Acquiring plants can be important for new entrants to India who need installed capacity to participate in certain tenders. Credit: IBC Solar
This may come as a surprise, but during the due diligence of an operating PV plant it is the knowledge of what to look for in Operations & Maintenance (O&M) that can guarantee strong returns. This issue of acquisition and how O&M is a critical and (completely) overlooked dimension to add into that process is especially important at the stage India is in, with the new/international players needing installed capacity to qualify for certain tenders.
It is of course correct that technical service providers of due diligence services apply a comprehensive review process to the solar PV plant targeted by the investor. But services to ensure future energy generation must go beyond simply verifying documents and performing basic visual inspections. And must start bringing in key details that professional O&M service providers can identify in the plant’s construction and performance history.
Therefore, if investors want to be assured of future performance, they should contract a reputable solar O&M firm to provide a high-level and detailed assessment of the targeted PV plants. They must also adopt a strategy of allowing the future O&M provider to carry out the technical due diligence, in combination with a guarantee of performance after acquisition, to accrue substantial cost savings. For example, if due diligence is conducted by a third party, and an O&M service provider is appointed after acquisition, the latter provider will have to conduct another technical analysis in order to secure their risk. In other words, a technical due diligence will need to be done twice, therefore incurring double the cost.
So here’s the first tip - Define O&M-linked DD:
To save on spending twice, ensure that the solar O&M provider provides the following due diligence services:
- Verify the status and functioning of all the equipment in place at the targeted plant. Conduct verification in the field
- Identify the plant’s defects or performance weaknesses
- Suggest cost-effective corrective or improvement actions
- Highlight the relevant technical upsides/downsides of the plant to the investors, for a better negotiation with the seller
- Properly serve the plant as an O&M service provider after the acquisition
- Develop the relevant typical plant key performance indicator (KPI) guarantees during operation
The second tip - Outsource O&M with Guarantees:
The professional O&M service provider can be asked to agree to a completely different commitment on the basis of the assessment and the relevant findings of their in-depth analysis, since they can also be required to provide performance guarantees (typically performance ratio and availability) in the case where they are appointed as the O&M service provider after the acquisition.
And the third tip - Negotiate using O&M wisdom:
Knowledge of the weaknesses of the targeted plants before acquisition will allow the investor to save money on the acquisition itself. The value of this approach for an investor requires them to drive the O&M partner to act in a speedy, accurate and complete manner in their assessment of a solar PV plant in the field; add fundamental understanding related to the real value of the plant being evaluated for acquisition; and provide quick and comprehensive answers to questions which are normally out of their scope.