After the initial decision to buy a project is made, the process of actually doing so begins. Learn about the transaction steps involved, who your support will be, and how much time you need for planning.

Once you’ve decided to purchase a PV project, there are important steps to take care of before the contract is signed. The project should be technically and legally evaluated, financing applied for, and the purchase agreement negotiated.

This provides transparency regarding the condition of the PV project, forming a good basis for a negotiation in which both sides can agree on a fair purchase price. In addition, important organisational decisions can be made in terms of time management and scheduling.

In the following, you’ll see an overview of each transaction step which are then examined in further detail in the next chapters.

Carry out a technical inspection

Technical due diligence comprises of an examination of a PV project’s actual performance and an analysis of technical weak points, and then derives suggestions for optimising performance from the two. In the end, you receive a final technical report that provides a decision-making basis for the purchase and evaluation of the photovoltaic system.

For existing systems, technical due diligence is based on the system documentation, historical yield data, and an on-site inspection. Land or project rights can also be assessed as part of the process. At this early stage, an independent yield assessment plays a central role in aiding the reliable forecast of expected yields.

A key figure of the yield assessment is the specific yield of the overall system (e.g. 750 kWp). In order to assess systems that are already in operation, this specific yield is compared to the actual performance data to calculate the so-called “performance ratio”. This reveals how similar a system’s production or expected production is to its theoretical optimum. Values of over 80% are considered to be good.

Technical due diligence is carried out by specialised service providers with a high level of PV expertise. The scope of the inspection can vary greatly and be adapted to fit your needs. Depending on project size, you can plan about two weeks for the yield assessment and several weeks for complete technical due diligence.

Carry out a legal inspection

For legal due diligence, the relevant contractual components of the PV project are examined for organisational and legal risks in order to avoid potential legal pitfalls. Any identified risks can either be eliminated in advance or factored in during price negotiations.

The focus of the legal examination can differ depending on how far along the project has progressed. In cases of project rights or systems being built, the system construction contract concluded with the general contractor is made subject to an intensive examination.

In cases of existing systems, on the other hand, the purchase agreement being negotiated is examined in detail. In both situations, all relevant papers and contract documents must be made available at the time. If essential documents are found to be missing, they will be requested as part of the legal review.

If necessary, more up-to-date evidence (e.g. land register excerpts) may also be requested, or supplements negotiated to existing contracts.

Ideally, legal due diligence should be carried out after the technical review, but in reality this approach may not always be taken: for example, if you receive a last-minute opportunity to purchase an asset and do not want to spend time carrying out an additional technical review. A technical inspection requirement, such as a missing structural analysis certificate, may also first become apparent in the course of legal due diligence.

You can hire a law firm specialising in renewable energy for a legal project review. Optimally prepared transactions of smaller and mid-sized projects can often be reviewed within a few weeks. For larger and more complex projects, legal due diligence may require more time.

Secure funding

In the current low-interest environment, low-cost loans for photovoltaic projects are available, with which you can increase your equity return (leverage effect). Your economic goals for the loan should be clear (e.g. long-term operation vs. resale with appreciation).

These goals determine which type of financing will be preferable, and also which form your operating company will take. They also indicate which balance between equity capital and debt capital will best suit you.

There are various banks to be considered as financing partners. A bank specialising in photovoltaics can support you with its own expertise when it comes to making important decisions. In Germany, the processing time for a complete loan application is currently around 6-8 weeks. It may be longer before the loan is disbursed, depending on which disbursement requirements must be met.

Draw up the purchase agreement

If, after all project reviews, you are given the green light to go ahead, the purchase agreement must be drafted or reviewed. Special attention should be paid to the payment methods, warranty rights in case of defects, and the definition of situations in which withdrawing from the purchase agreement is possible.

The transition from carrying out legal due diligence to preparing the purchase agreement is not set in stone. Due diligence may only be viewed as a preliminary examination. Since lawyers must also carefully examine all project details in order to prepare the contract, it is wise to engage the same law firm for both legal due diligence and the purchase agreement.

Preparing a purchase agreement is generally less exhaustive than carrying out legal due diligence. The process, from the first draft of the contract to the final signature, typically takes several weeks.

To sum up, the key to speedy, smooth implementation of each described step is the availability and accessibility of all documentation. Missing documents can lead to significant delays. The investor can’t always dictate how long it will take to successfully conclude a contract, as the seller is frequently responsible for providing certain documents. If left late until the end of the year, the pressure on all parties involved often increases as annual financial statements loom. This can be alleviated early with forward planning and effective communication between the parties.

To read the original article in German, click here.

This article was published in our investment guide. For all other articles and information on Direct investment in commercial-sized photovoltaic systems, please visit: Milk the Sun – PV Investment Guide.