Check before you buy!

Check before you buy!

How to avoid pitfalls in the process of technical and legal verification i.e. Due Diligence for photovoltaic farms and PV projects

Nowadays, photovoltaic farms have become a highly desirable investment target. Both PV installation projects and already-built solar power plants represent attractive investment opportunities. Before purchasing a photovoltaic farm, regardless of its stage of development, it is important to conduct thorough due diligence. This process is designed to verify all aspects that may affect the feasibility of the project. On its cost-effectiveness and the identification of potential risks. In this article, we will present the most important issues to pay attention to during the legal due diligence of a photovoltaic farm.

Title to the property. Check before you buy!

The main thing to check before acquiring a photovoltaic farm is the title to the property. The safest title is ownership, but due to costs, a common title is land lease. The lease agreement should take into account the long-term nature of the investment and the tenant’s right to use the land for construction purposes. You should also verify that the property is not encumbered by third-party rights, such as a forced mortgage or right of first refusal. It is also important that the lease agreement fully complies with the requirements for the proper transfer of rights to the purchaser.

Effective protection of the cable route

Another important element to pay attention to is securing the cable route. The cable route defines the path that leads from the photovoltaic farm to the point of connection to the power grid. If the location of the solar power plant is a considerable distance from the grid connection point, it is necessary to provide a transmission easement. An easement is nothing more than a proper title to the property through which the cable route will pass. The most common solution is to establish a transmission easement, which allows cables to run through public and private property. It is important that the transmission easement is secured by a notarized agreement and disclosed in the land register of the plot to which it relates.

Access to a public road. Check before you buy!

Without access to a public road, it is impossible to implement a photovoltaic project. The buyer of a photovoltaic farm must check whether access to a public road is provided. Whether there are legal or technical obstacles preventing its use. There is often no formal provision of access to the nearest public road, which can be a problem during project implementation. In such a situation, it is necessary to obtain permission from the road manager to construct the exit. The developer should also investigate whether the exit has been built and disclosed in the relevant land records.

Transfer of author’s economic rights to the documentation

If you acquire a photovoltaic installation project, you should also check the project agreements. It is important that the contract include provisions for the transfer of copyright to the buyer. And the rights to further transfer these rights. The absence of such provisions can hinder the transaction, especially when the buyer wants to acquire only the project documentation and not shares in the SPV. It is also necessary to check that project contracts do not contain incorrect provisions for the transfer of rights.

Administrative proceedings conducted as part of the investment process

Photovoltaic investments require a number of administrative proceedings and obtaining the relevant decisions, without which the implementation of a photovoltaic farm will not be possible. It is necessary to verify that these decisions are final and that the proceedings conducted as part of the investment process do not contain any defects. It is also important to check whether the decisions obtained have not expired or will not expire in the short term, which could prevent the project from being implemented.

The validity period of the connection conditions and the date of energy generation

Before acquiring a photovoltaic installation project, check the expiration date of the connection conditions. The connection conditions are valid for two years from the date of their delivery. This means that a contract with the power company must be concluded at this time. Attention should also be paid to the term of power generation, which is 48 months from the conclusion of the connection agreement. Exceeding this deadline may result in termination of the contract by the network operator.

Consent of the President of the ERO and a power generation license. Check before you buy!

For transactions involving photovoltaic farms already in operation, approval must be obtained from the ERO President. This procedure is time-consuming and requires proper planning. It is also necessary to obtain a license for electricity generation. The purchaser of a PV installation must obtain a new license if the installation is acquired through an asset deal. It should also be remembered that the sale of energy on the open market comes with certain restrictions, such as a write-down on the fund.

Corporate and financial analysis of the special purpose vehicle

During the due diligence process for SPV acquisitions, the analysis of corporate documents plays an important role. The corporate structure, the company’s ownership structure and the encumbrance of shares with third-party rights should be verified. You should also check whether the company has any significant financial liabilities. It is also important to examine the company’s financial condition on the basis of financial statements for previous years.

Technical and legal due diligence of a photovoltaic farm is crucial for an investor. These are the most important aspects to check to avoid a bad investment decision.

Verification of the title to the property, securing the cable route, access to the public road, transfer of copyright to the documentation, administrative proceedings, the validity period of the connection conditions, the approval of the President of the ERO, the power generation license, and the corporate and financial analysis of the SPV are the most important issues to pay attention to during the due diligence process. Conducting a thorough analysis of these aspects will allow the investor to avoid potential pitfalls and make an informed investment decision.

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Lighthief

Lighthief is innovation, technology and science in the service of recycling photovoltaic panels and wind farms. The company's topics of interest touch on recovery and recycling in the broadest sense, mainly in the field of RES, or renewable energy sources.

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