Why renewable energy due diligence is so important.

Due diligence, in the context of renewable investment, is a process that involves an in-depth evaluation of a project, from pre-construction phase through construction to operation. Part of the renewable energy due diligence process consists of assessing the expected energy of a project design or operating asset, what the project risks are, and how these investments are performing in the short and long term.

Considering, understanding and managing risks associated with wind and solar renewable projects is vital for all stakeholders, such as developers and investors. Before investing in a renewable energy asset, both technical and financial aspects need to be reviewed. This ensures that the right decisions are made and the right resources are mobilised.

What is involved in due diligence?

Due diligence can be done in a number of ways and include different areas. For instance, one way to perform due diligence on renewable energy investments is to evaluate the project’s levelised cost of energy (LCOE). LCOE refers to “the average revenue per unit of electricity generated that would be required to recover the costs of building and operating a generating plant during an assumed financial life and duty cycle”. This will tell you how much it costs for one megawatt hour of electricity generated by the project. By comparing that number with other electricity generation projects, you will have a better idea of whether this project should be pursued for investment or not.

In the renewable energy sector, performing due diligence assessment will ensure that investors are using data as a basis for their decisions. Some of the areas that technical due diligence entails include are:

• Feasibility studies
• Grid connection issues
• Pre and post construction energy yield assessments
• Contractual reviews
• Plant design and equipment review
• Permitting
• Construction calendar

Aside from technical due diligence, a financial audit and corporate and legal audits are also usually performed to cover all the areas of a full project risk assessment.

Challenges

Renewable energy investment funding has been on the rise for the past few years, but not without challenges. It is important to consider risks when it comes to any investment, and this process becomes more complicated with new and emerging technologies, such as battery storage and hydrogen.

One of the main challenges would be fluctuating technology costs and potential policy and regulation changes. These are external factors that cannot be predicted and might lead to a high transaction cost.

Another challenge is the lack of expertise of some stakeholders, which makes the process daunting and even intimidating. They might require help from outside experts such as a third-party advisory firm, that offers services such as due diligence and financial analysis, pre-construction assessments, feasibility studies, and so on. In addition, investors and project developers have to invest a lot of resources and time into all projects. Solar and wind plant due diligence entails a long documentation process, analysis and paperwork, which also prompts them to seek help from third parties. This is where we come in!

How can Greensolver help?

Greensolver is in a unique position to deliver due diligences as we are also asset managers and we supervise construction work. We hence have very good knowledge of current contract standards and financial aspects, combined with terrain experience. Our team has extensive technical and commercial expertise in various markets and a great understanding of the complexities of project finance. We help smoothen out the financial process for our clients and ensure timely and successful delivery of our due diligence services.

Don’t hesitate to get in touch with our experts to carry out technical due diligence on your renewable energy assets. Find out more about our due diligence services here.