Appraisal and valuation of solar projects—for developers and investors

By Chris Nugent

Solar project costs have continued their rapid decline; the cost of utility-scale solar projects declined by 80 percent during 2010-2024.

The political environment has promoted rapid development of solar energy—the climate change crisis, the Paris climate agreement, the rapid politically-motivated closure of coal and natural gas power plants, and the increasing political incorrectness of nuclear power.

Power is a commodity with readily determinant value. Accompanying the rapid growth of solar electric facilities in the U.S. has been the need for investors, developers, operators, offtakers, and other stakeholders to accurately value these assets for the purpose of securing financing, buying and selling of solar projects, or execution of buyout options specified in the power purchase agreement (PPA). In addition, valuation is important for proper execution of repowering older projects, and buying and selling of the accompanying tax credits according to the Inflation Reduction Act (IRA) and other guidelines.

The valuation of a solar project is best accomplished by computing the present value of the energy the project will produce over the next 7 to 10 years, incorporating O&M costs, inverter replacements if necessary, and other costs and factors. Bluechip Asset Management has developed valuation algorithms and models for accurately determining these values.

Solar projects are an attractive place for leasing and investment. PV solar projects are designed to produce power for 25+ years. Due to the immaturity of this industry, long term data is not yet available. Traditionally, solar developers had assumed at the outset of a new project annual degradations of 2.0 percent in solar project DC output, but recent studies have demonstrated that this level of degradation assumption had been far too conservative. Studies of 20- and 30-year-old solar panel output have shown degradation only on the order of 0.4 percent per year or less. As the industry matures, it is becoming apparent that the average economic useful service life of solar arrays is 30+ years.

While PV solar panels are available for purchase on eBay and on other equipment sales websites, the sale and redeployment of mature operating solar arrays is common. Sale as an operating project is the only reasonable exit outcome for a large project. Many large developers commonly purchase operating facilities when the offtaker goes bankrupt or otherwise has no further need for the project. Solar farms generally stay in place and stay in operation. Most solar projects have PPA, which are easily transferrable to the new owner, so that the value of the project is specifically spelled out by the 25-year PPA pricing schedule. But for the fewer projects without a PPA, the value of the future power is easy to compute. Developers will discount the value of the future 7 or 10 years of power by 12 to 15 percent and that is how much they will pay for an operating project.

The future value of a PV solar project can be estimated by the value of the components on the secondary market, and by value of the power produced by the project—the income approach. Because most developers and offtakers are not efficient taxpayers and the huge 30 percent tax credit is there, most solar projects are lease financed. It is important to have an efficient taxpayer there to monetize the tax credit. The typical tenure of operating lease financing, one that leaves ownership of the asset in the ownership of the big bank and not the small developer, is 7 to 12 years. The asset must stay in place for 5 years for the ITC to remain valid. The lessor takes the ITC and applies it to the lease payments. About 90 percent of projects have a PPA in place.

Power is a commodity—everyone needs it and the grid has an insatiable need for more power. Developers own and operate large portfolios of projects, employ central monitoring stations to track performance and problems with projects in real time. As such, there is a robust and active market for sale of operating solar projects. As mentioned, active developers will calculate the value of a project by taking the PV of the power over the next 7 or 10 years, then discount it by 12 percent to 15 percent and that’s how much they will pay. The value of the power if covered by a continued PPA is easy to calculate; if there is no PPA, then the value of electricity in that state is a known commodity, from 8 cents per kWh in some states up to 35 cents in California. Protect your investment and make smart decisions: get a fair market value appraisal of your project.

Chris Nugent is Managing Director of Bluechip Asset Management, an appraisal and asset management services company. Nugent has over 25 years of experience in valuation, leasing, and financial services, focusing on equipment appraisal, residual management, asset remarketing, and portfolio management, including positions with Key Equipment Finance, Babcock & Brown, Comdisco, US Leasing, and other companies. Nugent is an Accredited Senior Appraiser of the American Society of Appraisers.

Q1 2025