Importance of valuation of renewable energy projects on emerging markets
/8th March 2016, RENEWABLE MARKET WATCHTM/ The valuation of renewable energy projects is a complex subject. It is a source of tension between regulators, developers, banks, insurance companies and debt and equity investors. This article is intended to highlight best practices and challenges in evaluating renewable energy projects. In the past few years, focus on renewable energy has led to high investments in renewable energy assets. Especially wind and solar farm assets have been exposed to great interest from investors, and markets expect high growth rates in investments in these assets in the coming decades. Due to these markets' expectations, we find it interesting to identify the structure of assets held by renewable energy investors and find suitable methods to value such assets. Project or company valuations are sometimes required for IPOs, financing, fairness opinions, litigation, mergers and acquisitions, and shareholder-related matters.
Many renewable energy installations are very specific to a particular site and its characteristics and reflect local physical and economic conditions. The valuation of sites with future potential for development can pose particular challenges in the earlier stages of the development process, such as obtaining full planning permission and connection consents.
There are many accepted methods for valuing assets that do not have a readily available or quoted market price, such as renewable energy assets. These valuation methods can generally be aggregated into the following three categories:
• Income Based
• Market Based
In the valuation of renewable energy assets, each approach has its strengths and weaknesses and will be afforded different weight based on the facts and circumstances. The conclusion of a fair market value (FMV) reached is a reasonable estimate of the price at which the renewable energy company or projects may change hands between two willing parties. It should be understood that the actual price paid in a transaction involving this company may differ from the appraised fair market value due to factors such as the motivation of the parties, the negotiating skills of the parties, the structure of the transaction (e.g. financing structure, or other factors unique to the transaction).
Recent developments have been rapid and there now exists the prospect of substantial gains from renewable energy generation. However, the risks can be substantial too, and the investment requirements can be considerable. The new markets can be volatile.
Any market valuation seeks to determine how much a property would sell for in a hypothetical sale; accordingly, it involves careful consideration of the position adopted by the hypothetical willing seller and the willing buyer in the market. Taken together, all these factors pose a considerable challenge to the traditional market-based approaches adopted by valuation experts.
Our analyses of transactions in the renewable energy industry found that installed capacity, non-installed capacity and capacity in early-stage pipeline affect the enterprise value of renewable power plants significantly. Due to our proprietary large size of the dataset, we have performed various in-depth analyses. More information about the valuation of renewable energy projects and companies, description of the valuation process you may find in this brochure:
Capability Statement Renewable Energy Company Valuation Services