You are Rodrigo Mateu-Antín, CFO of EnerOlivar S.A., a mid-cap Spanish utility headquartered in Madrid. Your engineering team has spent six months working up a greenfield 80 MW photovoltaic plant in the Extremadura plain outside Mérida, and put a thick file on your desk last week: CAPEX €58M, a 25-year PPA with a basket of industrial offtakers at €52/MWh, project IRR 9.8%. Tomorrow at the investment committee you have to say one thing: does the project clear the hurdle rate or not. The hurdle rate is yours to set, and the answer is the weighted average cost of capital — the number the board, the lenders and the auditors will all read from the same page of the same filing for the next twenty-five years.
The situation
EnerOlivar S.A. A regional electric utility, IBEX small-cap, founded in 1996 around three hydroelectric concessions in Jaén and now a vertically integrated player in distribution and renewable generation across Andalucía and Extremadura. FY2025 group revenue €420M, EBITDA €92M (21% margin), market capitalisation €580M, net debt €510M, equity €425M. Around 740 employees. The strategic plan presented to the board last December commits €280M of renewables CAPEX between 2026 and 2030, of which Solar Mérida is the first major build.
You are Rodrigo Mateu-Antín, 52, ICADE economics + MIT Sloan MBA. Twelve years at EnerOlivar, the last six as CFO. You report to CEO José María Pacheco and you have signing authority on capital-allocation memos under €100M; anything above goes to the board with your recommendation. Solar Mérida sits comfortably under that ceiling but the board chair, Doña Carmen Olivares (founder's daughter, 78), reads every CFO memo that touches the renewables plan personally.
The project: 80 MW photovoltaic in Extremadura, on a 140-hectare plot adjacent to a 220 kV substation EnerOlivar already operates. CAPEX €58M (32% PV modules imported from China, 28% inverters and electrical balance-of-plant, 24% civil works, 16% grid connection). Construction 18 months, operation 25 years, expected generation 160 GWh/year at a 23% capacity factor typical for the latitude. Revenue is contracted under a 15-year corporate PPA at €52/MWh with a basket of three industrial offtakers (Mantequerías Arias, Cementos Cosmos, a regional Carrefour DC), with the residual 10 years sold into the spot market at a forecast €45/MWh. Blended revenue ~€8.3M/year. OPEX (O&M, insurance, lease) €1.7M/year. Project EBITDA €6.6M/year. The engineering team's internal model returns a project IRR of 9.8%.
The decision is not whether the project is profitable in absolute terms — at €52/MWh PPA, with the technology stack price-discovered, it clearly is. The decision is whether the project clears your cost of capital. EnerOlivar's corporate WACC, last refreshed in the FY2025 reference document, is around 5.2%, but the renewables team is asking the board to approve a project-specific structure: 70% non-recourse project-finance debt at 5.0%, 30% equity. The cost of equity for a standalone solar SPV is not the same as EnerOlivar's listed-utility cost of equity — the beta is different, the regulatory exposure is different, the diversification is different. You need to build the project WACC from CAPM, defend the inputs in front of the audit committee, and then look at the 9.8% IRR and decide whether the spread is wide enough to recommend.