If you are seeking to know more about the different types of solar financing options that might be available to you, then read on! Through this blog, we have tried to answer some of the frequently asked questions on solar power financing options, so that you are better positioned to make informed decisions.
What are solar finance options?
Let’s imagine a scenario in which you are considering buying a solar power system. You will generally find two options/ methods of making the purchase – CAPEX and OPEX. In the CAPEX model, you choose to invest the amount in buying the solar system. You can either choose to pay in full upfront payment or pay in equal intervals by availing financing from a bank or financier. This is the most widely chosen option for solar system purchase as it is quick.
On the other hand, under the OPEX model, an investor invests, builds and maintains the solar plant on your site. You pay for the power generated by the system under a long-term power purchase agreement (PPA) at an agreed tariff for a fixed tenure. This model is also often referred to as PPA or RESCO model.
Find the Best Solar Financing Option For You!
A comprehensive and thorough understanding of your solar system financing options is critical. As it is difficult to understand, to guide you we have given a detailed explanation of both CAPEX and OPEX options below
In case you wish to go for a CAPEX model, you still can fund your purchase through these 2 options.
Solar loans:
This is easy to avail option, where you can own your solar power system without worrying about the huge upfront cost associated with it. Moreover, since you are paying off your loan through regular Easy Monthly Installments (EMI), you need not worry about this hitting hard on your monthly budget too. What’s more, Freyr Energy is now providing best solar loans for both home and business owners, with the following added benefits:
- No collateral needed
- Very little process time and hassle-free loan availing process
- You can avail tax benefits and Government subsidies
- You can own your solar power system
Solar Leasing:
In solar leasing, a developer usually pays for the equipment. You have to pay a monthly rental towards using this solar power system. Leasing is usually done only for bigger solar power systems (50kW and above). The benefits of this option are:
- There is little to no down payment
- The payment will be made at equal intervals as per a pre-agreed contract
However, the main drawback of leasing is that in this case, the ownership of the solar power system lies with the lessor or developer until the tenure of the lease. This means that you may not be able to claim any tax benefits associated with the plant. In usual cases, the maximum tenure of the lease is 5 years. Also, the process of getting the lease can take long.
If you choose to go by the OPEX model, you will need to sign a Pre Purchase Agreement (PPA) with the solar system provider. However, PPA is done for bigger systems (100 kW and above) and the tenure of the PPA is usually 10-25 years. Some features of the OPEX route are:
- You only pay for the units of electricity consumed. The price is a pre-agreed rate generally lower than the tariff rate.
- Solar system provider generally takes care of any installation or maintenance cost.
- You won’t have any upfront costs to bear.
The main drawback of an OPEX model is that you will not be able to own the solar power system and thus can’t claim any tax benefits.
We at Freyr Energy understand that despite getting to know all these facts, choosing a suitable financing option for your specific needs can be a very daunting task for you. Since this decision is based on various factors like the solar system capacity required for your home or business, electricity consumption etc. it becomes all the more crucial to seek expert advice from solar service providers like us. Our team can help you evaluate the best finance options for solar systems based on your system requirements and budget. Let’s choose to go Solar with Freyr!
Frequently Asked Questions
The two solar financing options that solar providers and private lenders provide are CAPEX (Capital expenditure) and OPEX (Operational expenditure).
This solar power financing option requires the buyer to pay the full upfront cost. The entire plant ownership will be yours, including the benefits and maintenance. This model aims to offer long-term savings but asks for a complete upfront investment.
Operational expenditure finance options for solar system gives the comfort of installing solar panels first with some upfront cost. Inside the OPEX model, Power Purchase Agreements and solar leases are included. PPA offers the benefit of buying the electricity generated at a predetermined rate. In a solar lease, you will be required to pay a fixed monthly fee for using the solar system. OPEX model costs include maintenance and operation.
CAPEX finance options for solar system include:
- Solar loans
- Cash purchase
- Solar financing programs
- Line of credit
Solar loans can help you buy a solar system, even if you lack the capital for a full purchase. Solar loans can be repaid over time and are offered at a low interest rate. As the owner of the solar system, you will still enjoy the benefits like reduced electricity bills and tax incentives.
Solar leasing will give you the advantage of solar energy without owning a solar system. There are leasing companies that handle installation, repairs, and maintenance. As a solar energy user, you just have to pay a fixed monthly fee, which will be less than your electricity bill.
A Power Purchase Agreement is a contract where a third party owns, installs, and maintains the solar system on your property. Under the PPA agreement, you agree to purchase the electricity generated at a predefined rate. Under this model, you can use solar energy without any upfront costs and pay just for the electricity used.
Zero upfront cost is the benefit of the OPEX model. Here, a third party will be handling the installation and maintenance of the solar system, and you have to pay just for the electricity produced.
OPEX solar system financing options don’t allow you to own the solar system, which ultimately stops your benefit of tax incentives or full energy savings. Your total savings will be less when compared to the CAPEX model, Also, reliance on third-party for maintenance can be a point of concern.
The decision to choose the finance options for solar systems depends completely on your current financial situation, energy goals, and long-term plans. If you want to maximize your savings and have capital to invest, then CAPEX must be your choice. Conversely, if you prefer less responsibility and a lower upfront investment, then OPEX can be your best choice.