RBI Hikes the Repo Rate to 5.5%: What It Means for Your Factory's Solar Plan

Published Oct 30, 2026

RBI repo rateSolar financingCAPEX vs OPEXRESCOC&I solar

On 7 October 2026, the Reserve Bank of India (RBI) raised its key lending rate for the first time since February 2023. For a factory owner or CFO (Chief Financial Officer) planning rooftop solar, this changes one thing above all: the cost of borrowing money to build the plant. This guide explains what happened, how it flows into solar project economics, and why the choice between CAPEX (buying the plant) and OPEX (paying only for the power) deserves a fresh look.

What did the RBI announce in October 2026?

The RBI's Monetary Policy Committee (MPC) unanimously raised the repo rate by 25 basis points, from 5.25% to 5.5%, on 7 October 2026. One basis point is one hundredth of a percentage point, so 25 basis points equals 0.25 percentage points.

The repo rate is the rate at which the RBI lends short-term money to banks. When it rises, banks usually pay more for funds, and loan rates for businesses tend to follow.

Other key points from the decision, as reported by Business Standard:

The policy stance moved from "neutral" to "calibrated tightening".
The Standing Deposit Facility (SDF) rate moved to 5.25%, and the Marginal Standing Facility (MSF) rate and bank rate moved to 5.75%.
The RBI projected CPI (Consumer Price Index) inflation for FY27 at 5.2% and real GDP (Gross Domestic Product) growth at 7.1%.
The governor cited elevated oil prices, tighter global conditions and weather risks to food inflation.
The governor indicated that further rate cuts are off the table in the near term.

The rate had been cut to 5.25% in December 2025 and held there from February to August 2026. October's move ends that easing phase.

Will more rate hikes follow?

Possibly. Some economists expect another hike, but nothing is confirmed. ICRA's chief economist Aditi Nayar said the October move sets "the stage for another rate hike in December 2026", according to Business Standard.

For planning, the safe assumption is that borrowing costs are unlikely to fall in the next few months. Any solar decision that depends on a cheap loan should be stress-tested for higher rates.

How does a rate hike affect rooftop solar projects?

Solar is a capital-heavy asset: almost all of its cost is paid upfront, and the "fuel" (sunlight) is free. That makes the cost of money one of the biggest drivers of solar economics.

Mercom India reported on 28 October 2026 that the hike could raise borrowing costs for renewable energy developers and manufacturers, potentially affecting project returns, financing decisions and capacity expansion plans. Developers, it noted, expect higher borrowing costs to affect project returns and payback periods.

Here is how it flows through for a C&I (commercial and industrial) buyer:

Higher loan interest. If your bank passes on the full 0.25 percentage point rise, every ₹1 crore of outstanding loan costs about ₹25,000 more in interest per year.
Longer payback. Your electricity savings stay the same, but more of them go to interest, so it takes longer to recover the investment.
Tighter credit appetite. When rates rise, lenders often become more selective, and approval for a non-core asset like a solar plant can take longer.
Opportunity cost. Cash or credit lines used for solar are not available for machines, inventory or expansion, and that trade-off gets sharper when money is dearer.

The underlying value of solar does not change. Your roof still produces power for 25 years, and every unit you generate is a unit you do not buy from the discom (distribution company). What changes is how you should pay for it.

What is the difference between CAPEX and OPEX solar?

In the CAPEX (capital expenditure) model, you buy and own the solar plant. In the OPEX (operating expenditure) or RESCO (Renewable Energy Service Company) model, a developer funds, builds, owns and maintains the plant on your roof, and you pay only for the electricity it produces, at a per-unit tariff.

Factor	CAPEX (you own)	OPEX / RESCO (developer owns)
Upfront cost	Full project cost, from cash or a loan	Zero upfront cost
Exposure to loan rates	Direct: you carry the interest	Indirect: the developer arranges financing
What you pay	Loan EMIs plus operations and maintenance	A per-unit tariff for power actually generated
Operations and maintenance	Your responsibility (or an O&M contract)	Developer's responsibility
Tax depreciation	You can claim it	The developer claims it
Balance sheet	Asset and any loan sit on your books	Treated as a power purchase, not an asset purchase (confirm with your auditor)
Best for	Cash-rich firms with tax capacity and in-house O&M	Firms that want savings without tying up capital

Does OPEX solar make more sense when interest rates rise?

