OPEX: what it is, what it includes and how it affects an energy project
The OPEX, short for Operating Expenditure or operating expenditure, represents the recurring costs required to keep an asset, facility or company running. In the energy sector, it includes everything from operation and maintenance to insurance, leases, security, consumables, asset management, communications and certain technical services.
The distinction from CAPEX is fundamental: CAPEX finances the construction, acquisition or improvement of long-lived assets, while OPEX arises during their operation and affects the project's cash flows year after year.
In renewables, low OPEX is one reason why technologies such as solar PV and wind can be competitive: they consume no fuel during generation. However, 'low' does not mean irrelevant. At a plant with a service life of 25 or 30 years, small annual differences in maintenance, insurance, rents or asset management can add up to a very significant economic impact.
When analysing the profitability of an energy project, it is therefore not enough to know how much it costs to build. It is also necessary to know how much it will cost to operate each year and which parts of that OPEX may grow, vary with output or increase as the asset ages.
What is OPEX and how does it work in an energy project?
OPEX comprises the expenditure needed for an asset to continue operating once it has entered service. It is normally recognised as an expense in the period in which it is incurred, unlike certain CAPEX outlays that are included in an asset's carrying amount when they meet the applicable accounting criteria. At an energy plant, OPEX starts practically from the commercial operation date. From that point, costs arise for contracts covering O&M, insurance, rents, communications, monitoring, levies, staff, auxiliary services and other recurring items. A simple way to view it is:
Annual OPEX = fixed operating costs + variable operating costs + other recurring expenses
The precise boundary between OPEX and CAPEX depends on the nature of the expenditure. A routine inspection is usually OPEX; replacing a significant component that meets capitalisation criteria may be treated as CAPEX. The IFRS Foundation's IAS 16 specifically distinguishes between day-to-day servicing, normally recognised as an expense, and certain replacements or major inspections that may form part of the asset's carrying amount.
What does OPEX include at a renewable energy plant?
There is no single universal list, as it depends on each project's technology, country, contracts and scope. However, energy-sector OPEX typically falls into several cost categories:
- Technical operation: supervision, control, communications, SCADA, operating staff and incident management.
- Preventive and corrective maintenance: inspections, cleaning, lubrication, repairs, spare parts and labour.
- Insurance: cover for property damage, business interruption, third-party liability or other policies.
- Asset management: technical, financial, contractual, administrative and reporting management of the asset.
- Land and leases: periodic payments for rent or rights of use where applicable.
- Security and surveillance: access control, CCTV, security systems and external services.
- Auxiliary services: internal electricity consumption, communications, HVAC, water or other consumption required for operation.
- Levies, fees and regulatory costs: depending on the market, jurisdiction and asset type.
IRENA cautions that O&M and OPEX do not always mean exactly the same thing. Its cost analyses use the concept of all-in OPEX to include expenditure sometimes excluded from O&M indices, such as insurance and asset management. IRENA.
Fixed OPEX vs variable OPEX
A particularly useful distinction separates costs that exist even when the plant produces little from those that change with the level of activity.
Fixed OPEX
This includes expenditure that remains relatively stable over a period: base maintenance contracts, insurance, rents, permanent staff, security, licences, software, asset management or certain levies. Its magnitude is often expressed in terms such as €/kW-year, €/MW-year or as a percentage of the initial investment.
Variable OPEX
This depends more directly on output, use or operating intensity. It may include consumables, certain repairs, cycle-related costs, wear parts, fuel for technologies that require it or variable payments linked to energy generated.
In a BESS, for example, throughput-related degradation is not always presented in accounting terms as pure OPEX, but economically it must be included in the cost of operating and cycling the battery because it affects the asset's future value.
How OPEX varies by asset type
Solar PV
OPEX is usually dominated by technical operation, insurance, preventive maintenance, cleaning, security, vegetation management and asset management. With no fuel involved, the structure is relatively predictable. For 2024, IRENA estimated a global weighted utility-scale O&M cost of around USD 13.1/kW-year in its project database, although values vary widely by country and contractual scope.
Wind
Maintenance carries more weight because there are mechanical components, gearboxes, bearings, blades and systems subject to wear. Access, cranes and major interventions can significantly increase annual costs, particularly offshore.
BESS and storage
In a BESS, OPEX includes maintenance of batteries, PCS, HVAC and fire protection systems, software, communications, insurance and asset management. The operating strategy must also account for degradation, capacity augmentation and future replacements.
