Getting deal-ready: Ten questions an investor will ask about your energy project

An investor will first seek to understand fully the funding or acquisition opportunity being presented. The relevant value may sit across several entities: a project company, a development company, individual founders or another group company. Land interests, planning consents, grid connection offers or agreements, surveys, data, intellectual property and key contracts may be held by, or belong to, persons or entities outside the company in which the investment is proposed.

A familiar example is a project where the land interest is held by one group company and the grid application has been made by another. The position may be capable of being regularised, but the necessary assignments, consents and tax analysis can affect both transaction timing and structure.

Before approaching the market, prepare a simple ownership map showing the holder of every material asset, right and contract and how each relates to the proposed transaction. Identify any assignments, licences, intercompany arrangements or third-party consents needed to bring the relevant rights within the transaction perimeter.

Land documentation is not merely a title exercise. Investors will test whether the project has rights over the full physical footprint it needs and whether those rights are sufficient to cover development, construction, operation and decommissioning. The land rights package should address access, component-delivery routes, cabling, substations, compounds repair and replacement during the lifetime of the project and the scope for future project changes. Investors will also examine option periods and extensions, payment obligations, competing rights, title burdens and the potential consequences of delay.

Provisions dealing with assignment, change of control, the creation of security and funder step-in rights matter, but so does the durability of the developer–landowner relationship. To bring this information together, the developer should prepare a land rights schedule: a parcel-by-parcel and route-by-route summary of the relevant agreements and rights secured, payment obligations, applicable terms, current status, outstanding conditions, transfer and funder provisions, required consents and critical dates. This allows the developer and investor to understand what has been secured and what rights must still be obtained, extended or amended before the transaction proceeds.

Depending on the nature of the site and the proposed transaction, an investor or funder may require a declaration of identity (DOI) from an appropriately qualified professional. A well drafted DOI can help confirm that the project footprint, access and relevant services or routes correspond with the title and transaction maps and that the development authorised by the planning permission and any other relevant consents can be carried out within the lands controlled by the project.

A grant of planning permission is only the starting point. Its value depends on the development authorised, the status of conditions and compliance submissions, implementation and expiry dates, and whether ancillary infrastructure is covered. An investor will also examine the environmental assessment underpinning the permission, including screening and assessment undertaken for Environmental Impact Assessment and Appropriate Assessment purposes, the underlying surveys and any mitigation or monitoring obligations. Any separate environmental licences, permits or consents required for construction and operation should also be identified.

Judicial-review risk requires particular attention. Diligence should establish the status of any applicable time limits for bringing a challenge, whether proceedings have been threatened or commenced, and the potential effect of any challenge on the project’s timetable, financing and value. Proposed design changes may also require further planning or environmental analysis or consent.

A combined planning and environmental consents matrix should record each permission or permit, its status and holder, relevant conditions, the challenge position, actions required, the responsible party and critical dates. This gives the developer and investor a clear view of the outstanding work and distinguishes matters that can be managed during the development process from those that could affect project value or deliverability.

For many projects, grid is both a principal value driver and one of the issues most likely to affect transaction timing. An investor will look beyond the existence of a connection offer or agreement to understand the capacity secured, applicable milestones and securities, required network works, delivery programme, cost allocation and potential exposure to constraints or curtailment. It will also consider whether the connection arrangements permit the proposed investment, transfer or change of control, or require consent or notification.

The project team should prepare a concise written summary of the grid connection position, cross-referenced to the connection offer or agreement and material correspondence. The summary should identify the obligations and deadlines that must be met, the parties responsible for them, dependencies on planning, land or network works, and the effect of material cost or timing sensitivities on the investment case.

The revenue model will depend on the type of energy project. For an electricity-generating project, depending on its technology and market participation, the revenue model may include support under the Renewable Electricity Support Scheme, a corporate or utility power purchase agreement , merchant revenues, capacity remuneration and/or system-services revenues. For a biomethane project, the principal revenue stream is likely to be the sale of biomethane under an offtake agreement. The commercial case may also depend on the treatment and value of associated renewable attributes or certificates. Depending on the feedstock and project model, secondary value may also arise from gate fees or from the sale or use of digestate as a biofertiliser, together with other co-products.

