One of the key challenges for an investor in a solar power plant is the upfront investment cost, which could be as high as Rs 5 Crores/MW.

While a good part of this can be provided by a bank, the investor will still have to shell out at least 25% of the total as equity, which itself adds to a significant amount.

Is there a way by which investors can completely avoid the capital cost?

Yes. This can be done through what is known as OPEX model (sometimes also called BOO or BOOT model).

What do these mean?

Essentially, it means that if you wish to have a solar power plant on your rooftop (or even elsewhere), an external investor actually puts in the capital for this and actually owns the solar power plant. You as the owner of the rooftop can consume the electricity generated by the solar power plant without owning it, and pay the investor a pre-determined price for every unit of power consumed.

That is, you can have a solar power plant on your rooftop owned by someone else, but from which you are able to use the electricity by paying them for the amount you use.

You thus are able to use solar power from your own rooftop without capital investments. However, under this scenario, please note that you do not own the solar power plant – the investor owns the solar power and sells the power to you.

In some cases (called the BOOT or the Build Own Operate Transfer model), the contract is done in such a way that the ownership of the solar power plant on your rooftop gets transferred to you after a certain number of years (usually 15 years or so), and beyond this period, the power you get from your solar power plant is absolutely free!

Now, you might wonder: Why should anyone spend their own money to put up a solar power plant on the rooftop when the OPEX model is available?

While the OPEX model does have its merits, the average power cost for you from this model is usually higher than that in the scenario when you own the solar power plant. This is only to be expected, given that the external investor has to add his profit margins to the cost of solar power!

Thus, your choice between CAPEX (when you put in your money own the solar power plant) and OPEX boils down to how dear cash is to you right now – if having cash on hand right now is critical for you, the OPEX model is perhaps the way to go. If you have cash to invest, the conventional model of solar ownership pays you back better in the long run.

Stuff to Remember

With existing business models such as BOOT/OPEX models, you can today use solar power without having to invest a capital cost.