Valuation of Renewable Energy Installations

Valuation Renewable Energy Installations

RICS Practice Standards, UK

Draft Guidance Note

Charles Cowap MBA MRICS FAAV MRAC

RICS Rural Land Conference

Royal Agricultural College

14 June 2011

What?

• RICS Guidance Note• Part of the Red Book suite• Guidance on the valuation of

Renewable Energy Installations:– Wholesale– Own Use– Domestic– Electricity– Heat

Scope

• Landlord’s Interest• Owner-operator’s interest• Separately identified asset• As part of a larger asset, eg

rural estate or farm

Adapting Valuation Principles and Methods

• Direct Comparison and the problems of unique differences

• Some use for wind turbines?

Investment Method

• Assessment of Rent Levels• Reversionary Aspects• Layered Rents• Choice of All Risk Yield(s?)• Choice of capitalisation

period• A role for sensitivity analysis?

Layered Rents

Term

Profits Method

• Identify a separate rental income stream for separate capitalisation?

• Arms’ length?

• Veracity of estimated or stated profits

Depreciated Replacement Cost

• Extreme caution!!

• Depreciation rates?

• Relationship to market or other basis of value?

Residual Method

• All the previous problems …

• Plus Developer’s Profit

• Uncertainties over planning, grid connections etc

DCF Methods

• In practice widely undertaken for larger developments

• Market Value??

• Appraisal of worth to investor

• Would the market make same assumptions?

BACK TO BASICS

• Purpose of Valuation

• Scope of investigations to be undertaken

• Assumptions and Special Assumptions

• Preliminary Information

• Capacity and assumed duration

• After uses, continuation, redevelopment

• Reporting Requirements

REPORTING

• Rationale for chosen method(s)

• Detailed consideration of instructions, assumptions, sources and reliability, extent of independent verification

• Sensitivity

• Commentary on Risk?

Some Common Issues

• Development Proposals for new Sites

• Hope Value

• Operator Risk

• Complex lease or agreement terms

• Performance data

Some Common Issues

• Reporting Requirements

• Detailed instructions

• Market evidence

WIDER VALUATION ISSUES .....

• Worth and Value in Use v Market Value and Value in Exchange v Fair Value

• Valuation and other appraisal methods

Find out more …..www.rics.org

Charles Cowap:

cdcowap@harper-adams.ac.uk

http://charlescowap.wordpress.com

@charlescowap

Slides:http://www.slideshare.net/cdcowap