CAPEX vs RESCO: Which Solar Financing Is Best?

Choosing between CAPEX and RESCO solar financing determines whether you invest upfront to own the system or pay only for the power you consume with zero capital investment.

TL;DR

• CAPEX model

  : You own the solar system outright with high upfront investment but enjoy 40% accelerated depreciation and 3-5 year payback period

• RESCO model

  : Third-party owns and maintains the system while you pay only for electricity consumed at rates 20-50% cheaper than grid tariffs

• CAPEX suits profitable businesses with available capital and tax appetite, while RESCO works for SMEs with limited cash flow

• CAPEX delivers higher long-term savings (up to 70% reduction in electricity costs), but RESCO provides immediate savings from day one

• Decision factors include upfront capital availability, tax liability, maintenance capacity, and long-term business goals

Author Credibility & Freshness

• This analysis is backed by

  Earthwave Solar's hands-on experience

  executing commercial solar projects across manufacturing and industrial facilities in Gujarat and Madhya Pradesh

• Our EPC team has guided businesses through both CAPEX and RESCO decisions, with real financial data from installations ranging from 50 kW to multi-MW capacities completed in 2024-2025.

Understanding Solar Financing Models for Businesses

Solar adoption has moved beyond environmental goals to become a strategic financial decision for Indian businesses facing electricity costs ranging from ₹8 to ₹16 per unit.

Commercial solar installations now deliver measurable ROI, making them essential for cost-conscious businesses across manufacturing, retail, and industrial sectors.

What is the CAPEX Solar Model?

CAPEX (Capital Expenditure) means your business purchases and owns the entire solar power system outright.

You engage a solar EPC company for complete installation, then take full ownership of the asset.

Key characteristics:

• Complete ownership and control of solar assets

• Full responsibility for upfront investment (₹4-5 crore per MW)

• You manage or contract annual operations and maintenance

• Eligible for 40% accelerated depreciation under Section 32 of Income Tax Act

• All electricity savings and surplus power sale revenue belongs to you

  

What is the RESCO Solar Model?

RESCO is a third-party ownership model where a solar developer installs, owns, operates, and maintains the system on your commercial rooftop or industrial facility.

You simply pay for the solar electricity you consume through a Power Purchase Agreement (PPA) typically spanning 10-25 years.

Key characteristics:

• Zero upfront capital investment from your business

• RESCO developer handles all installation, maintenance, and performance risks

• You pay a fixed per-unit tariff (typically 20-50% lower than grid rates)

• Agreement duration ranges from 10-25 years with various end-of-term options

• Developer may transfer asset ownership after agreement period

CAPEX Model: Detailed Breakdown

Ownership and Control Benefits

• With CAPEX, you gain complete control over your energy asset and all associated benefits.

• The solar system appears on your balance sheet as a tangible asset, increasing property value and demonstrating commitment to sustainability.

Financial Investment Structure

Upfront costs for 1 MW system:

• Solar panels: ₹2.5-3.5 crore

• Inverters: ₹70 lakh-₹1 crore

• Mounting structures: ₹50-80 lakh

• Civil works and electrical: ₹40-60 lakh

• Grid connection and approvals: ₹50 lakh-₹2 crore

Total investment typically ranges from ₹4-5 crore per MW depending on system configuration and site requirements.

Tax Benefits and Depreciation

CAPEX model offers substantial tax advantages for profitable businesses.

Accelerated depreciation benefit:

• Claim 40% depreciation on solar asset cost in first year

• Reduces taxable income immediately, improving cash flow

• Must be operational for more than 180 days in fiscal year to claim full benefit

• Only available to businesses with taxable income against which depreciation can be offset

Learn how to maximize solar tax benefits and accelerated depreciation benefits with detailed calculations and eligibility criteria.

Return on Investment and Payback

Financial performance metrics:

• Payback period: 3-5 years for commercial installations

• Annual ROI: 15-25% depending on consumption patterns

• Internal Rate of Return (IRR): Often exceeds 20%

• Post-payback energy costs: Less than ₹0.50 per unit for 20+ years

Manufacturing facilities can see even higher returns, discover how factories cut power costs by 40% through strategic solar deployment.

