Quick Facts
What the CAPEX model is
The CAPEX (capital expenditure) model in solar is the traditional purchase arrangement where the customer buys the solar plant outright. The customer pays the full system cost upfront (or finances it through a loan) and owns the plant. The customer captures all benefits including the electricity savings, the tax benefits, and the asset value.
The model is the default for residential solar adopters and for commercial customers with sufficient capital and tax-paying capacity. It contrasts with the OPEX/RESCO model where the developer owns the plant and the customer pays only for electricity.
For taxable businesses with strong financials and capital availability, CAPEX typically delivers the best long-term economics. The combination of Accelerated Depreciation, GST input credit, and ownership benefits produces an effective project IRR significantly higher than OPEX-equivalent savings.
How CAPEX works
The mechanics are straightforward.
The customer selects an EPC contractor or installer based on technical quality, price, warranty, and reputation. ALMM-listed modules and MNRE-empanelled installers are preferred for subsidy and bankability.
The contractor designs the system, secures approvals (DISCOM, structural), and installs the plant. The customer pays the contractor according to milestone-based terms (typically 50% advance, 30% on installation, 20% on commissioning).
The customer’s net metering agreement is signed with the DISCOM. The plant feeds the customer’s premises and exports surplus to the grid.
The customer claims applicable tax benefits (AD, GST input credit) in their tax return.
The customer is responsible for O&M, typically through an Annual Maintenance Contract with the EPC contractor.
The plant operates for 25+ years, with the customer enjoying free electricity (offset against grid tariff) after the payback period.
Cost structure
A typical CAPEX rooftop solar plant in India in 2026:
| Size | Approximate CAPEX (excl GST) | After-Subsidy Cost (residential) |
|---|---|---|
| 3 kW residential | Rs 1,50,000 to Rs 1,75,000 | Rs 72,000 to Rs 97,000 (after Rs 78,000 PM Surya Ghar) |
| 5 kW residential | Rs 2,50,000 to Rs 2,90,000 | Rs 1,72,000 to Rs 2,12,000 |
| 10 kW residential | Rs 4,50,000 to Rs 5,50,000 | Rs 3,72,000 to Rs 4,72,000 |
| 100 kW commercial | Rs 47,00,000 to Rs 55,00,000 | n/a (no subsidy) |
| 500 kW commercial | Rs 2.10 cr to Rs 2.50 cr | n/a |
| 1 MW commercial | Rs 4.00 cr to Rs 4.80 cr | n/a |
These figures exclude GST. Adding GST (12% on modules, 18% on other items) takes the gross figure 12% to 15% higher. For GST-registered customers, the GST is recoverable as input credit, so the effective cost remains close to the GST-exclusive amount.
Tax benefits of CAPEX
For a commercial CAPEX customer with strong tax position:
Accelerated Depreciation: 40% in year 1 plus 20% additional for second-half commissioning, totalling 60% of CAPEX. At 30% corporate tax rate, this is 18% of CAPEX recovered as tax savings in year 1.
GST input credit: 12% to 18% on equipment cost, fully recoverable for GST-registered businesses.
Combined tax benefits: A Rs 55 lakh commercial rooftop generates approximately Rs 12 lakh in first-year tax and GST benefits, effectively bringing CAPEX down to Rs 43 lakh.
The first-year tax recovery alone is approximately 20% to 25% of CAPEX. Over the project life, additional depreciation benefits recover another 10% to 15%.
CAPEX returns example
For a 100 kW commercial CAPEX solar plant in central India:
CAPEX (excl GST): Rs 47 lakh.
Year 1 AD tax savings: Rs 9.9 lakh (60% of Rs 47 lakh at 30% tax).
GST input credit (recovered): Rs 7 lakh.
Net effective CAPEX after Year 1 benefits: Rs 30.1 lakh.
Annual generation: 1,55,000 kWh.
Net annual savings (after O&M and grid tariff): Rs 8.5 lakh (assumes Rs 5.80 per kWh effective savings net of all charges).
