WACC

What is WACC

WACC (Weighted Average Cost of Capital) is the blended cost of financing for a project, calculated as the weighted average of the cost of debt and the cost of equity, with weights based on each source’s share of total project financing. It is the discount rate used in NPV and LCOE calculations to translate future cash flows to present value.

For Indian solar projects, WACC typically ranges from 8 to 12 percent post-tax depending on project type and risk profile:

• Utility-scale solar with strong PPA: 8-10 percent
• C&I solar with corporate offtaker: 9-11 percent
• Residential rooftop: 10-12 percent

The WACC formula:

Where:

• D, E, V: debt, equity, total project cost
• Rd: pre-tax cost of debt
• T: corporate tax rate
• Re: cost of equity

Why WACC matters

NPV calculation. Project economics depends on discount rate.

LCOE. Higher WACC means higher LCOE.

PPA tariff bidding. WACC determines the minimum acceptable PPA tariff.

Project selection. Projects with IRR below WACC destroy value, a comparison worked through in Solar IRR and Payback for C&I in India, Real Math.

Lender vs equity. Tension between debt cost (lower) and equity return (higher).

Indian solar WACC trajectory

Technical deep dive

WACC calculation example

Indian solar WACC by financing mix

Higher leverage reduces WACC but raises equity cost (financial risk premium).

Cost of debt drivers

Cost of equity drivers

Tax shield effect

For 22 percent corporate tax: After-tax debt cost = Pre-tax × (1 − 0.22) = Pre-tax × 0.78

This reduces effective cost of debt by ~22 percent of the pre-tax rate.

Real-world applications

SECI tender tariff bidding.

Project finance debt sizing.

NPV and IRR analysis.

LCOE modelling.

Investor pitch materials, frequently built around a solar financial modelling tool to test WACC sensitivity.

PPA negotiations.

Sensitivity to WACC

For a 100 MW solar plant:

Each 200 bps WACC change moves LCOE by ~₹0.30/kWh.

Best practices

Use long-term average WACC for stable projects.

Account for currency risk for imported equipment.

Update WACC assumptions during project review.

Document WACC components transparently.

Stress-test sensitivity to WACC changes.

Indian market context

IREDA, REC, PFC are major Indian solar lenders.

International lenders (ADB, World Bank, KfW) provide longer tenors at competitive rates.

Green bonds increasingly used for solar finance.

PLI scheme reduces equipment cost, supporting lower capex and IRR.

Standards and certifications

Key takeaways

WACC is the blended cost of project financing, weighted between debt and equity. Indian solar WACC: 8-10 percent for utility, 9-11 percent for C&I, 10-12 percent for residential. WACC has fallen from 14-15 percent in 2010 to 8-10 percent in 2024 as projects became bankable. Used as discount rate in NPV and LCOE calculations. Direct impact on project economics: 200 bps WACC change moves LCOE by ~₹0.30/kWh.

Further reading

For how WACC plays out in real projects, these guides go deeper:

• Solar Loan from SBI, Eligibility and Rates
• Scanifly Pricing 2026: Real Costs + Alternative

Sources

• Brealey R., Myers S., Allen F., Principles of Corporate Finance, McGraw-Hill.
• CERC Tariff Regulations 2024.
• IREDA Financing Parameters.
• IEA Cost of Capital Observatory.
• IRENA Renewable Power Generation Costs 2024.
• Indian Banks Association rate sheets.
• RBI Policy Rate publications.
• BloombergNEF Cost of Capital Studies.
• NREL Annual Technology Baseline.