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Are you considering installing a solar power system but worried about the upfront costs? The Zero Capital Expenditure (Zero CapEx) model provides a financing solution that can eliminate these costs, making solar energy more accessible to individuals and companies.
This article is a beginner’s guide to the Zero CapEx model for solar energy, including what it is, how it works, and the advantages and disadvantages of this financing model.
What is the Zero CapEx model for solar?
CapEx refers to the ‘capital expenditure costs’ when installing solar panels. As such, the Zero CapEx solar model is a financial solution that allows individuals and businesses to install solar power systems with zero upfront costs. Instead, the system costs are paid for over the course of several years, via a financing agreement.
How does Solar Zero CapEx model work?
The Zero CapEx model for solar is a third-party ownership model that allows consumers to access solar power without upfront costs. In this model, a third-party provider, typically a solar EPC (Engineering, Procurement, Construction) company or a Registered Photovoltaic Investor (RPVI), installs and maintains the solar system on the buyer’s property, and the buyer enters into a power purchase agreement (PPA) with the provider to purchase the system’s electricity at a fixed price.
Unlike conventional PPAs, which give providers ownership of the solar systems, the Zero CapEx model gives customers ownership upon completing their payment terms.
The Zero CapEx model is similar to the OpEx (Operating Expenditures) model in that a third-party owns and operates the solar system. Additionally, because the third-party owns the system they get to collect all incentives or tax credits. Nonetheless, the customer still benefits from the cost savings of solar power.
What are CapEx costs examples?
CapEx refer to the expenses incurred in purchasing and installing a solar power system. For instance, the cost of solar panels, inverters, racking, wiring, and installation. These are upfront expenditures and can be a significant barrier to entry for consumers interested in adopting solar power.
Comparing Zero CapEx vs OpEx vs CapEx
Traditionally, individuals or businesses looking to invest in solar energy have to choose between the CapEx and OpEx models. The CapEx model involves upfront costs associated with purchasing and installing a solar power system, thereby owning a solar plant.
In contrast, the OpEx model involves a third-party developer, typically an EPC solar developer, owning and operating the solar plant and selling the energy produced to the consumer at a predetermined tariff rate for an allocated tenure.
This means that the consumer does not have to invest in purchasing and installing the system and instead enters into a long-term contract to purchase the electricity generated at a predetermined rate. On the other hand, a Zero CapEx model eliminates the upfront cost of installing a solar power system for the consumer while still benefiting from the cost savings of solar power.
The following table summarises the differences between CapEx vs Zero CapEx/OpEx and their respective benefits:
| CapEx | Zero CapEx/OpEx | |
Ownership | Customer owns the system | 3rd party provider owns the system |
Operation and Maintenance (O&M) | Customer pays separately for O&M | Turnkey solution, O&M cost borne by 3rd party provider |
Upfront Costs | All upfront costs borne by Customer | Zero upfront costs for the Customer |
Management Approval | Internal CapEx approval required, resulting in long lead times | No internal CapEx approval required, easily replicable and scaleable |
What is paid for | Only pay for O&M after purchasing solar system (No tariff for solar electricity produced) | Pay for electricity generated (No hidden costs) |
Savings Per Unit | Capital repaid through electricity generated | Up to 40% cheaper than Grid electricity Tariff |
Payback | As long as 4 years | Savings from day 1 (Zero days) |
Technical Support | Customer requires a dedicated team to evaluate system design, installation and operation | 3rd party provider handles technical matters |
Performance Risk | Customer bears all performance risk | 3rd party provider bears all performance risk |
Tax Benefits | Tax incentives for investing in solar green energy | Tax benefits claimable through accelerated depreciation |
Regulatory Risk and Approvals | Owner’s prerogative | 3rd party provider’s prerogative |
Types of solar financing
There are three main types of solar financing ownership: outright purchase, solar leasing, and power purchase agreement (PPA).