Payback period: Rs 30.1 lakh divided by Rs 8.5 lakh = 3.5 years.
25-year cumulative savings: Approximately Rs 2 crore.
25-year IRR: 22% to 26%.
These returns assume the customer can absorb the tax benefits. Customers with weak tax position cannot capture AD fully.
CAPEX versus OPEX decision
| Factor | CAPEX | OPEX |
|---|---|---|
| Upfront cash needed | High | Zero |
| Long-term cost | Lower (after payback) | Slightly higher (PPA tariff) |
| 25-year IRR | 18% to 28% (taxable corporates) | 8% to 12% (effective on grid savings) |
| Tax benefits | Customer claims | Developer claims |
| O&M responsibility | Customer | Developer |
| Roof or land | Owned by customer | Customer provides |
| Best for | Taxable corporates, residential owners | Non-taxable, capital-constrained, prefer simplicity |
The decision usually comes down to capital availability and tax position. Customers with capital and tax-paying capacity should prefer CAPEX. Customers without should consider OPEX.
Financing CAPEX
Solar loans are widely available for residential and commercial CAPEX projects.
PM Surya Ghar residential solar loans: 7% to 9% per annum, EMI over 5 to 10 years. Available from SBI, Canara, PNB, Bank of Baroda.
Commercial solar loans: 9% to 12% per annum, EMI over 5 to 15 years. Available from major PSU banks and NBFCs.
Equipment finance: Some EPC contractors offer EMI plans for residential customers.
With financing, the customer still owns the plant and claims tax benefits. The loan EMI is a cash outflow, but the electricity savings often cover most of the EMI.
For commercial customers, the post-tax IRR after AD and GST input credit usually exceeds the loan interest rate, making financed CAPEX viable.
Common mistakes in CAPEX
Underestimating O&M cost and effort. The customer’s responsibility for O&M is real.
Mismatching solar plant size to consumption. Oversized plants export surplus that may not be valued at retail tariff in some states.
Skipping ALMM verification. Subsidy may be denied for non-ALMM modules.
Not capturing AD properly. Tax planning is essential to realise the full benefit.
Going with the cheapest contractor. Lower-quality installations have higher long-term cost through faster degradation and more failures.
Ignoring grid escalation in payback projections. Grid tariffs rise; solar tariffs are essentially fixed. Long-term savings widen.
Best practices
Verify ALMM-listed modules and MNRE-empanelled inverters. Document model numbers and serial numbers.
Get multiple quotes from established EPC contractors. Compare on technical specifications, warranty, and after-sales service.
Plan for tax benefits. Engage a chartered accountant for AD and GST input credit claims.
Sign a comprehensive AMC for ongoing O&M with the EPC contractor or an independent provider.
For residential CAPEX, apply through PM Surya Ghar to get the subsidy.
For commercial CAPEX, model the project on GST-exclusive cost basis since input credit is recoverable.
Standards and references
CAPEX solar installations follow MNRE technical guidelines (ALMM-listed modules, MNRE-empanelled inverters), state SERC net-metering regulations, BIS certifications, and IEC standards. Tax benefits are governed by the Income Tax Act 1961 and the GST Act 2017. Financing follows the standard banking regulations.
Related glossary terms
- OPEX Model
- RESCO Model
- Power Purchase Agreement
- Accelerated Depreciation
- GST Input Credit
- IRR
- Payback Period
- AMC
- PM Surya Ghar Yojana
Key takeaways
The CAPEX model in solar is the outright purchase arrangement where the customer owns the solar plant and captures all benefits including electricity savings, tax incentives, and asset value. For taxable corporates with strong financials, CAPEX delivers 18% to 28% IRR over 25 years and payback in 3 to 5 years. The combination of Accelerated Depreciation (60% in year 1) and GST input credit recovers 25% to 35% of CAPEX in tax benefits during the first 1 to 2 years. CAPEX is the dominant model for customers with capital availability and tax-paying capacity; OPEX is preferred for those without.