renewable energy valuation briefing
DESCRIPTION
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.TRANSCRIPT
Valuation Renewable Energy
Installations
RICS Practice Standards, UK
Draft Guidance Note
Charles Cowap MBA MRICS FAAV MRAC
RICS Registered Valuer
RICS West Rural Seminars
Autumn 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
Layere
d R
ent
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
Clients Purposes Valuation Methodology
(in no particular order)
Site owners
Site developers
Site occupiers
Finance providers
Statutory
Loan finance
Sale and purchase
Option agreements
Development appraisals
Asset distribution, e.g. probate, estate
reorganisation, succession, divorce, administration
and winding-up procedures
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.
Discounted cash flow
Investment
Profits
Comparable
Residual
Depreciated
replacement cost
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
Timescale
Activity Timescale
Valuation Standards Board 10 October 2011
Public consultation opens on iconsult 9 November
Deadline for comments 7 December
Publication online 16 March 2012
Find out more …..
www.rics.org
Rural e-news
Farmland Market, Autumn 2011 edn.
Register here for E-Bulletins
etc
Contact Details
In-house CPD programmes, professional-technical updates, organisational consultancy, and more:
01952 815305
07947 706505
Twitter: @charlescowap
Blog: http://charlescowap.wordpress.com/
Slideshare: http://www.slideshare.net/cdcowap