NAV vs DCF: which valuation for a renewable portfolio?

Two teams value the same solar portfolio. The first announces a NAV; the second a consolidated DCF — and the two figures differ by 10%. Neither is wrong: they did not answer the same question. Here is what the two methods actually measure, why they diverge mechanically on a renewable portfolio, and how to reconcile them to the euro — which any serious due diligence will require.

1. The NAV (sum-of-the-parts): a rate per risk profile

The NAV (Net Asset Value) of a renewable portfolio is built as a sum-of-the-parts (SOTP): each vehicle is valued by discounting its shareholder flows at its own rate, chosen according to its risk profile, then added up — adding cash, the value of holdings and the corporate layer, and subtracting the holding company debt.

This is the convention of investors and funds (eFront-style reporting formats): it reflects the fact that a MWh contracted for 20 years does not carry the same risk as a MWh from a project still in permitting.

2. The consolidated DCF: a single rate for the whole portfolio

The consolidated DCF aggregates all portfolio flows and discounts them at a single rate— typically the acquirer's or the fund's cost of capital (8 to 11%). It answers a different question: « what is this set of flows worth to me, at my cost of capital? » It is the natural reading of an acquirer in negotiation, or of a sensitivity exercise.

3. Why the two figures diverge — mechanically

• Re-rating the existing base.At a single rate of 10.5%, an operating asset that « deserves » 6.5% is penalised: its value falls. The more mature the portfolio, the more the uniform DCF drifts below the NAV.
• The time profile of the flows. Late flows (merchant tail, deferred sell-downs, refinanced debt balloon) weigh little at 10.5% but significantly at 6.5%: two portfolios with the same NAV can have very different DCFs.
• The corporate layer. Service margins, structure costs and holding taxes are discounted at the holding rate in the NAV; drowned in the global flow in the DCF.

Order of magnitude observed on real portfolios: a uniform DCF 5 to 15% below the NAV when the portfolio is mostly operating. The gap is not an error — it is information about the risk structure of the portfolio.

4. The NAV ↔ DCF bridge: the reconciliation due diligence requires

The professional reflex is not to pick a figure, but to reconcile the two. A valuation bridge breaks the gap down line by line:

• « rate per segment vs single rate » effect, asset by asset;
• time-profile effect (back-loaded flows re-rated);
• corporate layer and cash (treated differently by each method);
• residual — which must tend to zero if both calculations start from the same flows.

If the residual does not close, one of the two calculations carries an error (forgotten flows, double-counting of an intra-group flow, inconsistent debt convention). A well-tooled portfolio closes this bridge to the euro — and that is precisely what an auditor or an acquirer will ask for.

5. Which one to use, and when?

6. In practice

Wattvalio produces both readings on the same flows: the NAV/SOTP by segment (with a log of published states and a bridge between each reference), and a DCF lens at an adjustable single rate — with automatic reconciliation between the two. For the fundamentals of portfolio valuation (methods, due diligence), see our guide Valuing a renewable portfolio.

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