When the CFO of an Indian manufacturing company sits down to evaluate a solar proposal, three ownership structures arrive simultaneously on their desk: own it outright (CAPEX), lease the generation (OPEX), or let someone else own the plant entirely (RESCO). Each structure has a fundamentally different impact on the balance sheet, tax position, IRR, and risk exposure. The wrong choice costs 15–25% of the total project value over 25 years. The right choice is determined by four variables — and most solar proposals do not address any of them.
Direct answer. Solar CAPEX delivers the highest IRR (18–26%) but requires upfront capital and asset ownership. OPEX (equipment lease with performance guarantee) reduces capital deployment and is balance-sheet neutral but delivers lower NPV. RESCO (third-party ownership with PPA) requires zero capital but carries the longest-term contractual exposure. The choice depends on the company’s cost of capital, tax position, balance sheet targets, and risk appetite — not on the tariff headline the EPC quotes.
This framework is built for Indian CFOs, finance teams, and EPC founders who present to CFOs. Currency is ₹ throughout; the financial model assumes a 5-year tax depreciation benefit under Indian Income Tax Act provisions.
The Three Ownership Structures: What They Actually Mean
Before comparing numbers, every CFO needs a clean definition of what they are buying — or not buying — under each model.
CAPEX (Capital Expenditure Ownership): The client company purchases the solar system outright, owns the asset, records it on the balance sheet as a fixed asset, and claims all financial benefits — depreciation, energy savings, and any DISCOM export credit. The EPC builds and hands over. O&M is either contracted separately or handled in-house.
OPEX (Operational Expenditure Lease): The client does not own the equipment. An OPEX provider (typically the EPC or a financier behind the EPC) owns the system, installs it on the client’s roof or land, and charges a monthly or annual lease fee. The client’s electricity savings must exceed the lease payment for the deal to make financial sense. The system reverts to or is purchased by the client at the end of the lease term (typically 7–15 years).
RESCO (Renewable Energy Service Company): A third party owns the plant, finances it, operates it, and sells the generated power to the client under a Power Purchase Agreement at an agreed rupee-per-unit rate — typically 15–25% below the prevailing DISCOM tariff. The client signs a 20–25-year PPA. At the end of the PPA term, ownership typically transfers to the client at a nominal cost.
Definition. RESCO (Renewable Energy Service Company) is defined under the MNRE framework as a legal entity that finances, installs, owns, and operates renewable energy equipment and sells the output to the end user under a long-term offtake agreement. RESCO arrangements are distinct from OPEX leases in that the RESCO, not the client, bears the generation performance risk.
Financial Comparison: A 1 MW Industrial Reference Case
All three structures are modeled for the same 1 MW industrial rooftop in Gujarat, generating 14.5 lakh kWh/year, replacing grid power at ₹7.50/kWh. System CAPEX assumed at ₹3.8 Cr. Financials calculated over 25 years with 8% discount rate and 5% tariff escalation.
| Financial Metric | CAPEX (Self-Funded) | CAPEX (70% Debt) | OPEX (15-yr Lease) | RESCO (25-yr PPA) |
|---|---|---|---|---|
| Upfront Cash Outflow | ₹3.8 Cr | ₹1.14 Cr (equity) | ₹0 (or security deposit) | ₹0 |
| Year 1 Savings (₹) | ₹108.75L | ₹108.75L (pre-debt) | ₹45–55L net | ₹36–45L net |
| Simple Payback | 3.5 yr | 5.5 yr (post-debt service) | N/A (lease model) | N/A (PPA model) |
| 25-Year NPV (8% DR) | ₹8.2 Cr | ₹5.6 Cr | ₹3.1 Cr | ₹1.8 Cr |
| Project IRR | 22% | 18% | N/A | N/A |
| Balance Sheet Impact | Asset on books | Asset on books | Off-balance (INDAS 116 risk) | Fully off-balance |
| Tax Depreciation (Yr 1) | ₹1.52 Cr (40% MACRS-equiv.) | ₹1.52 Cr | None (client side) | None (client side) |
According to IREDA’s Annual Report 2024–25, solar project financing rates for industrial captive projects in India ranged from 8.5–10.5% during FY2025, with project loans typically structured at 70% LTV over 10–15 years.
