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Draft Guidance Note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