Renewable energy sparks increased interest from investors. But how much should they in fact pay for a megawatt? Based on data from 162 global on- and offshore transactions, Deloitte has prepared an analysis substantiating that, on average, investors are willing to pay approx EUR 700,000 extra for a megawatt from an onshore wind farm which has been installed rather than from a park under construction.

Also, investors are willing to pay EUR 2.3m more on average for a megawatt from an offshore wind farm which has been installed than from a park under construction.

+ Investors can use the figures from the analysis to acid test their investments. This can be seen in comparison to real estate developers not only knowing the price of building materials, labour costs, etc. but also for the first time being given an expected selling price in different project stages based on comparable transactions, Director Troels Ellemose Lorentzen explains and continues:

+ Knowing the average price of similar projects in different stages is of great help when you invest in these colossal projects.

The analysis shows that the closer the project is to completion, the higher the price is that investors are willing to pay for a megawatt from a wind farm. The analysis also illustrates that investments in large projects generally offer better returns than investments in small projects. It also shows that prices on installed capacity plummeted in 2010 and 2011 with approximately EUR 400,000 per megawatt since the peak in 2008 but have begun to rise again and furthermore, that investors in certain regions of the world, for instance Asia, purchase at lower prices than investors elsewhere.

+ When it comes to offshore wind farms, investors are keen to pay a higher price early in the process compared to onshore projects where the value creation materialises later in the process. This is probably because of the limited number of offshore concessions. When they have been won, their likelihood of being realised is very high, Troels Ellemose Lorentzen explains.

When investors determine whether the investment is worth the price, they often conduct a fundamental analysis of expectations for electricity prices, megawatt hours produced, etc. Figures in such analysis are often compared to financial ratios from few comparable transactions.

Using a large number of transaction data and regression analysis, Deloitte has designed a model which is able to provide insights to the pricing mechanism with considerable precision.

+ This analysis is genuinely unique when it comes to valuation. Partly because of its extensiveness, but also because it is able to provide investors with data which they can use in their work to challenge their own valuations, concludes Troels Ellemose Lorentzen, Director at Deloitte.