Valuation has indeed become an important criteria to select the best solar projects out of the lot.It is understood that solar projects involve huge installment costs, and it also takes years to get the returns from it.Till now we have used different methods to find out the returns;even for financing we have been looking into cash flows.
There are various other factors which influence the valuation of the projects.These factors include market in which the assets are based (taking into account local factors such as subsidies and prevailing prices in that market), meteorological conditions, power purchase agreements,RPO,Tax exemtions,and a host of other factors.Along side the value of cash flows affecting the valuation of solar,it is to notice that the value of projects is significantly affected by the stages of project life cycle.There are certain tax codes of different states which decide the viability of a project in due course.Charges like banking,Wheeling and regulations related to PPA of a state also affects the value of a project.
Stages in project Life cycle:
Early stage: In this stage the capex is generally very low.There are some other costs involved in this stage like cost of securing land,planning etc.
Late-stage: Now in this stage the project developers obtain permits from the local/state authorities and manage to secure debt financing.Due to this variation,the value of project increases.
Under construction: This is a stage where additional capital is introduced to the project. Following the value of the cape also increases, as the potential buyers need to raise extra funds for the development of the project.
Installed MW: Once the installation is complete,arises some of the other factors like (meteorological conditions, local tax rules, subsidies, etc.), procurement capabilities, power
Price agreements, operating efficiency and financing affect the valuation of a project
This gives an idea that the valuation differs state by state and, so defining the value of solar only based on returns from the cash flow does not give a clear picture.Some of the recent transactions of merger deals in solar are mentioned below; currency is one other major factor which decides the viability of a project.
1) First solar 139 MW campo verdo solar project: Under the terms of the agreement, First Solar Will complete construction of the project and will operate and maintain the power plant for 10 years. Construction of the Campo Verde project began in December 2012 and commercial operation is expected in fall 2013.
2) ABB to acquire Power-One soalr inverter manufacturer: ABB, a power and automation technology group, and Power-one Inc, a provider of renewable energy and of energy-efficient power conversion and power management solutions, today announced that their boards of directors have agreed to a transaction in which ABB will acquire Power-One for $6.35 per share in cash or $1,028 million equity value.
3) MidAmerican solar acquires Sun Power’s 579 MW solar projects: MidAmerican solar, a subsidiary of ,MidAmerican renewablesand SunPower have announced MidAmerican Solar’s acquisition from SunPower of the 579MW Antelope Valley Solar Projects, two co-located projects in California’s Kern and Los Angeles counties.The companies say the two combined projects will form the largest permitted solar photovoltaic power development in the world.
4) Canadian solar purchases two solar projects from SunEdison: Canadian solar Inc. and SunEdison,Power-Canada Inc a subsidiary of MEMC Electronic Materials, Inc., today announced that they have completed a purchase and sale transaction wherein Canadian Solar’s direct subsidiary Canadian Solar Solutions Inc. has acquired a majority interest in two utility-scale solar power projects in Ontario with a total capacity of approximately 24MW DC.
Conclusion: There are many mergers happened recently which results showed how the valuation of a project or the goodwill in the long run has helped the buyers to invest. At times the factors other than the traditional approach of cash flows and their returns are considered. whether it is the government policy, tax implications, financing issues all equally plays an important role in M&A transactions.If an investor takes an holistic approach rather than only depending on the traditional cash flow approach,then it gives a wider prospect to the analyse the pros and cons related to a project.
Source for M&A deals: solarnovus