Risks and Due Diligence for Wind Portfolio Acquisitions

19721212

Abstract:
Renewable energy is a growth market, and lender and investor confidence is increasing. However, despite the growth in wind power and in investment opportunities, a number of risks and challenges confront investors within the sector.
( @" I- _' f4 I. g2 I% S6 {. nThis paper discusses the key technical factors and risks which influence investment decisions and portfolio values, and outlines the approaches which investors can take to reduce their exposure to risk during investment and acquisition processes which are frequently subject to considerable competition and challenging completion timescales.
7 l2 I0 i( p) A/ E: {By drawing on direct experience of several major portfolio transactions considerable insight will be provided into what technical issues most affect investment decisions and the ability to close a deal with minimum risk. For example, our technical review of Airtricity on behalf of the winning bidder, SSE, was conducted in a little over 2 weeks.
4 a1 v% j" I( Z) BThe paper will outline what the key risks are for portfolio transactions, how they are assessed during the due diligence phase of an investment and acquisition and how large portfolios can be reviewed within short periods of time. Each key risk area is discussed in turn, in a way which makes them relevant to all renewables, but specifically wind energy. Possible risk mitigants are also discussed.
While the number of investment opportunities increases, there is a perceived shortage of quality projects and portfolios, which results in investors being exposed to a number of different risks as well as increasing levels of competition for assets and sites. Investors who are new to the sector will also find the conclusions important and relevant to their investment strategies.
" H! G! S8 ~) ]& @$ G8 O0 w  NKeywords: wind, portfolio, risks, due diligence
1. Introduction
The last 12 months have seen a number of high profile acquisitions within the wind energy industry, and the trend looks set to continue. Over US$42 billion1 was invested in wind power in 2007, and the total investment in wind for 2008 is expected to be at least US$56 billion, and in excess of US$110 billion per year by 2010. In parallel with increasing investment and acquisition activity, project financing of wind projects also continues to set new precedents. However, the continuing and rapid expansion of wind energy represents as much of an investment risk as it does an investment opportunity, for a number of reasons which we’ll explore in this paper. These circumstances have also highlighted a number of notable 1