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Draft Guidance Note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:

cdcowap@gmail.com

01952 815305

07947 706505

Twitter: @charlescowap

Blog: http://charlescowap.wordpress.com/

Slideshare: http://www.slideshare.net/cdcowap