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Solar Due Diligence

Taking a look at how a thorough transactional due diligence assessment can help you make better decisions in the solar market.

Are you buying, selling or financing a solar Photovoltaic (PV) facility?

The solar industry has evolved rapidly from 2006, and the bustle of activity surrounding this renewable energy source continues.  Today, the costs of PV systems are a fraction of the initial installed costs, but many government incentives for new systems have been reduced.  So when selling or buying a PV facility, how do you know what its current value is?  How many more useful years will it run?  What repairs will be necessary and when will you need to replace the inverter.  Are there more efficient options available today that were not around for systems that were installed before 2010?  Will the price of Solar Renewable Energy Certificates (SREC) – a form of tax incentives for alternative energy – rebound?

If any of these questions are keeping you up at night, a thorough transactional due diligence assessment will help.

Due Diligence: Helping You Make Better Decisions in the Solar Market
There is a growing demand for transactional due diligence for the solar market because of changing market conditions and the dynamic economics of solar projects.  Throw in changing government incentives and a downward trend in electric rates, and you’ll see why it’s critical to have the right expertise to evaluate projects for effective financing, purchasing and selling of operating or shovel-ready solar projects.

Commissioning a thorough due diligence assessment will help you understand associated risks and opportunities, and determine viability of a transaction.  Here’s how:

1) Buying, selling and financing existing Power Purchase Agreements: Existing Power Purchase Agreements (PPA’s) – which are contracts that define commercial terms of the sale of electricity – that were entered into in 2009-2011 were locked in at very low power rates (i.e. 3 to 9 cents per kwh), because of the expectation of large revenue streams to be generated by SREC programs.  But with today’s falling SREC prices, some PPA providers may be unable to meet project financing and operating costs of these systems.  A due diligence evaluation will provide information to update and rationalize the expected performance of PV systems for new owners and financiers.

2) Contract Asset Management: Are you a bank that is financing a large PV Solar facility, and need help to manage the operations of this system or to find a purchaser?  Third-party consultants like Partner Engineering and Science, Inc., can manage the facility to preserve or grow the value of the asset for the bank until it is ready for sale.

3) Real Estate Transactions that have existing Solar PV Systems: Buildings that are purchased with Solar PV systems need a solar PV expert to evaluate the condition of legacy contracts and the value, system life, and revenue potential from the system.  A professional due diligence provider can evaluate the system design and help you understand the performance and economic benefit that can be expected from it.

Solar Transactional Due Diligence – What Should Be Considered?
There are many considerations that must be taken into account when buying a shovel ready or already operating PV system.  For the shovel ready project, it is paramount all permits and approvals are in place and a gap analysis is performed to determine any risk related to schedule.  In many cases, PV projects were designed only conceptually and final design, which takes into account specific land use or building code matters, was not considered.

When buying an existing, operating or distressed system, valuing the performance and potential return on investment must take into account multiple factors including market considerations.  An assessment on the condition, future functionality and economic viability is necessary to determine performance of the system.  An evaluation of the physical conditions, panel warranties, inverters, associated appurtenances, utility interconnection agreements, sales agreements for excess production, SREC disposition arrangements, Investment Tax Credit (ITC) recapture, and other economic factors is necessary to determine the continued viability of the system.

Commissioning Professional Due Diligence Services
Solar renewable projects, both operational and shovel-ready have many complex variables to consider for proper asset evaluation.  The task to technically evaluate systems, performance, and future life of these systems, coupled with the economics of renewable energy projects today and in the future, requires experienced professionals and engineers who understand the designs, operation and economic benefits of these photovoltaic power plants.

A comprehensive due diligence assessment will provide you with the critical information to make smarter, viable transaction decisions in the solar market.