Examining Operating Expense (OPEX) in Solar Systems

Operating expense (OPEX) in solar plants

Operating expense (OPEX) definition: Operating expense, commonly abbreviated to OPEX, refers to an expense incurred by a business during normal operations.

Examples of OPEX include insurance, inventory, maintenance, marketing, payroll and equipment (that will generally be used for less than a year - equipment that will be used for more than a year would typically be categorized as CAPEX). Government institutions such as the IRS will often allow businesses to deduct OPEX if they are for-profit operations. 

Alongside OPEX, businesses will also incur capital expenses (CAPEX). CAPEX refers to expenses relating to acquiring, maintaining, and upgrading physical assets such as land or computing systems. Land costs may not always be classified as OPEX depending on ownership. If the land is owned, property taxes are part of OPEX, but if the land is leased, leasing costs are an operating expense.

What areas of a solar energy system fall under the operating costs of solar?

Understanding what qualifies as an operating expense is essential for the financial management of your solar power plant. Typical OPEX solar plant costs include:

• Monitoring - PV plants need constant attention to perform as expected. The sooner deviations can be spotted, the sooner engineers can troubleshoot and sort issues. Examples of OPEX for solar plant monitoring include software costs and labor.

• Maintenance - Solar plants need to be regularly maintained to ensure they operate at peak efficiency. Wear and tear left unchecked can result in costly repairs down the line. OPEX for PV plant maintenance includes routine inspections, cleaning, and repairs.

• Land - Solar PV plants require a large amount of land which will incur leasing costs or property taxes depending on whether the land is owned or leased.

• Insurance - Solar power plants should be insured to help cover repairs and replacements due to natural disasters, theft, or vandalism.

• Grid connection fees - Grid operators and utility companies will charge solar plant owners operating expenses related to maintaining the connection between the plant and the electrical grid. Utility companies may also charge other fees.

• Permits and compliance - Costs associated with attaining and maintaining compliance with local, state, and federal regulations are considered OPEX for solar plants.

These costs are typically covered under the opex solar model, which focuses on operational expenses rather than initial capital investments.

Some solar PV plants may also need these additional operating expenses:

• Energy storage maintenance - For solar plants with on-site energy storage, batteries and capacitor banks will require additional maintenance and regular replacements.

• Security - Depending on location, some PV plants will require on-site security. This can reduce the risk of vandalism or theft.

What is the difference between OPEX vs. CAPEX?

Solar power plant owners will have to pay both operational costs (OPEX) and capital expenditure (CAPEX) to set up and run their PV systems. OPEX covers the costs of running and maintaining the solar plant, while CAPEX will cover the construction or expansion of the plant.

Capital expenditure refers to purchases with upfront costs that are required to allow a business to function. For solar plant owners, CAPEX will include the purchase of cabling, solar batteries, solar panels, computing systems, and inverters.

CAPEX is recorded on the balance sheet because it represents an investment in the future of the business. This means any purchased item's lifespan must be considered before classifying it as CAPEX. Typically, a purchased item will not be classed as CAPEX if it does not have a useful life of a year or longer although the classification of CAPEX can depend on the specific tax and accounting rules in place for the jurisdiction.

For example, office supplies cannot be classified as CAPEX as they will not provide long-term value to the PV plant. However, the purchase of an additional solar battery would be classified as CAPEX, because it will provide long-term value.

Correctly classifying your expenses is important for budgeting. OPEX are short-term expenses that occur daily, weekly, or monthly, while CAPEX tend to be larger expenses that occur as and when significant investment is required. 

There are also different tax implications depending on the location of your business. OPEX can typically be deducted from taxable income, while CAPEX cannot be directly written off and is spread over time through depreciation. Businesses may be able to "expense" certain CAPEX in the year of purchase under specific tax codes (e.g., Section 179 in the U.S.) instead of depreciating them over time. The tax treatment of CAPEX can vary depending on local regulations, and some businesses might choose to accelerate the depreciation of assets under certain circumstances.

How does RatedPower help you document the costs of your solar power design?

Constructing your solar PV plant will likely be your business's most significant expense. Keeping these initial costs low is crucial for businesses looking for a high return on investment and long-term profitability. 

At RatedPower, we have made it our mission to incentivize businesses to invest in solar renewables by helping to maximize their ROI. 

Our platform offers a simple way to create optimized solar plant layouts and detailed energy yield results. We consider everything from solar panel types to cabling to ensure you can build the most efficient PV plant possible. The platform produces key documentation to help businesses calculate cost and performance.

We also have a wide range of resources, including our renewable energy glossary and free templates, such as our Bill of Quantities template.

What is a Solar OPEX Model and what are its benefits

Although it shares the acronym a Solar OPEX model is different concept as it has more to do with Power Purchase Agreements (PPA) or a Solar Leasing.

A Solar OPEX (Operating Expenditure) model is a financial structure commonly used in the solar energy industry, particularly for solar power systems. Under this model, the customer does not own the solar system outright. Instead, they agree to pay for the energy generated by the system through a fixed or variable fee.

The OPEX model offers several compelling benefits for businesses and individuals looking to transition to solar energy without the burden of significant upfront costs. Here are some key advantages:

1. Reduced Upfront Costs: One of the most attractive features of the OPEX model is the elimination of large initial investments. This makes solar energy accessible to businesses and individuals with limited financial resources, allowing them to adopt green energy without a hefty capital expenditure.

2. Predictable Energy Costs: By opting for the OPEX model, businesses and individuals can lock in a fixed rate for their solar electricity. This predictability provides stability in energy costs, making it easier to budget and manage expenses over time.

3. No Maintenance or Performance Monitoring: The OPEX model typically includes comprehensive maintenance and performance monitoring services. This ensures that the solar system operates efficiently without placing any additional burden on the business or individual. The renewable energy service company takes care of all the upkeep, allowing users to enjoy the benefits of solar power hassle-free.

4. Flexibility: OPEX agreements are often customizable to meet the evolving energy needs of businesses. This flexibility allows for adjustments and scalability without significant financial risk, making it a versatile option for growing enterprises.

5. Access to Renewable Energy: The OPEX model provides an excellent opportunity for businesses and individuals to access renewable energy sources without the need for a large upfront investment. This not only helps in reducing energy costs but also contributes to a lower environmental impact, promoting sustainability and the use of renewable energy.

By leveraging the OPEX model, businesses and individuals can enjoy the benefits of a solar energy system while mitigating financial risks and operational burdens. This model is particularly advantageous for those looking to embrace renewable energy and reduce their carbon footprint without the constraints of significant initial investments.

Get in touch today to see RatedPower’s financial features in action and discover how we can help you produce highly accurate quotes for your new solar project.