Risks and due diligence involved in an SPC green energy investment project
Updated: Jan 23
As wind energy reached a total of 51.8 billion euros in investment in the year 2019 (Wind Europe, 2020), due diligence becomes an important part of an investment evaluation. In the case of the investment summarised in this report, 2 years (2021-2023) were spent before the final commitment to the project funds was made and financial closure was concluded. The three main components of due diligence are technical, financial, and legal (Blaiklock, 2014).
Technical due diligence
For example, investors and lenders may seek third independent professional advice on technical matters of design and specifications of the proposed project and seek advice if the project is commercially viable based on the maturity of the technology applied.
Financial due diligence
Furthermore, due diligence may be required to double-check the integrity and projections undertaken in the cash flow model and sensitivity analysis by the financial advisors. This could be found necessary by the investors and lenders as the models could be used in a later stage for renegotiation of energy tariffs.
Legal due diligence
Lastly, legal advisors will have the responsibility to review documents and laws such as licensing and permits required, environmental liabilities, relevant statutory instruments required for the project, the enforceability of contracts, local laws, and more (Blaiklock, 2014).
Risk is uncertainty and various risks can be a risk to investors and may not be a risk to lenders and vice versa (Blaiklock, 2014). Risks and uncertainties become apparent by carrying out a sensitivity analysis but sometimes are also very difficult to predict based on the nature of the project. A list of possible overall and specific risks and risk mitigations possibly to be encountered in the project assessed in this report are listed in the table below.
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Political and legal risks
Environmental and social risks
Blaiklock, M., 2014. Infrastructure Finance Handbook : Principles, Practice and Experience. London: Euromoney Books
Deloitte, 2014. Establishing the investment case of Wind power , Copenhagen: Deloitte.