Questions (Due Diligence Checklist)
1. Mission:
  • How does loan or investment support your mission?

2. Conventional, Traditional , Renewable Energy or Energy Efficiency?
  • Is this an appropriate and affordable technology?
  • How has that been shown?
  • Is it proven?
  • Is the sponsor-proponent-owner-champion-entrepreneur proposing an innovative use or innovative delivery mechanism?
  • Is the sponsor introducing the technology in a new region/country?

3. Energy purchaser:
  • Who is buying the energy?
  • What is their ability to pay?
  • How has this been documented? (See also “Energy purchase agreements” in the technical section.)

4.Leverage:
  • How are our funds and our commitments leveraging other financing and other commitments?
  • Which local or regional financial institutions are interested in this investment?
  • Can we interest a local bank at an early stage if we are involved? If not, how do we interest a financial institution in investing in this type of initiative at a later stage?

5. Replicability:
  • Is this project replicable? How?
  • Does the sponsor-entrepreneur plan to implement other projects?
  • Does the project have demonstration value for its being replicated by others?

6. Market:
  • Would this technology be cost-competitive with existing sources of electricity (kerosene, candles, diesel generators, etc.)?
  • How would it be marketed?
  • What is the market potential?
  • What is the energy regulatory policy?

7. Social:
  • How does the energy enterprise improve the quality of life through the provision of energy services (lighting, cooking, water, health)?
  • Are there productive uses involved with this activity? If so, what are they?
  • How many people will benefit from this project?
  • If the project is grid-connected, who will benefit from increased supply to the grid? Will there be long-term benefits (permanent jobs, access to water, grid extension) or will they be short-term (temporary jobs during construction)?

8. Environmental:
  • How will the investment improve or protect the local, national and global environment?
  • What other energy sources such as diesel, kerosene, candles or fuelwood will be displaced?
  • If displacing carbon, can this be quantified now?
  • Does the investment have any negative environmental effects (air, water, flora, fauna and land use)?
  • Has an environmental impact assessment been carried out?
  • Does one need to be done?

9. Structure of company:
  • What is the overall structure of the company?
  • Who are the owners?
  • Do they have any political, community or business connections worth noting or being concerned about? (CVs for the principal owners and third-party referees need to be filed.)
  • Have we carried out a credit check on the sponsors?
  • Can we get financial summaries or the net worth of the individual sponsors? (This is particularly important if we are making the investment based to a large degree on the name and reputation of the key sponsor.)
  • What insurance exists? If assets are pledged as collateral, are they insured?

10.Legal standing:
  • Has the company been incorporated? (The following items are needed: incorporation certificate, any shareholder agreements, by-laws and loan agreements.)

11. Experience of the company:
  • How many years have the entrepreneurs been in business?
  • Have they been successful?

12. Managerial strength/depth of company:
  • Describe the technical and managerial experience of the team and what is required to ensure that the venture is profitable and sustainable.
  • Has the project/energy enterprise secured collaboration with applicable third parties such as equipment suppliers, engineers, site owners, etc.?

13.Development of operations:
  • How will the company operate on a day-to-day basis?
  • If the success of the enterprise is dependent at all on the successful collection of credit, what are the systems in place to ensure this? Does the enterprise have any experience in any aspects of extending credit (credit review/approval, credit management, collection process, late payment collections and/or repossession process)? (If not, this should probably be identified as a risk.)
  • Does the developer live near the project site? If not, how will the developer manage the progress of the company?
  • If the entrepreneur is entering into a distribution/franchise relationship, does the agreement have any conditions that would prevent the enterprise from growing over the long term?

14.Risk management:
  • What risks are associated with this investment?
  • Country, political
  • Currency devaluation, inflation and interest rate
  • Managerial capacity
  • Access to balance of project funding/other investors (“bankability” of the project)
  • Ability of customers to pay
  • Construction risk
  • Environmental/weather risk
  • Contractual liability risk (energy purchase/sale agreements, fuel supply contracts), contract enforceability
  • Competition
  • What is the level of risk-sharing with the owners, us and other participants?
  • If the business is manufacturing-based, then assess the market for its raw material streams. Has there been fluctuation in prices for the material? Are there many suppliers (domestic, international, both?) Carry out sensitivity analysis for profitability and fluctuations in materials costs.

15.Some examples of risk mitigation measures:
  • Key-person life insurance if enterprise is heavily dependent on a single entrepreneur.
  • If the primary source of repayment is weak, are there any secondary sources of repayment in the form of a guarantee that can be executed? These should have a value even when there are collection problems and should not be hard to find and take over.