The CFO Decision Matrix: Four Variables That Determine the Right Model
The CFO decision is not about which model has the lowest tariff rate. It is about matching the ownership structure to four company-specific variables. This is the Heaven Designs CFO Solar Decision Matrix — a four-variable scoring framework that produces a model recommendation in under 30 minutes.
Cost of Capital (WACC)
If the company's WACC is below 12%, CAPEX self-funded delivers the highest NPV and should be the default choice. If WACC exceeds 15%, the opportunity cost of tying up ₹3.8 Cr makes OPEX or RESCO comparatively attractive. Run the IRR at the company's actual WACC, not a generic 8% benchmark.
Tax Position and Depreciation Appetite
Under Indian Income Tax Act Section 32, solar equipment qualifies for 40% accelerated depreciation in Year 1 under the Written Down Value method. For a profitable company in the 30% tax bracket, this generates a Year 1 tax saving of ₹45.6 lakhs on a ₹3.8 Cr system. A company in losses or under MAT cannot use this benefit — making CAPEX self-funded less attractive than for profitable entities.
Balance Sheet Constraints
Companies with debt covenants, approaching credit limits, or under INDAS 116 scrutiny for off-balance treatment should note that OPEX leases may not qualify as fully off-balance under Indian accounting standards. A true RESCO PPA (where the RESCO bears all performance risk) is more likely to be off-balance than a lease where the client controls asset usage.
Operational Risk Tolerance
CAPEX ownership transfers full performance risk (soiling, degradation, inverter failure) to the client. OPEX typically includes a performance guarantee from the provider. RESCO guarantees a minimum generation level (the PPA output guarantee), protecting the client from generation shortfall. Companies without internal solar O&M capability or appetite for asset management should weight this variable heavily.
Pros and Cons: All Three Models Side by Side
CAPEX PROS
- Highest NPV and IRR over 25 years
- Full accelerated depreciation benefit
- No long-term contractual exposure
- Asset appreciation (land + equipment)
- Maximum savings once payback achieved
CAPEX CONS
- Large upfront capital required
- Full O&M and performance risk
- Requires internal solar asset management
- Dead capital if company relocates
RESCO PROS
- Zero upfront capital
- Generation performance guarantee
- O&M fully managed by RESCO
- Off-balance treatment (if structured correctly)
- Immediate savings from Day 1
RESCO CONS
- Lowest 25-year NPV for the client
- 20–25-year contractual lock-in
- PPA termination penalties are severe
- If RESCO fails financially, operations risk
- PPA tariff may not track market tariff
Verdict. For profitable Indian companies with available capital and a WACC below 12%, self-funded CAPEX delivers 2.2–3.1x more NPV than RESCO over 25 years. OPEX is the right call for companies in the ₹50–₹500 Cr revenue range that want immediate savings without capital deployment and can structure the lease as truly off-balance. RESCO is best for companies that cannot commit capital, cannot manage O&M, or have roof access constraints that make long-term ownership impractical.
Tax Impact: The Depreciation Variable Most Proposals Ignore
The 40% accelerated depreciation under Section 32 of the Indian Income Tax Act is the most underutilized financial lever in the CAPEX model. For a company in the 30% corporate tax bracket purchasing a ₹3.8 Cr system:
- Year 1 depreciation: ₹1.52 Cr (40% of ₹3.8 Cr)
- Tax saving Year 1: ₹45.6 lakhs (30% of ₹1.52 Cr)
- This reduces the effective system cost from ₹3.8 Cr to ₹3.34 Cr in Year 1
- Simple payback improvement: approximately 0.4–0.6 years
Companies under the MAT (Minimum Alternate Tax) regime or operating at a loss cannot use this benefit — for them, CAPEX self-funded is less attractive relative to OPEX or RESCO. The tax position analysis should come before the financial model, not after.
The IREDA financing framework supports CAPEX-owned projects with preferential loan rates for industrial solar, typically 50–100 basis points below commercial bank rates for qualifying entities.
Compare your CAPEX vs RESCO financial model
Download Heaven Designs' sample feasibility study — includes CAPEX, OPEX, and RESCO financial model with IRR, NPV, payback, and tax depreciation for a 500 kW industrial reference case.
Get the sample pack →OPEX Structure: What the Lease Agreement Must Specify
OPEX solar leases in India are not standardized. The terms of the lease agreement directly determine the actual financial benefit to the client. A poorly drafted OPEX agreement can turn a nominally attractive deal into a 15-year liability.