Maintenance Responsibilities

You assume full responsibility for system performance and maintenance.

Ongoing obligations:

• Quarterly panel cleaning

• Annual system diagnostics

• Equipment repairs and replacements

• Performance monitoring and optimization

• Annual O&M costs: ₹5-8 lakh per MW

Many businesses contract the original EPC provider for annual maintenance at mutually agreed rates.

RESCO Model: Detailed Breakdown

Zero Capital, Immediate Savings

RESCO eliminates upfront investment entirely. The developer funds, installs, owns, and maintains the entire system while you simply pay for the solar power you consume.

Your only commitment: Sign a Power Purchase Agreement (PPA) and start saving from day one.

How the PPA Works

You buy solar electricity at a fixed rate significantly below grid tariffs.

Standard PPA terms:

• Duration

  : 10-25 years

• Tariff

  : ₹4-₹7 per unit (vs. ₹8-₹16 grid rates)

• Escalation

  : 3-5% annually or fixed throughout

• Performance guarantee

  : Developer ensures minimum generation

• Monthly billing

  : Pay only for units consumed

Real Savings: A business consuming 1 lakh units monthly saves ₹1.5-3 lakhs per month from the first bill itself.

What the Developer Handles (You Don't)

The RESCO provider manages everything technical, transferring all operational risk away from your business:

• 24/7 remote system monitoring

• Regular cleaning, inspections, and maintenance

• All equipment repairs and replacements

• Insurance and performance guarantees

• Compliance with grid regulations

You focus on your business. The developer ensures your solar system performs.

End-of-Contract Flexibility

After the PPA term, you typically have four options:

1. Purchase

   the system at depreciated residual value (usually 10-20% of original cost)

2. Extend

   the PPA at renegotiated lower rates

3. Transfer

   ownership automatically (some agreements include this)

4. Remove

   system if no longer needed (developer's responsibility)

Many RESCO agreements transfer full ownership after 5-10 years, giving you free electricity for 15-20 additional years.

Head-to-Head Comparison: CAPEX vs. RESCO

Financial Analysis: Which Model Saves More?

1. CAPEX Total Cost of Ownership

Research indicates CAPEX with accelerated depreciation benefit is approximately 14% cheaper than RESCO over the system lifetime.

25-year financial projection (100 kW system example):

• Initial investment: ₹40-50 lakhs

• Tax savings (Year 1): ₹16-20 lakhs (40% depreciation benefit)

• Annual electricity savings: ₹8-12 lakhs

• Total 25-year savings: ₹2-3 crore

• Net return after investment: ₹1.5-2.5 crore

The accelerated depreciation benefit is the primary driver making CAPEX more financially attractive for profitable businesses.

2. RESCO Total Cost Analysis

RESCO provides consistent savings throughout the agreement period without upfront investment.

25-year financial projection (100 kW system, 10-year PPA example):

• Initial investment: Zero

• Monthly savings: 20-50% on solar consumption

• Years 1-10: Pay PPA tariff to developer

• Years 11-25: Free electricity if ownership transfers

• Total savings: Lower than CAPEX due to PPA payments during initial period

RESCO makes sense when capital availability is constrained or when the business cannot utilize tax depreciation benefits.

3. Impact of Accelerated Depreciation

The 40% first-year depreciation fundamentally changes CAPEX economics.

Without this tax benefit, both models deliver similar net present value to the business. For companies with insufficient tax liability, this advantage disappears, making RESCO more attractive.

Decision Framework: Which Model Fits Your Business?

Choose CAPEX Model If:

Financial position:

• You have access to ₹40-50 lakhs per 100 kW capacity

• Strong profitability with substantial tax liability to offset

• Seeking capital asset creation for balance sheet strength

Operational factors:

• Long-term facility ownership (10+ years planned)

• In-house maintenance capability or established vendor relationships

• Desire maximum long-term savings and full system control

Business profile:

• Large manufacturing units with high power consumption

  benefit most from CAPEX ownership with accelerated depreciation advantages.

