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Confidence concern over due diligence in energy-from-waste deals

Investors in energy-from-waste (EfW) projects have low confidence in the provision of due diligence, according to a new survey.

Ricardo-AEA, in partnership with green industry business network ecoConnect, asked 120 members of the cleantech investment market to identify the types of due diligence being carried out and the confidence that investors have in them.

The report said: “Appropriate due diligence helps to establish confidence for businesses and investors that proposed investments will support long-term business plans and deliver expected returns.”

Even though the greatest growth in deals requiring due diligence is expected in EfW, confidence around current deals was low.

The report said: “Such growth needs to be supported by reliable, trustworthy and technically competent due diligence advisers.”

However, while more than half of respondents said external checks are very important (see table above), most (72%) did not have a panel or register of external due diligence advisers in place.

Around 73% of respondents said this was because they had expertise within their own teams, yet just 35% of respondents had a high level of confidence in these internal processes.

Dr Adam Read, Ricardo-AEA’s practice director for resource efficiency and waste management, warned that a heavy reliance on internal due diligence could be a risk for investors operating in the cleantech sector, because “it involves factoring in a long term business cycle and expensive equipment that is not always well understood.”

High levels of technical and market due diligence are essential to waste and recycling deals due to critical investment risks of waste feedstock availability and operational performance, according to the report.

It said: “This is particularly true for technologies such as mechanical biological treatment, anaerobic digestion (AD) and gasification of residual waste, which are most sensitive to feedstock waste composition and characteristics.”

Read said: “With new technologies and investors joining the market, the need for qualified and robust advice on business planning, technology selection, facility performance and feedstock is more important than ever.

“Understanding government incentives is also vitally important for many technologies. This knowledge is not always on tap within internal due diligence teams, which could result in a failure to meet investment objectives.”

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