Hydropower and thermal generation
Hydropower plants can have very long service lives but require civil, mechanical and electrical maintenance. In thermal generation, fixed OPEX is supplemented by variable costs for fuel, consumables and emissions treatment, making the economic structure very different from that of solar or wind.
OPEX vs CAPEX: differences in an energy project
CAPEX and OPEX belong to the same economic analysis, but answer different questions. CAPEX indicates how much capital an asset needs to be built or improved; OPEX indicates how much it costs to keep it running.
| Concept | CAPEX | OPEX |
|---|---|---|
| What it represents | Investment in assets | Operating cost |
| Main timing | Development, construction and major improvements | Throughout operating life |
| Examples | Modules, wind turbines, BESS, substation | O&M, insurance, rents, management |
| Impact | Initial financing requirement | Recurring operating cash flow |
| Typical metric | €/kW, €/MW, €/kWh | €/kW-year, €/MW-year, €/MWh |
A project may have high CAPEX and low OPEX, or the reverse. The best solution is not necessarily the one that minimises either one, but the one that reduces the total cost over the asset's life without sacrificing availability, safety or output.
How OPEX is calculated and measured
In its most direct form, annual OPEX is obtained by adding all recurring operating costs for the period:
Annual OPEX = O&M + insurance + rents + asset management + services + levies + other operating costs
It is common to normalise OPEX to compare projects of different sizes. For example:
Specific OPEX = annual OPEX / installed capacity
A photovoltaic plant with annual OPEX of €1.2 million and 100 MW of capacity would have specific OPEX of approximately €12,000/MW-year, equivalent to €12/kW-year. It can also be expressed per unit of energy generated:
OPEX per unit of energy = annual OPEX / MWh generated
This metric is useful for analysing the effects of availability and capacity factor. If annual OPEX remains stable but output falls, the operating cost per MWh increases.
Why OPEX directly affects LCOE
The LCOE allocates project costs over its entire service life and compares them with the energy generated. OPEX is therefore part of its numerator, together with investment, replacements and other relevant costs. In simplified form:
LCOE ≈ total discounted costs / total discounted energy
A sustained increase in OPEX raises LCOE unless accompanied by an equivalent improvement in output or availability. IRENA highlights that O&M costs are among the factors determining the LCOE of renewable technologies, and that their relative importance increases as the initial cost of equipment falls. Two plants with similar CAPEX may therefore offer different returns if one requires more maintenance, has more expensive insurance, higher degradation or rising operating costs.
OPEX and bankability: why it matters to investors and lenders
OPEX directly affects operating EBITDA and the cash flow available for debt service. In a financial model, underestimating operating expenses can artificially inflate DSCR, IRR and project value. An assessment of bankability examines not only first-year OPEX but also its expected evolution: inflation, contractual escalators, equipment ageing, spare parts, insurance, major maintenance and potential replacements.
For long-lived assets, it is common to build an OPEX curve rather than assume a flat cost. A plant may start with relatively inexpensive service contracts and require more corrective maintenance as it ages.
How to optimise OPEX without destroying value
Reducing OPEX does not always improve a project. The right objective is to optimise total operating costs while maintaining availability, safety and performance. Cutting preventive maintenance may reduce the annual budget, but can also increase breakdowns and lost output. Reducing insurance can save costs but increase financial exposure. Replacing staff with automation can work if monitoring and remote response are sufficiently robust.
The main levers usually include well-defined O&M contracts, predictive maintenance, condition monitoring, digitalisation, spare-parts optimisation, renegotiation of insurance and services, reduced auxiliary consumption and improved operating performance. At large plants, small improvements have a material impact. Reducing specific OPEX by €1,000/MW-year represents €100,000 annually for a 100 MW asset. But if those savings cause a greater loss of output, the decision destroys value rather than creating it.
Which OPEX should be modelled over the project's entire life
A sound economic model should not be limited to the initial O&M contract. It should include all relevant recurring categories and anticipate how they may evolve over 20, 25 or 30 years. The factors most likely to change include inflation, insurance, wages, rents, prices of specialised services, equipment ageing and the need for corrective interventions. Degradation and capacity augmentation also matter for batteries; major components for wind; and inverters, trackers, cleaning and vegetation management for solar, depending on the site.
OPEX is therefore more than simply 'the cost of maintaining a plant'. It is a central variable in understanding how much cash the asset consumes each year, how much operating margin it retains and whether the profitability forecast during development is sustained throughout its actual life.