Weighted Average Cost of Capital (WACC)

In plain terms

A project is funded partly by debt and partly by equity. Lenders want interest; investors want a higher return for taking more risk. The weighted average cost of capital blends the two by their share of funding, after tax:

WACC = E/V × Re + D/V × Rd × (1 − tax rate)

In an LCOH model, WACC is the discount rate. It decides how heavily future hydrogen sales are discounted against the CAPEX spent today.

WACC is not just a company number. It carries country risk, offtake risk and technology risk. The same plant financed in two countries, or with and without a long-term offtake contract, can have very different WACCs.

Typical range

There is no universal value. As a public reference, NREL's H2A v3 model uses an 8.0 % real after-tax return, 40 % equity and debt at 3.70 % (2019). The IEA (2025) cites cheaper financing as one reason electrolyzer projects in China cost less.

Why it moves LCOH

Most of a green hydrogen plant's cost is paid upfront, in the electrolyzer and in the renewables that set its power price, so cost of capital weighs heavily. Over 20 years, the annual capital charge on the same CAPEX is about 35 % higher at a 10 % discount rate than at 6 % (capital recovery factor 0.117 vs 0.087). See our analysis on electrolyzer CAPEX vs discount rate.

Common mistake