Key terms every OPEX agreement must specify:
| Term | Acceptable Range | Red Flag |
|---|---|---|
| Monthly lease rate | ₹2.5–₹4.5L/MW/month | Any rate above 60% of current DISCOM tariff-equivalent savings |
| Performance guarantee | 90–95% of PVsyst P50 | No performance guarantee clause |
| Shortfall remedy | Credit against next month’s lease | Cash refund only (difficult to enforce) |
| Annual lease escalation | 2–3%/year | CPI-linked escalation with no cap |
| Buyout option | At Year 5, 10, 15 | No buyout option at all |
| Asset removal on termination | Provider responsibility | Client must restore roof at own cost |
| Insurance responsibility | Provider carries asset insurance | Client bears risk for provider’s asset |
According to MNRE’s RESCO guidelines for rooftop solar, performance guarantee provisions and monitoring access are mandatory elements of any RESCO or OPEX agreement under the national rooftop solar programme.
RESCO PPA: The 25-Year Contractual Risk Assessment
A RESCO PPA is a 25-year commitment. Most CFOs who sign them do not read the force majeure, termination penalty, and tariff review clauses carefully. The three contractual risks that matter:
Tariff step-up clauses. Many PPAs include tariff escalation after Year 5 or Year 10. If the PPA tariff starts at ₹4.5/kWh with 2% annual escalation and the DISCOM tariff stays flat (unlikely, but possible in subsidized states), the PPA becomes uneconomical in later years. Always model the PPA at the contracted escalation rate against the projected DISCOM tariff.
Change of use / property sale. If the client’s factory is sold or relocated during the 25-year term, the PPA transfers to the new owner or triggers a termination penalty (typically 3–5 years of remaining lease payments). This is a material contingent liability that should appear on the balance sheet.
RESCO counterparty risk. The PPA is only as reliable as the RESCO. If the RESCO runs into financial difficulty and cannot maintain the system, the client still owns a non-performing asset on their roof that they did not buy and cannot service. Counterparty due diligence (balance sheet, project portfolio, lender relationships) is essential before signing a 25-year PPA.
Read the solar OPEX model explained for a detailed look at how OPEX structures compare to RESCO PPAs from the client’s perspective.
Note. INDAS 116 (the Indian equivalent of IFRS 16) requires leases above 12 months to be recognized on the lessee's balance sheet as a right-of-use asset and lease liability. OPEX solar leases that give the client control of the asset are likely to be classified as finance leases, not operating leases, bringing them on-balance. Confirm the accounting treatment with your auditor before presenting an OPEX deal as off-balance.
Interest Rate Sensitivity: When Debt Financing Changes the Decision
The comparison between self-funded CAPEX and debt-funded CAPEX is particularly sensitive to the prevailing interest rate. At the current rate environment (IREDA at 9.5%, SBI term loan at 10.5–11.5%), the interest cost materially affects the after-debt-service payback and IRR.
| Financing Rate | After-Service Payback | Equity IRR | NPV (25 yr, 8% DR) |
|---|---|---|---|
| Self-funded | 3.5 years | 22% | ₹8.2 Cr |
| 8% debt (70% LTV, 10 yr) | 5.2 years | 19% | ₹6.8 Cr |
| 9.5% debt (IREDA, 12 yr) | 5.8 years | 18% | ₹6.1 Cr |
| 11% debt (commercial bank) | 6.8 years | 16% | ₹5.2 Cr |
| RESCO PPA (no debt) | N/A | N/A | ₹1.8 Cr |
As interest rates rise, the gap between self-funded CAPEX and debt-funded CAPEX narrows the advantage that ownership has over RESCO. At interest rates above 13%, a well-structured RESCO PPA can outperform debt-funded CAPEX on NPV for companies with high WACC.
According to Bridge to India’s India Solar Finance Report 2025, the average cost of debt for C&I solar projects in India declined from 11.2% in 2022 to 9.8% in 2025, but project finance approval timelines from Indian banks remain 4–8 months — a lead time that RESCO and OPEX structures avoid entirely.
How Heaven Designs Helps
A CFO making a CAPEX vs OPEX vs RESCO decision needs accurate engineering inputs: the exact system size that fits the available roof, the actual irradiance-weighted yield at P50, the transformer and wiring losses, and the DISCOM compliance requirements that affect commissioning timelines. A financial model built on wrong engineering inputs is not a decision framework — it is a liability.