For many factories, yes. OPEX lets you start saving on power without taking a loan at a time when loans are getting dearer.

To be clear, a rate hike also raises costs for developers, and that can be reflected in tariffs offered on new contracts. But there are three structural reasons why OPEX often holds up better for the buyer in a rising-rate cycle:

You avoid new debt. Your credit lines stay free for your core business, where returns are usually higher than on a utility asset.
Your payment is tied to output. You pay for units generated. If the plant underperforms, it is the developer's problem, not your EMI's.
Tariff terms are set in the contract. In a typical PPA (Power Purchase Agreement), the tariff and any escalation are agreed at signing, so you know your solar cost for the contract term. Always read the escalation clause.

The key comparison is simple: is the OPEX tariff lower than your current discom tariff, and by how much? If the gap is meaningful, you save from the first month, with no capital at risk.

When does CAPEX still make sense in a high-rate environment?

CAPEX can still win if you have surplus cash, strong taxable profits, and the capacity to manage the plant for 25 years.

Two tax and cost factors work in favour of ownership:

Accelerated depreciation. Under the Income Tax rules, solar power generating systems are listed at a 40% depreciation rate, according to India Briefing. For a profitable company, that can lower the tax bill in the early years. The exact benefit depends on when the plant is commissioned and your tax position, so check with your CA (Chartered Accountant).
Lower GST on equipment. GST (Goods and Services Tax) on renewable energy equipment, including solar power equipment, was cut from 12% to 5% with effect from 22 September 2025, as reported by PV Tech. That reduced the upfront cost of solar compared with before the cut.

If you pay cash, the rate hike matters less directly, but it still raises your opportunity cost: the same cash in a fixed deposit or in your business now earns more.

How should a CFO evaluate solar after the rate hike?

Run both models side by side, using today's real numbers, not last year's. A simple five-step check:

Get a fresh loan quote. Ask your bank for its current rate on a term loan for a solar asset. Do not use a quote from before October.
Know your true grid tariff. Take your all-in per-unit cost from your electricity bill, including fixed charges, energy charges, electricity duty and surcharges.
Get an OPEX tariff offer. Ask a RESCO developer for a per-unit tariff, the contract term and the escalation clause.
Compare 25-year cash flows. For CAPEX, include EMIs, O&M, inverter replacement and the depreciation benefit. For OPEX, multiply expected generation by the tariff.
Stress-test. Re-run the CAPEX case with a further rate hike, and both cases with lower-than-expected generation. Pick the model that still saves money in the bad case.

Should you delay going solar until rates come down?

Usually not. Waiting has a cost too: every month without solar is a month of paying full grid tariffs.

The RBI has signalled that near-term cuts are unlikely, so waiting for cheaper loans could mean waiting a long time. Meanwhile, the savings you skip are gone for good. If financing is the barrier, OPEX removes it: you can lock in savings now and leave the funding question to the developer.

FAQ

What is the current repo rate in India?

The repo rate is 5.5%, after the RBI raised it by 25 basis points on 7 October 2026.

Does the repo rate hike make rooftop solar unviable?

No. It raises the cost of financing, which can lengthen payback on loan-funded projects. The power savings from solar are unchanged, and OPEX models let you avoid taking on new debt.

Will my RESCO tariff change because of the RBI hike?

For a signed contract, the tariff follows the terms in your PPA. New offers may reflect developers' current financing costs, so compare quotes carefully.

What is the GST rate on solar equipment now?

GST on renewable energy equipment was cut from 12% to 5%, effective 22 September 2025. Ask your vendor how GST is applied to your specific contract.

Can I claim depreciation on solar under the OPEX model?

No. In OPEX, the developer owns the plant and claims the depreciation. You pay only for the power, which is usually treated as an operating expense.

About SustVest

SustVest (SolarGridX Ventures Pvt Ltd) is ranked #5 among India's Top 10 rooftop solar project developers in the Crisil Bridge to India India Solar Rooftop Map (June 2026). It runs 80+ distributed solar plants (30 MW+) across 13 states for factories, hospitals, hotels, tea estates and institutions, mainly on an OPEX/RESCO model with zero upfront cost, and also delivers EPC (Engineering, Procurement and Construction) projects through its in-house team. Want to compare CAPEX and OPEX for your site? Talk to us at sustvest.com.