A Photovoltaic (PV) System may change hands multiple times over its 20+ year operational lifespan. The buyer and seller in each transaction may view the same project or portfolio from very different perspectives. Simply put, the seller will negotiate for the highest price and the buyer will negotiate for the lowest price. Ideally, the sale price will end up somewhere in the middle of both parties’ anchor price. Focusing in on the technical aspects of the system is where the “rubber meets the road” in the sales negotiation. This article provides a guide for buyers to influence the price, based on a technical risk assessment of the PV system.
Sellers will often host a Request for Proposal (“RFP”) to solicit qualified buyers to make an offer for either a single installation or a portfolio of projects. The RFP typically contains high-level information on the assets. Interested buyers are further qualified and refined down to a select few buyers, often called a “short listing.” The short list is granted access to additional technical information and a limited amount of time to review, request additional information, and make their final offer. Sellers do not provide all the necessary information, requiring buyers to request specific documents. The buyer should request access to the site(s) and access to the following documents:
|1. Engineered Drawings (Electrical/Mechanical/Civil)||5. Construction Permit Approvals|
|2. Solar Yield Models (PVSyst Reports)||6. Commissioning Reports|
|3. Equipment Datasheets||7. Maintenance Logs|
|4. Interconnection Approvals||8. Historical Energy Data|
There is generally a mutual sense of urgency to complete the technical due diligence process. The buyer must be extremely efficient so that expenses can be kept to a minimum, in case the acquisition is deemed unfeasible. Completing a thorough review requires a team with a wide range of expertise, working closely with one another. The technical review team can consist of electrical engineers, civil engineers, construction managers, operations & maintenance technicians, asset managers, and performance analysts. For many potential buyers, engaging a third-party, independent engineering firm (with operations and maintenance experience) is often a successful strategy for completing these time-sensitive reviews, which span across multiple disciplines.
What to expect from your Third-Party Independent Engineer?
The IE should provide their services in steps so that the process is comprehensive and easily discontinued in the event the buyer determines the asset(s) fall outside of their risk profile. Itemizing the review process allows for individual scopes of work to be completed and presented to the buyer so that high-risk observations may be discussed, and the buyer can halt the review process and cease additional spending on further due diligence for acquisitions determined not to be feasible. A typical example of a technical due diligence process looks like the following:
- Equipment, Construction Permit, and Interconnection Approval Review
- Engineering Design Review and Solar Yield Assessment
- Commissioning and Maintenance Log Review
- Historical Energy Production Analysis
- Physical Site Inspection
In the structure above, the IE can provide critical feedback earlier in process on high-risk considerations, which can help the buyer move quickly to walk away from a bad deal. Typical high-risk observations from each step are:
Equipment, Construction Permit, and Interconnection Approval Review
- Equipment manufacturer is no longer in business
- Proper permits were not secured or closed
- Interconnection equipment, means/methods were not adhered to
Engineering Design Review and Solar Yield Assessment
- Design flaws leading to additional capital expense to remediate or increased maintenance costs
- Code compliance failures that void warranties
- Solar yield forecast that are not realistic
Commissioning and Maintenance Log Review
- Avenues for manufacturers to void long-term warranties due lack of commissioning and/or maintenance procedures
- Installation related deficiencies leading to additional operating expenses
- Benchmarks to establish energy and power production capabilities
Historical Energy Production Analysis
- System and component underperformance
- Sources of system unavailability
- Accelerated degradation
Physical Site Inspection
- Accelerated wear and tear
- Installation does not match the as-built drawings
- Unaccounted for or new environmental impacts (shading, soiling, vandalism, pest control)
The Independent Engineer report provides an unbiased professional opinion assessing the risks associated with the acquisition. The buyer’s risk appetite must be communicated and well understood by the IE so that this opinion can be effectively leveraged. All deficiencies should be accompanied with a risk assessment rating and related capital expenses to remove the risk. This is difficult for most IEs to provide unless they have experience with PV system repairs. The buyer must have real estimates for remediation efforts, annual operations and maintenance budgets, and other capital expenditures as evidence to properly negotiate and justify their offer price to the seller.
For more information, contact our Director of Business Development, Chris Grablutz at email@example.com or (201) 351-4001 x201.