The growth of solar in India, especially rooftop solar for industries, has been greatly driven by the introduction of several financing solutions that help consumers enjoy the benefits of solar while limiting their potential downsides.
One of the most innovative financing models on the market today, is the BOOT (Build, Own Operate, Transfer) model popularly known as the OPEX (Operational Expenditure) model. In this model, a third party financier purchases and installs the plant on the user’s premises. The user does not have to pay for the installation cost or the operational and/or maintenance cost of the plant. The user only has to pay a fixed price per unit of energy generated by the plant for a fixed period.
The investor or project developer and the consumer agree on a tariff (per kWh of solar power) and on a timeline as per a Power Purchase Agreement (which typically lasts between 10 to 25 years).
To understand the feasibility of the model, let’s look at it through SWOT analysis.
- The greatest advantage of this model is that the customer does not have to pay the high one-time investment needed to set up the solar plant. The investor will take care of all the requirements needed like permits, construction, etc.
- The customer gets electricity at discounted rates and can start saving on their electricity bills from day one.
- Since the returns of the project developer are directly dependent on the performance of the plant, the developer must ensure that the operations and maintenance activities are done in the best possible way. Hence, there is continuous operation and maintenance support from the developers, without any hassle to the asset owner.
- At the end of the contract tenure, the asset ownership is passed on to the consumer, thereby ensuring that they get practically free electricity for 5-20 years based on the contract tenure.
- The overall risks involved with the solar system generation is well offset in this model. In several cases, the generation or a portion of the generation is also guaranteed by the developer.
- Any benefits with regards to the depreciation of the plant are taken up by the project investor.
- All the benefits of carbon credits and renewable energy certificates are also taken by the project investor.
- The consumer needs to ensure that they are able to off-take 100% of the power generated by the plant for its lifetime.
- Solar Energy is free and renewable. It reduces energy costs and helps the consumer earn from a zero-yielding idle roof. It also helps a consumer meet their social responsibilities which, in turn, helps save the planet.
- Through this model, the consumer enjoys solar savings on their electricity bills without any investment. The model also gives an important advantage where the investor manages the performance of the plant, avoiding any performance risks.
- In this model, individuals can go green at no additional cost. Also, the industry’s green rating among competitors rises when they opt for a solar PV system which undoubtedly boosts their goodwill.
- Considering that the term of the contract is very long, there is an added risk of a default on payments and associated penalties.
- There are certain responsibilities that will be incurred by the host, including making sure the plant is not shut down at will and that no objects cast shade on the plant.
- The host has to off-take all the produced solar power and the land or rooftop has to be leased to the developer for the whole term of the Power Purchase Agreement (PPA).
- Buyout & termination options also need to be studied in detail.
When opting for an OPEX solar power plant, one needs to study the associated PPA in detail and understand all the small and big challenges and liabilities that may be applicable in the future. We highly recommend using a specialized service to help you with the entire PPA discussion and finalization to ensure that your risks are minimized.
SafEarth has built an online marketplace that has helped consumers around the country ensure that they get the best possible price on their OPEX projects while also minimizing the potential downsides that may be associated with it.