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Navigating Due Diligence in Renewable Energy Land Acquisition: An in-depth look at the challenges and strategies for conducting thorough due diligence in the renewable energy sector

Navigating Due Diligence in Renewable Energy Land Acquisition: An in-depth look at the challenges and strategies for conducting thorough due diligence in the renewable energy sector

By Bradley Griffin
Mar 12, 2024

In the renewable energy sector, due diligence is a pivotal process that involves a detailed evaluation of a project from pre-construction through to operation. This process is vital for understanding and managing the myriad risks associated with renewable energy projects, particularly wind and solar initiatives. A robust due diligence approach not only ensures informed decision-making but also optimizes resource allocation, thereby safeguarding investor and developer interests.

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The Importance of Due Diligence:

Due diligence in renewable energy investments entails assessing the technical and financial aspects to validate project viability. This includes analyzing the Levelized Cost of Energy (LCOE), which helps in comparing the economic feasibility of different energy projects. Additionally, technical reviews cover feasibility studies, grid connection issues, energy yield assessments, and more, while financial audits review the full financial health and legal compliance of the project.

Market Dynamics and Challenges:

The landscape for renewable energy M&A, particularly for solar and storage, remains robust due to sustained demand and capital availability. However, challenges such as supply chain disruptions, federal trade policies, and market volatility complicate the due diligence process. For instance, factors like interconnection queues, land constraints, and evolving storage revenue models demand a refined approach to pipeline evaluation. Moreover, recent changes in federal directives related to tariffs and forced labor significantly impact project timelines and cost estimations, adding layers of complexity to the due diligence tasks.

Diligence Strategy for Development Projects and Platforms:

Effective due diligence should consider key milestones such as securing interconnection rights, offtake agreements, and permits. It should also verify equipment supply and assess the technical and commercial viability, particularly for projects involving storage. Moreover, considering the project's exposure to congestion and curtailment risks is essential. For platform-level acquisitions, evaluating the developer's experience, track record, and financial health becomes crucial.

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Overcoming Due Diligence Challenges:

To navigate the intricate due diligence landscape, stakeholders should employ a targeted and efficient approach. This includes staying abreast of market conditions, regulatory changes, and technological advancements. Utilizing third-party advisory services can also provide additional expertise and insights, especially for complex areas such as environmental assessments and contractual reviews.

In conclusion, navigating due diligence in renewable energy land acquisition requires a meticulous and adaptive approach. By understanding the intricacies and employing strategic methodologies, stakeholders can effectively manage risks and capitalize on the burgeoning opportunities within the renewable energy sector.

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