Approaches Used In Evaluating a Commercial Plant

Here are many reasons people look for power plant valuation appraisal. Some might need them for buyer/seller negotiations or just want to remove some of the utilities. A power plant valuation appraisal consists of generation and transmission equipment, land, buildings, and intangible assets. Determining the value of a complex property is determine using many approaches. The power plant valuation is primarily calculated by considering the three approaches to value, which include:

• sales comparison
• income, and
• cost approaches

Each approach is analyzed to determine its applicability to the specific property being appraised, based on factors like:

• nature of the property
• nature of the market and
• industry in which it competes, and
• the availability of data

Power plants valued using these approaches include:

• Coal
• Wind
• Hydro
• Solar
• Nuclear
• Biomass
• Geothermal
• Waste to Energy
• Gas Turbine

Let us discuss each in brief.

Sales Comparison Approach

The sales comparison approach calculates the value through an analysis of recent sales that have occurred in the market. While doing a power plant valuation the purchase price of the tangible assets is determined to arrive at the purchase price of only the tangible assets, deductions must be applied to each comparable sale or the sales comparison approach indicator of value.

Income Approach

The income approach measures value as the current worth of future monetary benefits expected to be derived from ownership of the assets. These monetary benefits are based on the income stream expected to be available to the owner of the assets. To derive a market value, intangible assets such as contracts and emission credits are excluded from the analysis and a market-based forecast is derived.

Cost Approach

The cost approach is used to estimate value based on the current cost of the subject asset, excluding the following:

• allowance for existing depreciation
• loss in value from physical deterioration
• functional obsolescence, and
• economic obsolescence.

In the cost approach, the capacity and utilization, physical condition, and operating characteristics of the actual plant being appraised in comparison with a modern replacement plant is analyzed. This approach needs a thorough study of the economics of the industry in which the plant competes as well as technological advances in that industry.

Make sure that the appraisals you are choosing to understand and value your time, offer accurate appraisal reports that in updated with the present economic environment.

Author’s bio: the author is a blogger and the article is about power plant appraisals.