# CAPEX and OPEX: the two pockets of money in an industrial project

> The most structuring distinction in industrial economics: what you spend once to buy (CAPEX) and what you spend continuously to operate (OPEX).

- Source : https://industryhub.site/en/learn/economics/capex-opex
- Track : Industrial economics
- Level : Discovery
- Reading time : 6 min
- Language : English

## The idea in one sentence

Every industrial project is paid for in two ways: **a big spend at the start**, then **small spends that recur every year**. The first is called CAPEX, the second OPEX. Telling them apart is the basis of any investment decision.

## CAPEX — the investment spend

CAPEX means *Capital Expenditure*. It is the money spent **once** to acquire a durable asset that will serve for years:

- controllers, drives, sensors;
- machines, pumps, motors;
- building construction, civil works;
- installation, wiring, commissioning.

In accounting, you do not expense this all at once: you spread it over the equipment's service life. That is straight-line **depreciation**:

$$\text{annual depreciation} = \frac{\mathrm{CAPEX}}{\text{service life}} = \frac{20\,000}{10} = 2\,000\ \text{€/yr}$$

A controller bought for €20,000 and depreciated over ten years thus "costs" €2,000 per year in the accounts, even though the cash went out in the first year.

## OPEX — the operating spend

OPEX means *Operational Expenditure*. It is the money spent **continuously** to run the asset, year after year:

- energy: electricity, gas, compressed air, steam;
- maintenance: parts, contracts, interventions;
- operating staff;
- consumables, fluids, software licenses.

Unlike CAPEX, OPEX is a recurring charge. It does not depreciate: it is paid every year, as long as the plant runs.

## Why this distinction changes everything

The classic trap is to pick equipment **on purchase price alone**. Yet cheaper-to-buy gear can cost far more to use. Take two motors:

| | Motor A | Motor B |
|---|---|---|
| Purchase price (CAPEX) | €1,000 | €1,400 |
| Consumption (OPEX/yr) | €1,200 | €900 |
| Cost over 10 years | €13,000 | €10,400 |

Motor A is cheaper to buy, but its over-consumption makes it **€2,600 more expensive** over ten years. That is exactly the reasoning behind high-efficiency motors (IE3, IE4): a higher CAPEX justified by a lower OPEX. A 75 kW motor running 6,000 h/yr alone consumes about **€54,000/yr** of electricity (at €0.12/kWh) — far more than its purchase price in the very first year.

## The CAPEX-to-OPEX shift

A strong industry trend: turning CAPEX into OPEX. Instead of **buying** a server (CAPEX), you **rent** cloud (OPEX). Instead of buying a machine, you pay per use. The upside: less capital tied up at the start, more flexibility. The downside: over the long run, renting often costs more than buying.

This choice is therefore not just technical: it commits the company's cash and strategy.

## Key takeaway

CAPEX is the money spent once to buy an asset; OPEX is the money spent every year to run it. A purchasing decision is never judged on CAPEX alone.