The investor will test the assumptions and contractual arrangements underpinning each revenue stream, including, where relevant, counterparty strength, contract duration, pricing and indexation, volume and delivery obligations, credit support, change-in-law provisions and termination rights. For an electricity-generating project, it will also consider profile and balancing exposure. For a biomethane project, it will consider gas quality, injection or delivery arrangements and the contractual treatment of associated renewable attributes and co-products.

From a legal and transaction perspective, investors will want to understand the proposed procurement strategy: the route by which the project will be designed and constructed, the principal technology and equipment suppliers and the overall contracting structure. They will generally look for comfort that suitably experienced and creditworthy contractors and suppliers are to be used and that the contractual framework reflects the project’s delivery model and accepted market practice.

Where contractors have been appointed and draft or executed contracts are available, investors will examine whether the project company is adequately protected and whether risk has been appropriately allocated. Under an engineering, procurement and construction contract, for example, the focus is likely to include delay and performance liquidated damages, defects-liability provisions, performance security and insurance obligations. Where a multi-contract procurement structure is proposed, investors will also examine interface risk and whether responsibility gaps between the principal contractors and suppliers have been addressed.

Where debt finance is contemplated, the same contracts will also be assessed from a bankability perspective. The investor will consider whether the allocation of risk, contractual remedies, security package and assignment, step-in or direct-agreement arrangements are likely to meet lender requirements. Any material gaps may need to be addressed before financial close or reflected in the project timetable, contingency or transaction terms.

The project team should present a procurement plan setting out the proposed delivery structure, the roles of the principal contractors, subcontractors and suppliers, the contractual framework, material open points and the proposed allocation of the principal construction, technical and commercial risks.

While the financial model will be assessed separately, the developer should be able to explain the amount of capital sought and its intended use. The legal structure must establish how capital is contributed, what economic and governance rights attach to it and what happens if the project requires further funding. Investors will examine future funding requirements, valuation, shareholder loans, tax assumptions and the consequences of a funding shortfall.

The parties should agree early whether the structure is minority equity, development capital, a strategic joint venture or a staged acquisition. Milestone drawdowns, dilution, pre-emption rights, priority returns and future funding obligations can materially affect both control and the sharing of upside.

Governance arrangements are most likely to be tested when the project departs from its business plan, requires additional capital or encounters delay. Board composition, budgets, business plans, reserved matters, information rights, related-party arrangements and approval thresholds should reflect the parties’ actual roles and capabilities.

The difficult points are often future-facing: funding defaults, dilution, deadlock, transfers, management incentives and exit. Addressing these matters in a commercial term sheet before the detailed documents are negotiated helps distinguish legitimate investor protection from day-to-day operational control.

Development activity can create commitments that are not recorded in one place or documented comprehensively. Investors will ask about commitments to communities, landowners, development partners and consultants, exclusivity and success-fee arrangements, grant obligations, intellectual-property ownership, environmental and tax exposures, and actual or threatened claims.

Prepare a commitments register and reconcile it against the project’s contracts, accounts and correspondence. Any oral, related-party or poorly documented arrangements should be regularised - or clearly disclosed and priced - before they become a last-minute diligence issue.

Even a strong project can lose momentum if the transaction perimeter is unclear, corporate records are incomplete, land rights are missing, consents are discovered late or information is inconsistent. An investor will also consider the requisite corporate and shareholder approvals, the proposed conditions to completion and the allocation of risk through warranties, indemnities and limitations on liability.

Before launching a process, the developer and its advisers should review the proposed transaction structure, material project rights, required consents, corporate records and readiness of the data room. That exercise can identify priority issues, allocate responsibility for diligence responses and establish a realistic route to signing and completion, including third-party approvals and any matters that must remain conditional.