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Draft Guidance Note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:
http://charlescowap.wordpress.com
@charlescowap
Slides:http://www.slideshare.net/cdcowap