Due diligence on an energy deal before you sign anything

Check for:

• Tenor and remaining term: a 15-year PPA signed in 2015 has 4 years left in 2026. That changes the valuation entirely versus a fresh 20-year deal.
• Price structure: fixed price, indexed to inflation, or a contract-for-difference (CfD, where the generator receives the difference between a strike price and the market price)?
• Curtailment and force majeure clauses: who bears the cost if the grid operator tells the asset to stop producing, or if negative prices hit (increasingly common in Germany and California during high solar/wind hours)?
• Counterparty credit rating: a PPA with an unrated municipal utility is worth less than one with an investment-grade offtaker like a large industrial buyer or a rated utility.
• Change-of-control clauses: some PPAs terminate or require consent if ownership changes, which matters directly for the M&A transaction itself.

For refineries and midstream assets, the equivalent is the offtake and supply agreement: crude supply contracts, tolling agreements, and refined product sales contracts, checked the same way for tenor, price formula and counterparty strength.

Environmental liabilities: the silent valuation killer

Environmental liabilities are the classic "unknown unknown" in energy DD, especially for fossil assets.

For a refinery, the buyer's environmental consultants run a Phase I Environmental Site Assessment (a standardized review of historical land use and contamination risk, per ASTM E1527 standards), often followed by Phase II soil and groundwater testing if red flags appear. Refineries carry decades of potential soil contamination, asbestos, and groundwater issues that can cost tens of millions of dollars to remediate. In the US, liability can attach under CERCLA (the Comprehensive Environmental Response, Compensation, and Liability Act, also called Superfund), which can hold current owners liable for contamination caused by previous owners.

For renewables, environmental DD looks different: decommissioning obligations (who pays to remove wind turbines or solar panels at end of life), land lease terms, and permitting status (has the project cleared all environmental impact assessments required under, in the EU, the Environmental Impact Assessment Directive).

Practical check: ask for the environmental liability reserve on the seller's balance sheet and compare it to the consultant's independent estimate. A gap here is a common source of price renegotiation.

Regulatory and financial checks

Energy is one of the most regulated sectors in finance, and DD teams mapmapUsing software to automate repetitive marketing tasks and campaigns, enabling personalisation at scale across channels like email, web, and social.Voir la définition complète → the regulatory perimeter early.

• In the US: FERC (Federal Energy Regulatory Commission) regulates interstate electricity transmission and wholesale power markets; state Public Utility Commissions regulate retail tariffs. A change in a state's net metering rules can materially change a solar portfolio's revenue.
• In the EU: ACER (the Agency for the Cooperation of Energy Regulators) coordinates cross-border market rules; national regulators (like Germany's Bundesnetzagentur) set grid tariffs and connection rules. The EU Taxonomy Regulation also affects whether an asset can be labeled "sustainable" for financing purposes, which affects the cost of debt.
• Tax equity and subsidy structures: in the US, confirm whether Investment Tax Credit (ITC) or Production Tax Credit (PTC) benefits under the Inflation Reduction Act (IRA, 2022) have been correctly claimed and are transferable; a botched tax equity structure can strip real value from a deal.
• Carbon costs: for a refinery in the EU, check exposure to the EU Emissions Trading System (ETS), which prices carbon emissions and directly affects operating margin. A useful public reference for allowance prices is Ember's carbon price tracker.

A worked example: valuing a curtailment risk

Say a 100 MW solar asset has a PPA at €50/MWh, expected output of 1,800 hours/year (a typical capacity factor estimate for Southern Europe solar), and historical curtailment of 5% of hours.

• Gross expected revenue: 100 MW x 1,800 h x €50 = €9,000,000/year
• Curtailment haircut (5%): €9,000,000 x 0.95 = €8,550,000/year

That €450,000 annual gap, capitalized over a 20-year remaining PPA term at a simple 8% discount rate, is worth roughly €4.4 million off the asset's value (using an approximate annuity discount factor). This is exactly the kind of adjustment a DD team pushes into the final price. (Figures illustrative, not a specific transaction.)

The data room checklist, condensed

A buyer's advisors will typically demand:

1. All PPAs, offtake agreements, and interconnection agreements, plus amendments

2. Historical production/output data (minimum 3 years, ideally with degradation curves for solar/wind)

3. Permits: construction, environmental, grid connection, land use

4. Phase I/II environmental reports, and any remediation history

5. Debt documents: loan agreements, covenants, hedging contracts

6. Tax structure documents, including any tax equity or subsidy claims

7. Insurance policies and claims history

8. Litigation and regulatory enforcement history

9. O&M (operations and maintenance) contracts and their remaining terms

10. Decommissioning cost estimates and funding mechanism

Missing or incomplete items in this list are themselves red flags. A seller who cannot produce clean production data for a wind farm is usually hiding underperformance.

Key Takeaways

• PPA quality (tenor, price structure, counterparty credit, curtailment clauses) is usually the single biggest driver of valuation in a renewables deal; read the contract, not the teaser summary.
• Environmental liabilities, especially in refineries and legacy fossil assets, are the classic hidden cost; independent Phase I/II assessments should be compared against the seller's own reserve estimate.
• Regulatory exposure (FERC and state PUCs in the US, ACER and national regulators plus the EU ETS in Europe) can shift an asset's cash flows overnight through tariff or carbon-price changes.
• Missing or inconsistent data room documents are themselves a red flag; treat gaps as risk, not oversight.
• Small contractual details, like a curtailment clause, translate into real, quantifiable valuation adjustments; always run the numbers before accepting the headline price.