There are two ways to put solar on an Indian factory. You pay for the plant and own it, or someone else pays for it and sells you the electricity. Everything else in the decision follows from that one line.
We build both, which is the only reason this comparison is worth reading from us rather than from a company that sells one of them.
What CAPEX actually means
Under a CAPEX or turnkey EPC contract, you pay the capital cost of the plant, staged against milestones, and you own the asset from the day it is commissioned. In our contracts that staging is twenty per cent on issuance of order, seventy per cent before dispatch of material, five per cent on installation and five per cent on commissioning.
After that, every unit the plant generates is yours. There is no tariff, no supplier and no counterparty. The saving on your bill is the full retail value of the electricity you no longer buy.
You also take on what comes with an asset: depreciation, insurance, maintenance and the generation risk. If the plant underperforms in year seven, that is your problem to solve, unless you have a separate operations and maintenance contract that says otherwise.
What a PPA actually means
Under a power purchase agreement, the developer (in our case Fractal) funds, builds, owns and operates the plant. You sign a long-term agreement to buy the electricity it generates at an agreed tariff, set below what you pay the grid today.
You deploy no capital. The plant does not appear on your balance sheet as an asset, and the payment is an operating cost against the same line the DISCOM bill sits on.
Critically, you pay for units delivered. If the plant underperforms, you buy fewer units and the developer carries the loss. That is the structural reason a PPA developer keeps the panels clean and the inverters up: it is our revenue, not a clause in a service report.
The comparison, on one page
| CAPEX / turnkey EPC | PPA / power sale | |
|---|---|---|
| Capital outlay | Full project cost, staged | None |
| Ownership | Yours from commissioning | Developer’s, for the tenure |
| What you pay for | The asset | Units generated |
| Generation risk | Yours | Developer’s |
| Maintenance | Yours, or a separate O&M contract | Included |
| Accounting | Capitalised, depreciation available | Operating expense |
| Total 25-year saving | Larger in absolute terms | Smaller, with no capital deployed |
| Return on capital | Finite: there is capital in it | Not applicable: there is none |
How to choose without a spreadsheet
Four questions get most factories to an answer.
- Do you own the building, and will you be in it in ten years? If not, a PPA is usually the only sensible structure, and the agreement has to be written around the lease.
- What else is your capital doing? If it is committed to a new line, to regulatory work or to working capital, the comparison is not CAPEX solar against PPA solar. It is CAPEX solar against whatever that capital would otherwise earn.
- Do you want to run an asset? Someone has to own the cleaning schedule and chase the inverter warranty. On a PPA that is the developer. On CAPEX it is you or your O&M contractor.
- Is depreciation worth something to you? For a profitable company it can be material. For one carrying losses forward it may not be. Ask your finance team before you weigh it.
The trap in both models
The number you are shown (a payback period on CAPEX, a tariff on a PPA) is an output of assumptions you cannot see. Two proposals for the same roof can differ by years of payback purely on the escalation assumed for the grid tariff and the degradation assumed for the panels.
Ask any bidder, including us, for four things in writing: the debt-to-equity split and cost of debt used, the annual degradation applied to generation, the escalation assumed on the grid tariff, and the soiling loss assumed for your location. A proposal that will not show them is not a proposal. There is more on this in how the payback number is actually built.
What we would tell you to do
If you have capital available, own the building and expect to be in it for the long run: take CAPEX. The total saving is larger and the asset is yours.
If capital is committed elsewhere, if you lease, or if you would simply rather someone else carried the performance risk: take the PPA. A lower bill with no capital deployed and no asset to manage is a perfectly good outcome, and it is the one most of the factories we talk to end up choosing.
Either way, size the plant against your twelve-month load profile before you compare prices. A cheap proposal for the wrong capacity is not cheap.