Appraisal of Wind Farms - Valentine Appraisal

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  • April 23, 2019

Wind is less expensive per kilowatt than solar or other renewable energy and is competitive with some other types of thermal energy as well.  But without federal government incentives, these renewable sources of energy would suffer.  Approximately 7% of electricity generated nationwide is from renewable energy.  Most states have adopted renewable energy standards set between 20% and 25% within a 10 to 15-year timeframe. 

Renewable energy sources are wind farms, solar energy farms, geothermal, biomass energy, and water energy. 

Solar energy projects typically cost $3,000,000 to $5,000,000 per megawatt of installed power, while wind turbine manufacturers indicate an installed cost of $1,000,000 to $2,000,000 per megawatt.  In order to meet the United States goal of 20% wind power by 2030, it will be necessary to install up to 7,000 wind turbines per year, which is a very aggressive goal.

The three most important geographic characteristics that dictate placement of any likely renewable energy project include (1) availability of resources, (2) availability of land, and (3) proximity to a power grid.  One of the most important characteristics of a utility scaled wind farm is a power purchase agreement.  This is where a utility has committed to buy power that the wind farm may generate.  Historically, energy land sales in Southern California show a significant trend in that premiums for entitled tracts earmarked for solar or wind farms, or other renewable energy, and in close proximity to transmission capacity bring premiums to land values.  It may be pointed out that the premium should not be attributed to the land, but should be attributed to the entitlements for a wind farm or other renewable energy.   

In order to appraise a wind farm, a site area must be determined, entitlements for a wind farm must be secured, and turbine sizes must be accounted for.  Each turbine has a capacity of 1.5 to 3.0 megawatts, and their heights are 280 to 300 feet.  A discounted cash flow model must include land costs, construction costs (site entitlements, off-site costs, installed costs of wind turbines), and any ITC or PTC offsets.  Permitting and construction schedule must be considered, and projected installed power output and projected PPA rate and reversion considered as well.  Subsequent to this, the appraiser then calculates net present value using a discounted cash flow model per yield capitalization approach. 

Remember, what is important in the valuation of a wind farm is (1) the presence of a power purchase agreement, and (2) the eligibility of a developer for production tax credits or other subsidies to offset construction costs. 

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