16. Financial viability:
  • What financial information is available: financial statements, audited financial statements, project cash flows? Provide a summary table of available info. If the company is already in operation, you must provide a summary income statement and balance sheet for previous years of operation. Indicate whether they are audited or not.
  • If no financial statements exist, explain why they do not and explain any plans to install an accounting system. A pro forma cash-flow table should always be presented (even if it is just a summary table).
  • What is the company’s current financial situation?
  • What is the quality of the company’s receivables? Can they provide us with an “aging report” of their receivables?
  • What is the total project cost?

17. Financial structure:
  • What is the financial structure of the investment?
  • Is there a likely market for the collateral that is being offered?
  • If the business is producing a commodity product, you should consider using some or all of the inventory as part of a guarantee.
  • How much has the developer invested to bring the project to this point, in cash or in kind? Provide details.
  • How much will the developer invest in the next phase in cash and/or in-kind? Provide details.
  • What percentage of equity will the developer’s investment equal?
  • How has this been valued?
  • Are other organizations investing? Debt or equity? Under what terms? Any subordination?
  • Does the developer have the financial resources to handle unexpected delays?

18. Terms:
  • Is this a loan, equity, quasi-equity or loan/equity with a “kicker” (the offer of an ownership position)?
  • Will guarantees be provided?
  • Will this be a dollar-denominated investment?
  • Can funds be repatriated?
  • What is the repayment schedule?
  • Who pays taxes on repayments?

19. Legality issues:
  • Does the investment document need to be registered and/or submitted for approval to government institution such as the central bank of the country?
  • Can a dollar-denominated loan be made? Are dollars and euros generally available?
  • Are there repatriation issues for loan repayments? Equity/dividend payments?

20. Work-to-date:
  • What work has been carried out to date (market assessments, feasibility studies, business plans)?
  • What work has been reviewed by us?

21. Deliverables:
  • What deliverables will result from our funding?
  • What is needed to advance the project to operations?

22. Licensing/permits:
  • What licences or permits are required to complete this project?
  • What is the status and schedule of each of these?

23. Contracts:
  • What contracts are needed?

24. Fuel resources:
  • What fuel resource (e.g., water, sun, bagasse) is being used?
  • What fuel-supply contracts are needed and which have been secured?
  • What fuel resource data is available?
  • How long is the period for which the data have been analysed?
  • Are historic data available?

25. Energy purchase agreements:
  • Who will buy the energy produced?
  • What is the status of energy purchase agreements? Is there a power purchase agreement (PPA), or is this a wholesale market? If so, what is the structure of the market and what are the tariffs? Is it a newly established market or is it already operational? Are there any special considerations for renewable energy?
  • What risks are there?
  • Is there a back-up purchaser for the energy?

26. Wheeling:
  • If the energy is being sold to other than the local utility, are there expenses to “wheel” the energy elsewhere to the purchaser? Are they included in the economics?

27. Interconnection issues:
  • Have the interconnection costs been considered in the investment costs? If not, will the purchaser of the energy pay for this?

28. Land-ownership issues:
  • What is the risk that a developer may lose access to the site in which the project would be implemented? Costs of the land? Relocation of human population? Concessions?
  • Obtaining rights of way (for access roads, piping, wiring, etc.)

29. Engineering, procurement and construction (EPC) contracting:
  • Will an EPC contractor be retained?
  • What is the status of identifying and securing a commitment from an EPC contractor?
  • What are the EPC contractor’s qualifications?
  • Is financing available through the EPC contractor?

30. Quality of equipment/guarantees.
  • What type of equipment is being used (new or refurbished)? Who is the manufacturer?
  • Who will supply the equipment?
  • What guarantees will be provided?
  • Is financing available through supplier?
  • Is there a local representative for the supplier? If so, what is his experience?

31. Concessions/permits:
  • What permits, licences and concessions are needed?
  • What is the schedule for obtaining the necessary items?

32. Technical capability:
  • Who will provide technical capability? What is their experience with this technology?
  • If outside technical assistance is needed, how will this be funded? What is the technical experience of the outside assistance with regard to the specific technology being used?
  • If outside technical assistance is needed, are there any related party issues that need to be disclosed? (For example, do the sponsors own part of the construction company being hired to build the dam?)
  • If outside expertise is being used, what, if any, are the penalties or guarantees in place to help ensure that the work is done appropriately, on time, on budget, etc.?
  • Who, within the enterprise, will oversee the outside experts?

33. Time schedule:
  • How realistic is the work plan and schedule?
  • What financial resources are available if there is slippage in the schedule?

34. Operations and maintenance:
  • How will operations and maintenance be handled and by whom?
  • What is their experience and level of commitment?