Due Diligence of Solar & Wind Energy Assets

May 5, 2017

Over the last decade, solar (especially photovoltaics or PV) and wind energy have attracted substantial investment, via private equity, debt and grants, for enabling rapid deployment of these technologies as part of the overall energy mix.  Increasing interest in clean energy and sustainable infrastructure investment has been met with a growing need among global sponsors, lenders and other stakeholders for ensuring “bankability” and risk mitigation on their capital.

Existing asset owners have been active participants of mergers and acquisitions (M&A), initial public offerings (IPO), and restructuring.  Raising investment capital for brownfield/greenfield projects has included both structured/project finance as well as IPO proceeds.  Technical, market, financial, and legal due diligence is required along the entire capital investment process to validate return on capital expectations to equity investors and lenders:

  • Raising financing
  • Allocation of capital
  • Deployment of funding

Due Diligence for Existing Assets

Typically, onsite visits are required to review external plant and equipment conditions of an asset such as mechanical, civil/structural and electrical design(s).  Material changes to the asset’s technology and/or its major equipment and systems that have occurred over time must also be assessed.  In addition, the current facilities’ operations and maintenance (O&M) practices and implementation must reviewed including an evaluation of any major health, safety and environmental (HSE) incidents that may have occurred.  In cases where numerous assets are involved, a representative subset of assets can be selected for due diligence analysis. 

Asset operation is based on historical and current performance.  Key considerations include production, availability, energy dispatch to the grid, weather/environmental as well as forced outages, major repairs and unforeseen maintenance.  The executed power purchase agreement (PPA) and power wheeling agreement, if any, dictate the commercial terms to be achieved by the plant facility with respect to performance, power tariff, energy sales, and interconnection to the power utility grid.

Due Diligence for New-build Investment

For brownfield/greenfield projects, a review of conceptual design is required with respect to proposed technologies, viability, and general process design of the main plant as well as offsite infrastructure to ensure the plant design meets industry standards.  Visits to the project site are often required for a first-hand assessment initially of the site characteristics and environmental situation.  Additional site monitoring takes place during construction, covering construction progress versus plan, and cost and schedule monitoring.   

Nexant reviews and provides an independent opinion regarding the suitability of capital costs (CAPEX), operating costs (OPEX), levelized cost of electricity (LCOE), and power tariffs.  Nexant also reviews relevant regulatory policy, environmental requirements, major contracts for engineering-procurement-construction (EPC), and verification of major systems and equipment for design requirements.  Due diligence review is undertaken to assess the project’s ability to meet the required production, availability, operating, contractual, and license requirements.  Lastly, an assessment is made of PPA’s terms and conditions as well as the O&M plans with emphasis on staffing, warranty, and spare parts for general compliance to industry standards.

Nexant supports a variety of global sponsors, lenders and other stakeholders regarding solar PV and wind energy assets in the role of independent engineer and/or independent market advisor.  Nexant has extensive experience working with the global financial community to support financing of projects, including direct experience with export credit agencies (ECAs), multilateral agencies (MLAs), development banks, and similar organizations.  This work has resulted in successful project development of well over US$100 billion.  In addition, Nexant works directly with the private banking sector and venture capital sources involved in financing projects.  Nexant understands and has successfully met the requirements of these funding organizations over many decades of work.