• Established enterprises with available capital reserves

• Companies prioritizing asset ownership and balance sheet optimization

Choose RESCO Model If:

Financial position:

• Limited capital availability or prefer to preserve cash flow

• Insufficient tax liability to benefit from accelerated depreciation

• Need to deploy capital toward core business growth instead

Operational factors:

• Limited technical expertise for solar system management

• Preference for outsourced maintenance and performance risk

• Require immediate cost savings without waiting for payback

Business profile:

• Small and medium enterprises with capital constraints

• Commercial complexes and retail facilities

• Businesses in leased premises with uncertain long-term tenure

• Companies seeking solar benefits without operational burden

Common Misconceptions About Solar Financing

"RESCO is Always More Expensive"

While RESCO costs more over 25 years compared to CAPEX for profitable businesses, it delivers better value when:

• Business lacks capital for upfront investment

• Tax liability is insufficient to utilize depreciation

• Technical expertise for system management is unavailable

For these scenarios, RESCO's immediate savings outweigh CAPEX's long-term advantage.

"CAPEX Requires Too Much Capital"

• Solar loans and financing options reduce the capital barrier significantly.

• With 70% loan financing, a 100 kW system requiring ₹40 lakhs total investment needs only ₹12 lakhs equity. The remaining amount is financed through commercial debt.

“Can Businesses in Rented Buildings Still Use Solar?”

• RESCO model specifically addresses this situation.

• Since you don't own the system, there's no asset stranded when relocating. The PPA simply terminates, or transfers to the new tenant with landlord approval.

Making Your Final Decision

The optimal choice between CAPEX and RESCO depends on your specific business context rather than a universal "best" model.

Understanding how to calculate your solar energy savings helps you make data-driven comparisons between both financing models.

Critical evaluation questions:

• What is your current annual electricity expenditure?

• Do you have available capital or prefer to preserve cash flow?

• What is your effective tax rate and ability to utilize 40% depreciation?

• Do you plan to occupy this facility for 10+ years?

• Does your team have bandwidth for system maintenance oversight?

• What is your risk tolerance for operational performance?

Answer these honestly to align your solar financing choice with business realities.

Take the Next Step Toward Solar Savings

Whether you choose CAPEX for maximum long-term returns or RESCO for immediate savings with zero investment, solar power delivers verified financial benefits for Indian businesses.

The right financing model amplifies these benefits based on your unique business situation.

Ready to evaluate solar for your facility?

Schedule a free consultation with Earthwave Solar's EPC experts to receive a customized feasibility report comparing CAPEX and RESCO models for your specific facility. Our team analyzes your energy consumption, roof characteristics, and financial position to recommend the optimal solar strategy.

Contact us today for a detailed assessment including system design, financial projections, and implementation roadmap tailored to your business.

Frequently Asked Questions

Q1: What is the typical payback period for CAPEX solar investments in India?

The payback period for CAPEX solar installations typically ranges from 3-5 years for commercial and industrial facilities, depending on electricity tariff rates, solar irradiance, and available tax benefits like 40% accelerated depreciation.

Q2: Can I switch from RESCO to CAPEX model later?

Yes, most RESCO agreements include a buyout option allowing you to purchase the system at residual value after a specified period (typically 5-10 years), effectively converting from RESCO to ownership model.

Q3: Do I get subsidies under CAPEX or RESCO models for commercial solar?

Commercial and industrial solar installations do not qualify for direct subsidies in India. However, CAPEX model businesses can claim 40% accelerated depreciation benefit, which significantly reduces effective system cost through tax savings.

Q4: What happens if the RESCO company goes out of business during my PPA period?

Quality RESCO agreements include provisions for asset transfer or assignment to another qualified developer. Verify the financial stability and track record of the RESCO provider before signing agreements to minimize this risk.

Q5: Can small businesses with limited roof space benefit from these models?

Yes, both models work for small installations starting from 10-20 kW capacity. RESCO particularly suits smaller businesses as it eliminates the capital barrier, while smaller CAPEX investments (₹4-8 lakhs) become manageable for businesses with moderate capital availability.