For a commercial or industrial solar plant, the biggest decision after whether to go solar is how to pay for it. The same rooftop system can be financed two completely different ways — and the choice reshapes your cash flow, tax position and 25-year returns. CAPEX means you own the plant outright. OPEX (often structured as a PPA or RESCO model) means a developer owns it and you simply buy the power. Both cut your electricity bill from day one; they just route the value very differently.
This guide breaks down how each model actually works for an Indian business, with the numbers, the contract mechanics and the kind of company each one suits best.
CAPEX: you own the plant
Under the CAPEX (capital expenditure) model, your business funds the entire system — modules, inverters, mounting structure, cabling, installation and commissioning — and owns it as a fixed asset for its full 25-year life.
How the money works
You pay the full project cost upfront (or finance it through a term loan or lease). From the moment it's commissioned, every unit the plant generates is free power you would otherwise have bought from the grid. There's no per-unit tariff to a third party, so once the system has paid for itself, the savings are close to 100% of the avoided electricity cost for the remaining 15–20 years.
The depreciation advantage
This is the part most business owners underestimate. Under Indian income-tax rules, solar plant assets qualify for accelerated depreciation, letting a profitable company write down a large share of the asset's value in the early years and reduce its taxable income significantly. For a company in the higher tax brackets, this can shave a meaningful chunk off the effective system cost — a benefit that simply doesn't exist under OPEX, where you don't own the asset. (Depreciation rates and rules change with Finance Act updates, so confirm the current position with your CA.)
CAPEX pros and cons
- Pros: highest lifetime savings; accelerated depreciation tax benefit; the plant is your asset; full control over O&M quality and module choice; no third-party contract to renew.
- Cons: upfront capital required; you carry the operations, maintenance and performance risk (best handled with a structured AMC/O&M contract).
- Best for: profitable businesses with capital (or cheap debt) that want maximum return and are comfortable owning a long-life asset.
OPEX (PPA / RESCO): pay per unit, zero investment
Under the OPEX (operating expenditure) model, a solar developer — the RESCO, or Renewable Energy Service Company — funds, builds, owns and operates the plant on your roof. You sign a Power Purchase Agreement (PPA) and pay only for the solar units you consume, at a tariff fixed below your current grid rate.
How the money works
You invest nothing. The developer recovers its capital through the per-unit tariff you pay over the contract term (commonly 10–25 years). Because that tariff is set below your DISCOM rate from day one, you start saving immediately — typically a guaranteed percentage discount — without touching your balance sheet. O&M, insurance and performance risk all sit with the developer, since their revenue depends on the plant generating well.
Contract terms to watch
A PPA is a long-term commercial relationship, so the fine print matters:
- Tariff and escalation — the per-unit price and any annual escalation clause (often 1–3% a year).
- Term length — how many years you're committed.
- Buyout / transfer clause — your right to purchase the plant at a depreciated value after a few years, and what happens if you sell the premises or shut the unit.
- Performance guarantees — minimum generation commitments and what compensation applies if the plant underperforms.
- Roof access and exit terms — responsibilities at the end of the contract.
OPEX pros and cons
- Pros: zero upfront cost; immediate, predictable savings; no O&M burden; no asset or technology risk; preserves capital for your core business.
- Cons: lower lifetime savings than owning; no depreciation benefit; a long-term contractual commitment; tariff escalations over time.
- Best for: businesses that want savings without capital outlay — or those that can't fully use depreciation (e.g. lower tax liability) and prefer to keep capital in the core operation.
CAPEX vs OPEX at a glance
| Factor | CAPEX | OPEX (PPA / RESCO) |
|---|---|---|
| Upfront cost | Full system cost | Zero |
| Who owns the plant | You | Developer |
| You pay for power | Free after payback | Discounted per-unit tariff |
| Depreciation benefit | Yes | No |
| O&M responsibility | Yours (ideally via AMC) | Developer |
| Performance risk | Yours | Developer |
| Lifetime savings | Highest | Good |
| Balance-sheet impact | Asset + (optional) loan | Off-balance-sheet operating cost |
| Typical commitment | None after build | 10–25-year contract |
| Best suited to | Profitable, capital-ready firms | Capital-light or low-tax firms |
A worked savings comparison
Consider a factory installing a 500 kW rooftop plant. In Gujarat, generation averages roughly 120 kWh per kWp per month (about 1,400–1,500 units per kWp per year), so a 500 kW system produces in the region of 700,000–750,000 units annually.
- Under CAPEX: if your grid tariff is, say, ₹8/unit, that's roughly ₹56–60 lakh of avoided electricity cost every year — all of it yours. After the payback period (commonly 3–5 years for well-sized commercial plants), the plant keeps delivering essentially free power for another 15–20 years, plus the depreciation tax shield in the early years.
- Under OPEX: with a PPA tariff at, say, ₹5.50/unit, you'd save the ₹2.50/unit difference — around ₹17–19 lakh a year from day one with no investment — but you'd never capture the full avoided cost or the depreciation benefit.
The pattern is consistent: OPEX gives you immediate, no-risk savings; CAPEX gives you far larger total savings if you can fund it. The right answer depends on your cost of capital and tax position — which is exactly what a proper financial model resolves. Our commercial ROI guide walks through how to build that payback and IRR comparison, and our savings calculator gives a quick first estimate.
How to decide
Work through four questions:
- Do you have capital — or cheap debt — to deploy? If yes, CAPEX usually wins on lifetime returns.
- Can your business actually use the depreciation? A profitable, tax-paying company captures the full benefit; a loss-making or low-tax entity can't, which tilts the maths toward OPEX.
- What's your appetite to own and maintain a 25-year asset? CAPEX owners should budget for a quality O&M/AMC contract to protect generation; OPEX hands that to the developer.
- How long will you occupy the premises? A long, secure tenure favours either model; uncertain occupancy needs careful PPA exit clauses.
There's also a middle path worth knowing: some businesses start on OPEX and buy out the plant after a few years using the contract's transfer clause — preserving capital early, then capturing ownership savings once cash flow allows.
FAQ
Is CAPEX or OPEX cheaper overall?
CAPEX is almost always cheaper over the full 25 years because you keep 100% of the savings and the depreciation benefit. OPEX is "cheaper" only in the sense that it needs no upfront cash — your total savings are smaller, but so is your risk and effort.
Can I switch from OPEX to CAPEX later?
Often, yes. Most PPAs include a buyout clause letting you purchase the plant at a depreciated value after an agreed number of years. Check that the buyout formula and timing are clearly defined before you sign.
Does OPEX/PPA work for smaller commercial roofs?
PPA developers generally prefer larger systems (often a few hundred kW and up) because the model needs scale to be viable. Smaller commercial and most residential projects are usually better served by CAPEX, sometimes with a loan.
Who handles maintenance under each model?
Under OPEX, the developer maintains the plant — their revenue depends on it generating. Under CAPEX, maintenance is yours, which is why owners pair the system with a structured AMC covering cleaning, inspection and monitoring.
Do tax and subsidy rules change?
Yes — depreciation rates, GST treatment and incentive schemes are revised periodically through Finance Acts and MNRE notifications. Always confirm the current position with your CA and against the latest official notifications before finalising your model.
Get a model built for your numbers
The CAPEX-vs-OPEX choice should never be a gut call — it's a finance decision with clear answers once you put real numbers against it. SilInfra builds a side-by-side model — payback, IRR and year-by-year cash flow for both options — using your actual roof, load and tariff, drawing on 7 MW+ of installed experience across industrial and residential projects. Talk to our consulting team or estimate your savings on the calculator, and contact us for a free site survey to lock in the right structure for your business.