RESCO MODEL

RESCO MODEL

The OPEX model (also known as the RESCO model or third-party financing model) involves an energy company, RESCO, arranging the necessary capital for the RTS projects and bearing all of its associated risks. In this model, the developer makes an agreement with the roof-top owner. This model is increasingly becoming attractive, and its share has increased over the years. However, the challenge is mobilizing low-cost capital for meeting the requirements of system deployment. This model is again divided into two different types, depending on the choice of consumption:

(1) roof-top leasing

(2) power purchase agreement (PPA).

In the roof-top leasing model, the roof-top is leased to developers and the roof owner receives a fixed rental fee over time and RESCO sells the energy to the utility at pre-determined tariffs fixed by the regulator. In the case of the PPA model, the RESCO invests in the roof-top assets and sells the energy generated to the roof-top owner at a lower tariff. The additional energy could be sold to the utility by the roof owner, with the condition that the RESCO sells the energy to the roof-top owner at a tariff less than the grid tariff, but which would still allow the RESCO to maintain a margin.

One of the key advantages of this model is that the risks are borne by the RESCO, and the roof-top owner does not need to make any upfront investment in the system deployed. The complexities associated with system ownership, such as the cap on system size, limits on transformer capacity, and problems related to roof-ownership, are also taken care of by the developers. However, the challenges tend to be associated with the payment-related risks associated with PPAs. This model also involves the huge transaction costs of aggregating small systems. This kind of model is widespread in the United States. There are also variations in these business models depending on whether gross or net metering is involved.