RICS Tri-State Chapter sponsors January 15 event in Manhattan.
The fact that it’s definitely winter in New York City didn’t keep more than 30 interested professionals from turning out for an RICS seminar on valuation of solar energy assets on January 15. “Valuation of Solar P.V. Assets – Theory and Practice,” sponsored by RICS’ Tri-State Chapter, was held at the Schack Institute of Real Estate in the New York University School of Professional Studies.
The workshop was conducted by Ken Kramer, co-founder and managing director of Rushton Atlantic, LLC, a boutique valuation advisory firm specializing in the energy, infrastructure, manufacturing and transportation sectors.
The seminar looked at issues with appraisals as they apply to the three main types of solar photovoltaic installations: residential, usually for a single-family homes; commercial, usually for commercial or industrial buildings; and utility scale, by far the largest, producing power to be distributed through the grid to the distribution utility’s customers. (Photovoltaic, or PV, solar technology is used to produce electricity directly from sunlight).
Of the three approaches to appraisals, two – income and cost – apply to all three types of solar installations, while the third approach – market – applies mainly to residential and commercial but less frequently to utility-scale solar.
All three solar variants may employ a power purchase agreement, under which either (a) a building owner buys power from the company that installed his rooftop system, or (b) a utility buys power from the operator of a large scale solar installation. As such the income approach is applicable to all of them. The cost approach also applies to all three because you always know what it costs to build the solar system. The market approach, however, may not be usable to appraise utility-scale projects because they are often too large for comparables to be available, but can be used for most residential and many commercial installations.
A key current issue in solar P.V. appraisals, said Kramer, is the disagreement over the discount rate used in the income approach. Traditionally appraisers have discounted income streams at a discount rate equal to the weighted average cost of capital (WACC) of a typical market participant, which in the case of power generation assets would be an electric utility. The Treasury Department, which administers the Section 1603 cash grant for solar in lieu of an investment tax credit, has taken the position that the discount rate on solar projects should be equal to or higher than the return on tax equity partnership investments in solar financing transactions. These are highly structured, illiquid, tax-sheltered investments, although their yields are higher than, and not at all comparable to, utility industry WACC rates, according to Kramer and other appraisers.
For more information on Rushton Atlantic and its appraisal work, please visit www.rushtonatlantic.com.
See the pictures of the event on our page on Facebook.
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