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DER investor due diligence checklist
What to check before investing in a battery, solar or VPP project, ranked by how much each finding can change value.
VPP Economics has no affiliation with, sponsorship from, or endorsement by any utility, aggregator, platform, or device maker named here.
The short answer
- A checklist is only useful if it’s ranked. Most diligence items matter a little; a few decide whether the project clears its cost.
- In our 100 kW battery example, two single findings wipe out the $53,468 cushion over net cost. The largest are losing the federal credit under supplier rules and demand savings coming in 40% below forecast.
- Revenue terms come first, equipment second. Load data, tariff and program terms move value more than most technical items, though fire code and warranty failures can stop a project outright.
- Each party checks different things. Equity, lenders, tax investors, green banks and hosts lead different parts of the review and rely on each other for the rest.
Which findings move value most
We took the 100 kW, 400 kWh battery from our Hawaiian Electric C&I page and tested what happens if one diligence finding comes back worse than the base case. The base case is worth $221,468 over 15 years at 8%, against a net cost of $168,000 after a 30% federal credit. That leaves a cushion of $53,468.
Value lost by diligence finding
Present value lost if one finding comes back against the base case, 100 kW battery, 15 years at 8%.
Swipe to see the full chart →
Losing the credit is the largest single item at $72,000, and it’s a paperwork risk as much as a policy one: supplier certifications under the foreign-entity rules have to hold up for the recapture period (IRS guidance). Overstated demand savings come next. A 40% shortfall costs $65,819, which is why lenders want at least 12 months of interval data rather than monthly bills.
The smaller items still matter in combination. A one-year interconnection delay, doubled upkeep and 95% availability together cost about $32,090, or 60% of the cushion.
Five stages of diligence
From screen to monitor
Where each group of checks usually happens.
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The checklist
Grouped by what each item protects. The first two groups carry most of the value at risk in the ranking above.
- 12 months or more of 15-minute interval data
- Current rate schedule and any pending rate-design docket
- Demand charge ratchets, minimum bills and standby charges
- Rate case calendar for the next five years
- Whether savings rely on a tariff the host can lose by changing size or use
- Program term, cap and enrollment status in writing
- Termination and rule-change clauses
- Event history: how often called, how long, what paid
- Measurement method and baseline that decide pay
- Path to another program or market if this one ends
- Eligibility, placed-in-service date and basis
- Supplier and component documentation for foreign-entity rules
- Recapture exposure and who carries it
- Transfer or tax equity terms, price per credit dollar
- Bonus adders and the evidence behind each
- Listing to the battery safety standard and fire test results
- Local fire code and setback approval
- Warranty: throughput cap, fade curve, who backs it
- Augmentation plan and reserve
- Communications path and open-standard support
- Assignment on sale of the building or the asset
- Termination payment schedule and buyout option
- Who controls dispatch, and limits that protect the host
- Lender step-in rights and backup servicer
- Host’s guaranteed share in battery-service deals
- Provider and aggregator balance sheet and history
- Who backs each guarantee
- Host credit and site control term
- Utility or program administrator funding
- Concentration by territory and regulator
- Property, liability and business-interruption limits
- Fire suppression requirements set by the insurer
- Revenue or credit insurance where used
- Who insures what in the ownership structure
- Availability guarantee and how it’s measured
- Monitoring and data access without the provider’s cloud
- Reporting on program pay versus forecast
- Rate-case and program-rule watch after closing
For equipment, the US installation standard for stationary storage is NFPA 855, and fire authorities usually ask for results from the UL 9540A test method. Program term matters as much as program pay: Hawaiian Electric’s BYOD Plus commitment is five years, a third of the battery’s modeled life.
Who checks what
Who leads each check
Typical division of diligence across the parties to a DER deal.
Swipe to see the full chart →
Tax investors run their own layer on credits and recapture; see our tax equity and fund capital guide. Green banks often take the role a private lender would, with different priorities; our green bank guide covers how.
Red flags
Program pay longer than the program
The model counts program pay past the written term or the enrollment cap.
Savings from a tariff the host can lose
Savings depend on an optional rate the host may not qualify for after a change in size or use.
Unverified supplier chain
No component-level documentation for foreign-entity rules, with recapture risk left on the investor.
No assignment clause
The agreement ends if the building is sold, leaving the asset with no revenue.
Guarantee backed only by the provider
A production or savings guarantee with no insurer, reserve or parent behind it.
Closed communications
The device can only be dispatched through one provider’s cloud.
Each of these has a fuller treatment elsewhere in Finance: incentive risk for program terms, stranded capital for assignment and provider failure, insurance for guarantees, and hedging for rate exposure.
Method and caveats
The ranking uses the 100 kW battery from our Hawaiian Electric C&I page: $240,000 installed, $19,224 a year in demand savings and $6,650 a year in Fast DR pay for 15 years at an illustrative 8% after-tax return. Each finding is tested alone. Fade applies 2% a year to both value streams; the delay shifts all revenue one year; availability reduces program pay only.
The credit row assumes the full 30% credit ($72,000) is lost at face value; partial recapture would cost less. The return-hurdle row is a change in the investor’s required return, not a change in cash flow.
Stage and party charts summarize typical practice and vary by deal size and structure. Measurement methods are covered in our measurement and verification guide. Nothing here is investment, tax or legal advice.
Sources
Tax credits
- IRS guidance on prohibited foreign entity material assistance
- Kirkland & Ellis on the 2025 tax law and energy credits