1. Outright Purchase (Direct Ownership)
In this arrangement, the system is purchased outright, and the owner is responsible for all solar panel maintenance and repairs. Although this option may require a significant upfront cost, it offers long-term savings on electricity bills and eliminates the need for monthly payments. This is the traditional way of owning a solar power system.
2. Power Purchase Agreement (PAA)
With a PPA, a third-party provider owns and maintains the system. Individuals or organizations pay for the electricity generated by the system at a fixed rate, and the provider bears all maintenance and repair expenses.
A PPA is a great option for those who want to go solar without making any upfront investment. However, the fixed rate may be higher than the cost of electricity from power grids in some areas. Read more on Zero Capex solar power purchase agreement
3. Solar Leasing
With solar leasing, the user does not own the system. Instead, the system belongs to a third-party provider who charges the owner a monthly fee to use it. All maintenance and repairs expenses are borne by the solar provider.
Solar leasing eliminates the need for a significant upfront investment, making solar energy more accessible to a wider range of people. However, the user has no control over maintenance and repairs unless ownership is transferred.
Read more on Buying Solar Panels vs Leasing”: The Better Choice?
Apart from the three solar financing options, individuals or organizations can also consider the Supply Agreement for Renewable Energy (SARE), which entails entering into a contractual agreement with a billing agent, usually a utility company. This is a programme that covers the related agreements and policies for the supplying and consuming of Renewable Energy (RE) in Malaysia. Read more a quick introduction to solar panels in Malaysia.
What is Supply Agreement for Renewable Energy (SARE)?
This option involves a tripartite contract between the investor and/or asset owner with a utility company (billing agent), and the consumer. The consumer agrees to purchase electricity at a fixed price or a price calculated with a predetermined formula. In this case, the provider settles any payments with the utility company.
A SARE is different from a PPA because the provider typically does not own the power generation facility or the property on which it’s built. Instead, they have contracts with multiple facilities, such as businesses operating in the same office building, who all use the same billing agent to pay their electricity bills. This allows the provider to aggregate a supply of renewable energy and deliver it to the consumers without needing to settle payments individually. Read more in details about SARE in Malaysia.
Advantages and disadvantages of the Zero CapEx model
Pros
- Zero upfront cost of installing a solar power system.
- Lowers electricity bills.
- Eliminates the need for maintenance and repair costs.
- Reduces carbon footprint.
Cons
- Limited control over the solar system.
- Possibility of higher energy costs than the grid in some areas.
- Longer payback period.
Read more in details about the Advantages and disadvantages of the Zero CapEx model
Who should go for Solar ZERO CapEx model?
The Zero CapEx model for solar is an excellent choice for individuals and businesses who want to reduce their carbon footprint, lower their energy bills, and do not want to pay the upfront costs of installing a solar power system.
However, it is essential to consider the length of the financing agreement, the fixed rate, and the third-party provider’s reputation before committing to the installation.
How to invest in Solar Zero CapEx model?
To invest in the Zero CapEx model for solar energy, individuals or organizations first need to assess their eligibility based on location, roof suitability, energy consumption, and credit score. After determining eligibility, they can choose a solar provider based on factors such as experience, reputation, and pricing, and begin the application process. Once approved, the solar provider will handle installation and maintenance of the system, and individuals or organizations can enjoy reduced energy costs and environmental benefits without any upfront investment.
Read more on How to Invest in Solar Zero CapEx Model.
Conclusion
In conclusion, the Zero Capital Expenditure (Zero CapEx) model is an excellent financing solution for individuals and businesses who want to invest in solar power systems without the burden of upfront costs.
It is a viable alternative to traditional CapEx and OpEx models, allowing buyers to pay for the system’s electricity at a fixed price over several years through a financing agreement with a third-party provider.
The Zero CapEx model not only eliminates upfront costs but also provides technical support and maintenance, making solar energy more accessible and affordable. By considering the pros and cons of the Zero CapEx model, individuals and businesses can make an informed decision on whether this financing solution is the right fit for them.
