Project evaluation: How much is a PV plant really worth?
Prerequisite to buying or selling any PV project is knowing how much it truly is worth. It must be clear what return can be expected and to what extent it can be optimised. The price is a crucial criterion for deciding whether investing or selling makes sense. But how can the value of PV projects be genuinely determined?
In practice, there are widely varying perspectives on the value of PV projects: while buyers and financiers tend towards conservative calculations, sellers lean towards more optimistic assumptions. Buying cheap and selling dear – the mantra is understandable at a glance. But such a simplification falls short. Both approaches are based on justified assumptions.
For example, the length of the assumed operating period makes a tremendous difference when calculating the project value. Conservatively, a 20 year operating period is assumed, because the legally guaranteed feed-in tariff, i.e. the price guarantee, shares this period. But the technical operability of a PV plant including repairs can be estimated to be 30 years. Various forms of direct marketing for solar power are also becoming increasingly common, and it’s difficult to argue that a PV plant ceases to produce residual value after 20 years. Even earlier there will be opportunities for additional revenue thanks to alternative marketing options, producing additional revenue that is hard to calculate in advance, because no one can currently reliably estimate what value solar electricity will have in the coming years. Even if fine-tuned details, i.e. various scenarios and forms of marketing, are carefully calculated, the price risk continues to exist.
To achieve successful transactions, you need to be prepared to argue for and develop a justifiable suggested price. These conversations are even more successful if established industry standards are used to value the project. One way to do this is with Milk the Sun’s own PV project evaluation service.
In this article, you will learn the important aspects in a PV project evaluation, what the most important key figures are, when a professional evaluation is needed, and what comprises Milk the Sun’s professional PV project evaluation.
What is important when financially evaluating PV projects?
We know just what counts when determining the value of PV projects, thanks to our many years of market experience, countless transactions in our Milk the Sun marketplace, and expertise of what investors, operators, financing banks, and insurance companies look for. During the process, we have crystalised management principles which are also applied in other investment areas:
- Relevance: Naturally, commercial PV systems are technical production units with corresponding complexity and multiple components subject to many variables with a corresponding lengthy time horizon. As it is often the case with directional decisions made in uncertain conditions, the focus should lie on those factors decisive for returns which can also be assessed without getting lost in the minutiae.
- Standardisation: Both the players on the market and the PV projects traded are diverse, meaning that it is very important to use industry standards to establish the comparability of these different PV projects when selecting parameters and assumptions. This comparability is a great help when communicating with partners, banks, investors, and vendors. This comparability also helps reveal lessons from previous investment decisions.
- Simplicity with a good cost-benefit ratio: In the commercial PV market, highly complex decision-making models are over-emphasised because they are common in other industries for large plants. Simplicity and robust results are important. Presentation should be clear and methodology transparent. All of this can be fully achieved using online solutions. Time-consuming and expensive on-site visits from experts are only practical at a later stage when a project is already in development and the technical assessment is required as well as the commercial evaluation.
What are the most important key figures?
Which key figures are relevant? The purpose of key figures is to enable meaningful comparisons to be made. That is why we provide comparative values (benchmarks) for various operating cost factors within the frame of our in-house evaluation services. They not only tell you how much the PV plant is worth, but also whether its yields can be optimised and to what extent.
The most important key figures are a fair price, the accumulated cash flow, and the equity amortisation and financing.
The financing conditions have significant influence on the equity amortisation. A reliable yield forecast and the technical characteristics of the PV plant are also important.
The accumulated cash flows indicate when the surpluses earned can be distributed.
Project values are always calculated in € per kilowatt of installed capacity. Between the project phases, significant price differences resulting from risk differences occur.
You can learn more about the key figures here.
When is a professional PV project assessment important?
For an initial assessment of PV project value, our free sales value calculator takes care of all your needs. That said, contracting a professional evaluation service makes sense in the following cases:
- If you invest in a PV project and want to reliably determine the expected returns based on the purchase price. For this, the essential yield and cost factors must be known and reliable assumptions made.
- If you want to finance a potential investment object or pre-existing investment and simulate financing offers.
- If you want to sell new PV projects or a solar installation already in operation. An expert yield report or historical values are used to determine a fair sales price which allows investors to achieve market returns. Once you know the actual value, you can negotiate confidently with potential buyers.
- If you want to better understand the current yield of your PV plant in operation by comparing previous yield and return forecast targets with the achieved yields and returns, as well as questioning any past assumptions or statements made.
- If you want to simulate the immediate effects that planned optimisation measures to yield, cost, or financing positions will have on the cash flows and future return of your PV investment.
Particularly when communicating with external or third parties, it is helpful to identify the key assumptions and to be able to easily simulate them without having to constantly alter or discuss the approach to evaluation.
A well-founded approach to evaluation saves both time and cash. A robust evaluation is the only way to discover whether it is worth taking the next step or to investigate sufficiently willing buyers or more attractive PV projects. The next step in the purchase would be carrying out due diligence, in which the technological as well as the legal components of the investment object are checked in order to be able to negotiate the purchase contract details.
Here’s what a Milk the Sun PV project evaluation can achieve
Our impetus for developing a project evaluation service a few years ago was that the solutions available on the market seemed either overpriced, too time-consuming, or too far removed from industry standards. Our internal evaluation approach was already systematised and ready to be scaled up.
While developing it further, we have emphasised making the results easy to use. The assessment can be carried out fully online and includes a discussion of background with our experienced in-house experts. We find the price-performance ratio to be extremely convincing.
The Milk the Sun project evaluation is suitable for buying and selling in all project phases: project rights, planned PV plants ready for construction (“ready to build”), new turnkey plants, or PV plants in operation.
- Only relevant evaluation factors are considered.
- The evaluation takes equity into consideration.
- The results are presented clearly in graphs and tables.
- The evaluation is accurate as of the reporting date and reflects the standard market return expectation. It can be easily compared with other PV projects.
- The yield evaluation is based on the cash flow calculation (excluding taxes and depreciation) as is standard in the industry. It includes a simulation of the investment’s significant sensitivities. Current benchmarks are listed for all significant cost drivers so that it is clear how the investment can be optimised.
The following aspects are particularly noteworthy:
- Up to three different types of remuneration can be inserted, so that direct marketing or PPA and own consumption can be simulated, as well as the classic feed-in remuneration.
- Up to 2 external financing components can be mapped simultaneously, as well as the annuity loan as an instalment loan.
- It is also possible to take redemption-free periods into consideration.
- In addition to the annual rent payment, the one-off lease is also taken into account.
- In addition to the classic total and equity return, a fair value observation and a presentation of the amortisation time period for the equity capital employed are also received.
How to get your PV project evaluation
You can access the overview and orders for the Milk the Sun PV project evaluation by clicking this button:
It is important to note that any results are only as good as the quality of the data provided to the evaluation. To collect the data, please use our online form. Where helpful, we make reasonable basic assumptions to make your inputs easier. Explanations of these assumptions can be found in the help section or the frequently asked questions.
After we have received your data with the order, we check for plausibility. We will contact you with any questions. We will then professionally evaluate your PV project within two working days. After an internal check, you will receive the individual evaluation of your project via email as a PDF file, along with an Excel data sheet and our invoice.
See for yourself the quality and content of our PV project assessment, and take a look at the PDF of an example report.