IRR of a ₹10 Lakh Solar Plant Investment (8 Years)

A rooftop solar plant costs ₹10 lakh upfront and saves ₹1.8 lakh per year in electricity bills. Find the Internal Rate of Return on this investment.

This calculation's inputs

Number of periods: 8
Initial investment: ₹10,00,000
Hurdle rate: 10%

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IRR result

Internal Rate of Return

9.70%

Below 10% hurdle rate

Total inflow

₹14.9 Lakhs

₹14,90,000

Total outflow

-₹10 Lakhs

₹-10,00,000

NPV at 10%

₹-10,891

Payback period

6 periods

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About this scenario

Yes. Most Indian retail investors benchmark against FD rates (6-7%) or debt fund returns (7-8%). A 10% hurdle rate is a reasonable cost-of-capital proxy for a funded project. If the IRR exceeds 10%, the solar plant beats a typical debt instrument.

If savings grow at 5% annually from ₹1.8 lakh in year 1, year 8 savings reach about ₹2.45 lakh. This increases the IRR meaningfully. Adjust the cash flows in the full calculator to model escalating savings.

Frequently asked questions

IRR, or Internal Rate of Return, is the discount rate that makes the net present value (NPV) of all cash flows from a project equal to zero. In plain terms, it is the annualised return your investment generates, accounting for the timing and size of each cash flow. A higher IRR means a more profitable investment.

A common benchmark is the hurdle rate, typically 10-15% for most investments in India. Real estate projects often target 15-20% IRR, while equity investments can target 18-25%. If your IRR exceeds the cost of capital or your personal required return, the investment is worth pursuing.

CAGR assumes a single lump sum investment and a single redemption, with no intermediate cash flows. IRR handles multiple periodic cash flows but assumes equal time gaps between them. XIRR is the most flexible: it handles irregular cash flows on specific dates, making it ideal for SIPs or real-world investments. For most mutual fund SIPs, XIRR is the right metric.

IRR is found by iteratively solving the equation: NPV = sum(CF_t / (1+r)^t) = 0, where CF_t is the cash flow at time t and r is the rate being solved for. This calculator uses the Newton-Raphson numerical method to converge on the answer within a tolerance of 0.0001%.

IRR cannot be calculated if all cash flows are the same sign (all outflows or all inflows), because the NPV curve never crosses zero. It can also fail if cash flows change sign more than once, creating multiple valid IRR solutions. In such cases, use NPV analysis with your chosen hurdle rate to evaluate the investment.

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What Is IRR and How Should Real Estate and Business Investors Use It?
Learn what IRR means, how to calculate it for Indian real estate and business investments, and why it beats simple return percentages for irregular cash flows.

IRR solved using Newton-Raphson iteration. If cash flows change sign more than once, multiple IRRs may exist. NPV at hurdle discounts at 10%.

IRR of a ₹10 Lakh Solar Plant Investment (8 Years)

About this scenario

Is 10% hurdle rate appropriate for a solar investment in India?

What happens if electricity savings increase by 5% per year?

Frequently asked questions

What is IRR?

What is a good IRR in India?

What is the difference between IRR, CAGR, and XIRR?

How is IRR calculated?

What does it mean if IRR cannot be determined?