- Solar Rooftop Detailed Engineering Design — Full IFC-grade design pack that gives the finance team an accurate system size, yield forecast, and BOQ for a defensible financial model.
- Solar 3D Pre-Design — Sales-stage 3D shading analysis and yield estimate in 48 hours — fast enough to inform a CFO decision before the full engineering investment.
- Site Survey & Land Feasibility — Ground-truth irradiance data, structural assessment, and DISCOM connection study needed before committing to any ownership structure.
- Solar Feasibility Study — Complete feasibility report including financial model inputs, CAPEX/OPEX/RESCO comparison, and DISCOM interconnection requirements.
- Download a sample deliverable — See a real feasibility report and financial comparison from a completed industrial project.
Contact Heaven Designs to get an engineering-backed financial model for your next CAPEX vs OPEX vs RESCO decision.
FAQ
Which is better for an Indian company — CAPEX, OPEX, or RESCO solar?
The answer depends on four variables: cost of capital (WACC), tax position, balance sheet constraints, and operational risk tolerance. Profitable companies with WACC below 12% should default to self-funded CAPEX — it delivers the highest NPV (₹8.2 Cr per MW over 25 years versus ₹1.8 Cr for RESCO). Companies in losses, under MAT, or with capital constrained by covenants should evaluate OPEX or RESCO based on their specific accounting treatment and counterparty requirements.
Does solar equipment qualify for accelerated depreciation in India?
Yes. Under Section 32 of the Indian Income Tax Act, solar power generating equipment qualifies for 40% accelerated depreciation in the first year under the Written Down Value method. For a ₹3.8 Cr system in the 30% tax bracket, this generates a Year 1 tax saving of ₹45.6 lakhs, reducing the effective capital outlay from ₹3.8 Cr to approximately ₹3.34 Cr. Companies under MAT or operating at a loss cannot monetize this benefit.
What is the difference between OPEX solar lease and RESCO PPA?
In an OPEX lease, the client typically controls the asset (determines maintenance scheduling, monitoring access) and pays a fixed monthly lease. In a RESCO PPA, the RESCO controls the asset and sells the generated electricity to the client at a contractual rupee-per-unit rate. The key financial difference is risk allocation: OPEX leases often keep performance risk with the provider, while RESCO PPAs explicitly guarantee a minimum generation level. INDAS 116 accounting treatment also differs — OPEX leases may come on-balance, true RESCO PPAs may stay off-balance.
How long is a typical RESCO PPA in India?
RESCO PPAs in India typically run 20–25 years. Under MNRE’s rooftop solar programme guidelines, the standard term is 25 years with an option for the building owner to purchase the system at book value after Year 5. Termination before the contracted term triggers penalties typically equivalent to 3–5 years of remaining PPA payments — a material contingent liability that must be disclosed in the company’s financial statements.
What IREDA financing is available for CAPEX solar in India?
IREDA offers term loans for industrial captive solar at 9.2–10.5% (as of FY2025), with tenors up to 15 years and LTV up to 75%. The application requires a detailed project report (DPR) with PVsyst yield simulation, bankable engineering design, and a signed EPC contract. IREDA processing time is typically 3–5 months. SBI and other PSU banks offer comparable rates. Private banks (HDFC, Axis) are faster (6–8 weeks) but typically price 150–200 basis points higher.
Is a RESCO PPA truly off the balance sheet for Indian companies?
Not automatically. Whether a RESCO PPA is off-balance depends on the specific contractual terms and how the arrangement is classified under INDAS 116. If the arrangement gives the client the right to control the asset (determine how and when it operates), it will likely be treated as a finance lease and brought on-balance. For a truly off-balance treatment, the RESCO must control the asset and bear the performance risk. Consult your auditor and a INDAS 116 specialist before signing any RESCO or OPEX agreement with the expectation of off-balance treatment.
What happens to a RESCO PPA if the company’s factory is sold?
PPA agreements are typically binding on successors and assigns — they transfer to the new building owner upon sale. If the new owner does not want the PPA, the termination penalty applies. This creates a material contingent liability that must be disclosed in the sale agreement and may reduce the property’s market value. EPCs presenting RESCO proposals should clearly document this risk for CFOs, as it often determines whether the company chooses CAPEX or RESCO when a factory sale is a realistic 10-year scenario.
