How energy project due diligence works

Due diligence is the process an investor uses to confirm that a project is what it appears to be, before committing capital. For sponsors, it can feel long and intrusive. Understanding how it works — and preparing for it — makes it faster and considerably less stressful.

The exact process varies by investor and by project, but the overall shape is broadly similar across the energy sector.

The usual sequence

Due diligence rarely starts all at once. It deepens in stages, and each stage requires more commitment from both sides.

• Confidentiality: a non-disclosure agreement is signed before detailed information is shared
• First review: the investor reviews a project summary or information memorandum and decides whether to continue
• Indicative terms: a non-binding offer or term sheet sets out how the investor proposes to participate
• Confirmatory due diligence: the investor and its advisers examine the project in detail
• Binding documentation: agreements are negotiated and signed, followed by financial close

The main workstreams

Confirmatory due diligence is usually divided into workstreams, each led by specialists — often the investor’s own team supported by external advisers.

• Commercial: the market, revenue contracts, offtakers and competitive position
• Technical: design, technology, resource or feedstock, construction plan and costs, usually reviewed by an independent technical adviser
• Legal: ownership, permits, land rights, key contracts and any disputes
• Financial: the financial model, its assumptions and, often, an independent model audit
• Environmental and social: permits, impact assessments and compliance with applicable standards
• Tax and insurance: the tax position of the project structure and the adequacy of insurance cover

What sponsors should have ready

The single biggest factor in the speed of due diligence is the quality of the data room — the organised set of documents the investor reviews. A complete, well-indexed data room shortens the process and builds confidence; a disorganised one creates doubt, even when the underlying project is sound.

Sponsors should also expect questions, and plenty of them. Answering promptly, consistently and in writing keeps momentum and avoids the same issue being raised repeatedly.

Common reasons for delay

• Documents that contradict each other, or the project summary
• Permit or land issues discovered late rather than disclosed early
• Financial model assumptions that cannot be traced to supporting evidence
• Unclear ownership of the project company or its rights
• Slow or inconsistent answers to investor questions

Where GUIPOLU fits — and where it does not

Before an introduction, GUIPOLU carries out an initial commercial and documentary screening: what the opportunity is, who is behind it, and whether the documents presented are coherent and complete. That screening is not due diligence and is never presented as such.

Technical, financial and legal due diligence remains with the investor and its own advisers. What a well-prepared introduction can do is help both sides reach that stage with fewer surprises.