Renewable Energy Valuation Briefing

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Valuation of renewable energy installations: a presentation at the RICS West Rural Seminar, Shepton Mallet 12 October 2011. This is a preview of the RICS Guidance Note due to be published in March 2012 and available for public consultation in November 2011.

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Renewable Energy Valuation Briefing

  1. 1. Valuation Renewable EnergyInstallationsRICS Practice Standards, UKDraft Guidance NoteCharles Cowap MBA MRICS FAAV MRACRICS Registered ValuerRICS West Rural Seminars Autumn 2011
  2. 2. What?• RICS Guidance Note• Part of the Red Book suite• Guidance on the valuation of Renewable Energy Installations: – Wholesale – Own Use – Domestic – Electricity – Heat
  3. 3. Scope• Landlord’s Interest• Owner-operator’s interest• Separately identified asset• As part of a larger asset, eg rural estate or farm
  4. 4. Adapting ValuationPrinciples andMethods• Direct Comparison and the problems of unique differences• Some use for wind turbines?
  5. 5. 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?
  6. 6. Layered RentsLayered Rent Term
  7. 7. Profits Method• Identify a separate rental income stream for separate capitalisation?• Arms’ length?• Veracity of estimated or stated profits
  8. 8. DepreciatedReplacement Cost• Extreme caution!!• Depreciation rates?• Relationship to market or other basis of value?
  9. 9. Residual Method• All the previous problems …• Plus Developer’s Profit• Uncertainties over planning, grid connections etc
  10. 10. DCF Methods• In practice widely undertaken for larger developments• Market Value??• Appraisal of worth to investor• Would the market make same assumptions?
  11. 11. 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
  12. 12. Clients Purposes Valuation Methodology (in no particular order)Site owners Loan finance Discounted cash flowSite developers Sale and purchase InvestmentSite occupiers Option agreements ProfitsFinance providers Development appraisals ComparableStatutory Asset distribution, e.g. probate, estate Residual reorganisation, succession, divorce, administration Depreciated and winding-up procedures replacement cost Taxation, e.g. inheritance tax, capital gains tax, rating Business reorganisation Financial statements Compensation for compulsory purchase Compensation to other interests, e.g. tenants, etc.
  13. 13. REPORTING• Rationale for chosen method(s)• Detailed consideration of instructions, assumptions, sources and reliability, extent of independent verification• Sensitivity• Commentary on Risk?
  14. 14. Some Common Issues• Development Proposals for new Sites• Hope Value• Operator Risk• Complex lease or agreement terms• Performance data
  15. 15. Some Common Issues• Reporting Requirements• Detailed instructions• Market evidence
  16. 16. WIDER VALUATION ISSUES .....• Worth and Value in Use v Market Value and Value in Exchange v Fair Value• Valuation and other appraisal methods
  17. 17. TimescaleActivity TimescaleValuation Standards Board 10 October 2011Public consultation opens on iconsult 9 NovemberDeadline for comments 7 DecemberPublication online 16 March 2012
  18. 18. Find out more …..www.rics.orgRural e-newsFarmland Market, Autumn 2011 edn.
  19. 19. Register herefor E-Bulletins etc
  20. 20. Contact DetailsIn-house CPD programmes, professional-technical updates, organisational consultancy, and more: cdcowap@gmail.com 01952 815305 07947 706505Twitter: @charlescowapBlog: http://charlescowap.wordpress.com/Slideshare: http://www.slideshare.net/cdcowap

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