electricity to the DISCOM or saves his money by consuming the generated electricity. There are basically two types of solar business models in India and they are CAPEX and RESCO. No one-size-fits-all approach. CAPEX and RESCO (or BOOT) have their own pros and cons. It all depends on what are your objectives of going solar. Many a times the answer is not just going green. Like in case of a business strategic goals of the company play a bigger role in choosing the right model for solar power plant installation.
Therefore, it is very important for the consumer and the investors that they choose the right business model to minimize the risks and maximize their ROI. Various customers across India and overseas are confused between the 2 models. There have been several instances wherein customers who were absolutely sure of going for RESCO have eventually switched over to CAPEX and vice-versa., after carrying out an in-depth discussion with the System installer.
Before going further we must understand the two solar business models. Here the brief description goes:
CAPEX (Capital Expenditure Model)
CAPEX is the most common form of solar power plant business model i India. In this model consumer generally hire a solar EPC company who provide turnkey installation of entire solar power system and hand over assets to consumers
- Allows residential, industrial and commercial customer to own the system.
- The customer sets up rooftop solar project with the intent to reduce his own power costs.
- The customer bears the entire capital expenditure of the project.
- 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 annual operation and maintained (O&M) of plant on mutually agreed cost per annum.
RESCO (Renewable Energy Service Company)
A Renewable Energy Service Company (RESCO) is an ESCO Energy service company which provides energy to the consumers from renewable energy sources, usually solar photovoltaics, wind power or micro hydro. RESCO or BOOT model is about pay as you consume the electicity.
- Solar Power Plant is owned by the RESCO or ENERCO (Energy Company).
- The customer serviced does not own the Solar Power Plant.
- Customer have to sign a Power purchase Agreement (PPA) with actual investor at mutually agreed tariff and tenure.
- Customer only pays for electricity consumed on a per unit price for power basis.
- RESCO developer is responsible for its annual operations & maintenance (O&M).
- The RESCO gets the benefit by selling the surplus power generated to the DISCOM.
BOOT (BUILD, OWN, OPERATE AND TRANSFER)
It is a type of RESCO with below mentioned charecteristics:
- The RESCO constructs, owns, operates and transfers the ownership of the rooftop solar project to the customer (Rooftop Owner) after expiry of contract period or as per agreed terms.
- After the transfer of ownership, the customer is responsible for O&M.
- Customer may choose to retain the services of the original RESCO or he may make his own arrangements for O&M requirements
In a nut-shell
In CAPEX, you start real savings after payback & in RESCO / BOOT / OPEX, you start saving from day 1. But the savings & free electricity in CAPEX will always be substantially higher than that of the savings in RESCO.
You should choose to go for CAPEX if:
- You demand the quick payback of 3–5 years & free electricity for 25–30 years after it.
- You want your money to be invested in solar to get better risk adjusted returns over a 25 years of time period than other financial or your core business assets to generate more.
- You want to get indirect benefits like accelerated depreciation, Cheaper Electricity, Goodwill Etc.
- CAPEX with a bank loan can be more preferred over BOOT model.
You should choose to go for RESCO if:
- You are comfortable with long contract period of 15–20 years.
- You can generate cash regularly over your RESCO contract period.
- You want to still enjoy cheaper electricity without investing money in the project.
- In case of BOOT model the customer has to take care of the O&M of the plant after the transfer of ownership.
- You are ready to bear with the unsatisfactory services of the RESCO (if any). There is no choice to switch between service providers, and unfortunately it is nearly impossible because of the contractual obligations and hassles involved in switching. No RESCO Company will accept such terms at any point of time before they realize their returns.