Buy-side due diligence for a portfolio of hydropower generating assets in Uganda

Engagement

The client engaged ORI to deliver this complex assignment. We supported the investor by:

  • Examining data room materials and preparing a high-level red flag report.
  • Conducting supply-demand due diligence of power market fundamentals in Uganda and the dynamics of seasonality and by time of day, accounting for hydrology.
  • Developing an hourly dispatch model of the market in partnership with a technical partner. Further, determining the merit order of the generating assets vis-à-vis the wider electricity system and locational considerations, among others.
  • Carrying out a commercial review of power purchase agreements (PPAs) and associated agreements, focused on several variables.
  • Assessing the prevailing policy and regulation in the sector, including the sector's financial health, commercial framework for hydro generators being acquired, payment mechanisms, and the status of Umeme, the major private sector electricity distribution company.
  • Completing a bottom-up energy demand sizing of major commercial and industrial projects being developed and budgeted for in order to size expected load growth from new project demand.
  • Evaluating supply and demand-side risks and likely regulatory and policy scenarios around anticipated reforms in the energy sector. This included reviewing the status of Umeme's distribution license (concession) renewal.
Outcomes
  • The due diligence provided decision support for the client to proceed to the next stage of asset valuation and transaction discussions with confidence, backed by evidence of the market dynamics, quality of the PPAs, and a good understanding of the regulatory environment risks.
  • Our modeling and findings were incorporated (where relevant) in the technical due diligence conducted by a different team. Combining the insights from the due diligence products provided a complete picture of the asset quality and value, including based on the expected hydrology and climate change in the next 20 years.
  • Insights on the likely outcomes of the evolving regulatory and policy plans identified potential sources of risk and provided ways to manage it.
  • Our comprehensive overview of Umeme’s distribution concession license renewal status included scenario analyses identifying potential risks and how to mitigate them. This was instrumental in supporting negotiations between the buyers and sellers.