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.

1. 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Draft Guidance Note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

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. Scope
• Landlord’s Interest
• Owner-operator’s interest
• Separately identified asset
• As part of a larger asset, eg
rural estate or farm

4. Adapting Valuation
Principles and
Methods
• Direct Comparison and the
problems of unique
differences
• Some use for wind turbines?

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. Layered Rents
Layered Rent
Term

7. Profits Method
• Identify a separate rental
income stream for separate
capitalisation?
• Arms’ length?
• Veracity of estimated or
stated profits

8. Depreciated
Replacement Cost
• Extreme caution!!
• Depreciation rates?
• Relationship to market or
other basis of value?

9. Residual Method
• All the previous problems …
• Plus Developer’s Profit
• Uncertainties over planning,
grid connections etc

10. DCF Methods
• In practice widely undertaken
for larger developments
• Market Value??
• Appraisal of worth to investor
• Would the market make
same assumptions?

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. Clients Purposes Valuation Methodology
(in no particular order)
Site owners Loan finance Discounted cash flow
Site developers Sale and purchase Investment
Site occupiers Option agreements Profits
Finance providers Development appraisals Comparable
Statutory 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. REPORTING
• Rationale for chosen method(s)
• Detailed consideration of instructions,
assumptions, sources and reliability, extent of
independent verification
• Sensitivity
• Commentary on Risk?

14. Some Common Issues
• Development Proposals for
new Sites
• Hope Value
• Operator Risk
• Complex lease or agreement
terms
• Performance data

15. Some Common Issues
• Reporting Requirements
• Detailed instructions
• Market evidence

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. 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

18. Find out more …..
www.rics.org
Rural e-news
Farmland Market, Autumn 2011
edn.

19. Register here
for E-Bulletins
etc

20. 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