Trading of Operational Assets
As the impacts of the government’s decision to reduce subsidies for renewable energy sites start to take effect, we have seen a severe decline in the number of new development sites being taken forward. This, combined with the changes to planning guidance for onshore wind turbines means there is a distinct lack of new development opportunities for investors to acquire.
As a result, we have seen a significant increase in the number of enquiries from investors and funds who are looking to purchase operational developments.
At a time of turbulence in the financial markets and low interest rates, it is no surprise that investors are lining up to purchase sites that provide a long term and relatively stable income through a government backed subsidy.
Landowners may be surprised by the uplift in value that has been achieved in their site as a result of successfully commissioning the development and obtaining a couple of years of operational data, which both can be seen to significantly de-risk the investment for a potential purchaser.
Operational sites are generally valued on a Discounted Cash Flow (DCF) basis which assesses the value of the forecast income stream remaining from the asset. This method considers the type of technology and associated operational risks, number of operational years the site has remaining, subsidy rate, terms of any existing PPA, resource availability and projected running costs. Any generation data that has been collected over the previous year’s operation of the sites will also be considered by investors and can often uplift values even further if sites have consistently performed either in line with or above pre-development predictions.
Considering this, it can be seen that the optimum time for a landowner to offload a project is two to three years after commissioning and so anyone with operational assets may wish to consider their options.
Sale processes can often move quickly depending on the scale and underlying nature of the site, with competitive bidding between interested parties the best way to achieve best value. Carter Jonas has a significant amount of experience in administering this process on behalf of landowners and in achieving best value for clients.
Those landowners wishing to sell an interest in an operational site will often look to maintain their underlying freehold of the land by transferring the development into a Special Purpose Vehicle (SPV) and then establishing a lease from the landowner to this SPV to coincide with the remaining length of a planning consent or operational life of the installed technology. This SPV can then be sold to preserve the landowner’s freehold title of the site. It may also be possible to establish a ground rent from the SPV and so will maintain a longer term income for the landowner, however this will obviously decrease any sale value.
Having an initial valuation of a site is often the best way to make an informed decision as to whether a sale will be worthwhile. Carter Jonas is currently acting for a number of clients in this area and would be pleased to support a landowner considering this opportunity.
Senior Energy Specialist
Peter is a Senior Energy Specialist and is based in our Harrogate office....