The Solar Energy Industries Association (SEIA) and accounting firm CohnReznick LLP have released a white paper highlighting best practices and common pitfalls in valuing solar energy projects, including the tangible and intangible assets of a fully contracted system.
The report focuses on standard definitions used by regulators and parties involved in the valuation process. These standards include fair market value (FMV), market value, fair value, investment value, book value and value to the holder. According to the report, the most common valuations of solar assets will use the FMV standard, which is required for federal income tax purposes (e.g., investment tax credit, and tax allocation of acquisition purchase price) as well as for Section 1603 grant purposes, and is frequently requested by investors.Â
The report groups accepted methods for valuing assets that do not have a readily available or quoted market price such as solar assets into three categories: asset/cost based, income based and market based. CEIA advises that all three approaches should be used in solar asset valuation each provides relevant information to estimating FMV (i.e., the price that would be negotiated between a hypothetical buyer and hypothetical seller). The report breaks down the strengths, and weaknesses and typical pitfalls associated with each approach.
To read the full valuation of solar assets white paper, click here.