Investing in energy projects is inherently risky: there can be design and constructability issues, financial risk, and regulatory risk, all of which threaten future success. Technical due diligence needs to be one of the first strategies in your planning to identify all technical risks before your commitment to the project. These resulting mitigations help to develop all aspects of the project, from the pre-construction phases through to the delivery phase, without jeopardising the integrity of the project.
The technical due diligence process allows developers and investors to de-risk projects, optimise revenue, and ensure compliance with regulations and policies. As well as reducing risk to developers and investors, technical due diligence influences long-term options for the project.
How technical due diligence mitigates risk
Developing large-scale energy projects is a complex process that incorporates technical, financial, and regulatory constraints. This is where technical due diligence comes in, addressing the technical risks and optimising the long-term viability of the project.
Identifies design flaws and constructability issues
The number of renewable energy projects has risen rapidly, with wind and solar accounting for the largest portion. In 2024, they represented 40% of the total increase in new renewable power capacity.
This growth is exciting and also has its risks, such as design flaws and constructability issues, that affect the performance of renewable energy projects. Experts expect disputes over design and performance issues to increase for future projects, which makes it important for contractors, designers, and employers to recognise those risks.
Project risk can be mitigated by going through a rigorous technical due diligence process to examine the design, construction methods, engineering plans, and technical specifications of the project before executing design or construction.
The primary purposes of technical due diligence are to:
- identify inconsistencies, errors, or unrealistic presumptions not readily apparent in initial design work,
- review site conditions, materials, and construction methods to verify if it can be executed in the manner desired,
- review specifications and design details to assure optimal production from the project,
- improve the design of the project to assure durability for the long-term,
- assure conformity to safety, licensing and environmental standards for design and construction.
Ultimately, this methodology provides an essential checkpoint that enhances the reliability of project design. technical due diligence also facilitates a smoother implementation period by providing technical verification and expert risk management.
Large-scale energy projects that have solid design and construction plans in place will begin with much lower risks to schedule and budget.
Validates assumptions in financial models
According to the International Renewable Energy Agency (IRENA), 91% of renewable power projects developed in 2024 were cheaper than developing new fossil fuel projects. The 582GW of renewable capacity added last year saved around USD 57 billion by displacing fossil fuel use.
Still, constructing large-scale renewable energy projects means incurring significant upfront capital costs to cover technology costs, site preparation, grid interconnections, and regulatory obligations.
During a technical due diligence process, the consultant will test and validate the key assumptions in financial models guiding project costs and profitability including expected energy production, expected operating and maintenance costs, and expected project lifespan. It also informs capital planning against the budget, and estimates the costs of actions required, including the financial consequences of any environmental liabilities.
Technical due diligence validates project assumptions ensuring profitability predictions are reasonable and risks are managed, giving investors and developers the confidence to make informed financial decisions.
Highlights regulatory or permitting gaps
Managing a complex web of regulatory and permitting processes is a significant challenge facing energy projects as they require multiple rounds of regulatory approval to meet zoning, environmental impact, and building requirements.
Regulatory and permitting processes often involve complexity, lengthy timelines, inconsistent procedures, and overlapping requirements. The International Hydropower Association (IHA) observes that large energy projects, such as hydropower, require a minimum of 10 years, regardless of location.
Technical due diligence plays a vital role in de-risking regulatory-related challenges by:
- preparing and obtaining all local, state and federal permits
- site and environmental regulatory assessments
- regulating throughput to standard
- assessing the project against local, regional, and federal rules
- tracking regulatory changes, both positive and negative for the project.
Next steps
Technical due diligence is an important process for risk-conscious project development. Obviously, we recommend you engage Arche, your friendly neighbourhood due diligence consultant, to ensure you have the best information to base your investment decisions on.