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Valuation of Renewable Energy Installations


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Valuation of Renewable Energy Installations at RICS Rural Land Conference, RAC Cirencester, 14 June 2011

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Valuation of Renewable Energy Installations

  1. 1. Valuation Renewable Energy Installations RICS Practice Standards, UK Draft Guidance Note Charles Cowap MBA MRICS FAAV MRAC RICS Rural Land Conference Royal Agricultural College 14 June 2011
  2. 2. What? <ul><li>RICS Guidance Note </li></ul><ul><li>Part of the Red Book suite </li></ul><ul><li>Guidance on the valuation of Renewable Energy Installations: </li></ul><ul><ul><li>Wholesale </li></ul></ul><ul><ul><li>Own Use </li></ul></ul><ul><ul><li>Domestic </li></ul></ul><ul><ul><li>Electricity </li></ul></ul><ul><ul><li>Heat </li></ul></ul>
  3. 3. Scope <ul><li>Landlord’s Interest </li></ul><ul><li>Owner-operator’s interest </li></ul><ul><li>Separately identified asset </li></ul><ul><li>As part of a larger asset, eg rural estate or farm </li></ul>
  4. 4. Adapting Valuation Principles and Methods <ul><li>Direct Comparison and the problems of unique differences </li></ul><ul><li>Some use for wind turbines? </li></ul>
  5. 5. Investment Method <ul><li>Assessment of Rent Levels </li></ul><ul><li>Reversionary Aspects </li></ul><ul><li>Layered Rents </li></ul><ul><li>Choice of All Risk Yield(s?) </li></ul><ul><li>Choice of capitalisation period </li></ul><ul><li>A role for sensitivity analysis? </li></ul>
  6. 6. Layered Rents Term
  7. 7. Profits Method <ul><li>Identify a separate rental income stream for separate capitalisation? </li></ul><ul><li>Arms’ length? </li></ul><ul><li>Veracity of estimated or stated profits </li></ul>
  8. 8. Depreciated Replacement Cost <ul><li>Extreme caution!! </li></ul><ul><li>Depreciation rates? </li></ul><ul><li>Relationship to market or other basis of value? </li></ul>
  9. 9. Residual Method <ul><li>All the previous problems … </li></ul><ul><li>Plus Developer’s Profit </li></ul><ul><li>Uncertainties over planning, grid connections etc </li></ul>
  10. 10. DCF Methods <ul><li>In practice widely undertaken for larger developments </li></ul><ul><li>Market Value?? </li></ul><ul><li>Appraisal of worth to investor </li></ul><ul><li>Would the market make same assumptions? </li></ul>
  11. 11. BACK TO BASICS <ul><li>Purpose of Valuation </li></ul><ul><li>Scope of investigations to be undertaken </li></ul><ul><li>Assumptions and Special Assumptions </li></ul><ul><li>Preliminary Information </li></ul><ul><li>Capacity and assumed duration </li></ul><ul><li>After uses, continuation, redevelopment </li></ul><ul><li>Reporting Requirements </li></ul>
  12. 12. REPORTING <ul><li>Rationale for chosen method(s) </li></ul><ul><li>Detailed consideration of instructions, assumptions, sources and reliability, extent of independent verification </li></ul><ul><li>Sensitivity </li></ul><ul><li>Commentary on Risk? </li></ul>
  13. 13. Some Common Issues <ul><li>Development Proposals for new Sites </li></ul><ul><li>Hope Value </li></ul><ul><li>Operator Risk </li></ul><ul><li>Complex lease or agreement terms </li></ul><ul><li>Performance data </li></ul>
  14. 14. Some Common Issues <ul><li>Reporting Requirements </li></ul><ul><li>Detailed instructions </li></ul><ul><li>Market evidence </li></ul>
  15. 15. WIDER VALUATION ISSUES ..... <ul><li>Worth and Value in Use v Market Value and Value in Exchange v Fair Value </li></ul><ul><li>Valuation and other appraisal methods </li></ul>
  16. 16. Find out more ….. <ul><li> </li></ul><ul><li>Charles Cowap: </li></ul><ul><li> [email_address] </li></ul><ul><li> </li></ul><ul><li>@charlescowap </li></ul><ul><li>Slides: </li></ul><ul><li> </li></ul>