CAPEX, PPA or Energy-as-a-Service: Which Solar Financing Model Fits?

Direct capital purchase

Under a capital-expenditure model, the customer buys and owns the system. Payment may come from internal funds, a loan or a combination of sources.

Potential advantages

• The customer owns the asset and receives the long-term savings.
• The design and procurement process can be controlled directly.
• There is no long-term energy-service contract with a third party.
• The system may increase the value and resilience of the facility.

Important considerations

• A significant upfront payment or borrowing capacity may be required.
• The customer carries more technology, maintenance and performance risk.
• Internal procurement and approval processes may be lengthy.

Power-purchase agreement

Under a solar PPA, a private provider typically finances, owns, operates and maintains the system. The customer purchases electricity generated by the system under a long-term agreement.

Potential advantages

• Reduced or no upfront capital requirement.
• Performance and maintenance responsibilities can be allocated to the provider.
• Payments are linked to energy delivered.

Important considerations

• The customer enters a long-term contractual commitment.
• Credit quality and payment security are important.
• Tariff structure, escalation, termination and asset-transfer terms require careful review.
• Site access and operational responsibilities must be clearly defined.

Energy-as-a-Service

Energy-as-a-Service can combine solar, storage, efficiency, monitoring and maintenance under a service payment. The payment structure may be based on availability, savings, output or another agreed performance measure.

Potential advantages

• The solution can address a wider energy problem than solar generation alone.
• Technical and operating risk may be transferred to a specialist provider.
• Payments can be structured around a defined service level.

Important considerations

• Performance measurement must be clear and auditable.
• The contract can be more complex than a simple equipment purchase.
• Responsibilities for baseline changes, expansion and underperformance need careful allocation.

Questions to ask before selecting a model

• Does the organisation have available capital or borrowing capacity?
• Does it want to own the asset?
• Can it sign a long-term payment agreement?
• How strong is its credit and payment history?
• Who should carry maintenance and performance risk?
• What procurement rules apply?
• How will savings or delivered energy be measured?
• What happens at contract expiry or early termination?

The financing model should be evaluated alongside the technical design. Selecting a commercial structure too early can restrict competition or create a project that does not fit the organisation’s real needs.