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Evaluating energy and infrastructure investments in today’s climate | Baker Tilly
Article
Evaluating energy and infrastructure investments in today’s climate
Building conviction through disciplined due diligence
April 10, 2026 · Authored by Tom Bucher, Joe Marchese
Investing in today’s power market
Energy and infrastructure investors are operating in a rapidly evolving landscape. Power price volatility has increased as load growth accelerates and supply struggles to keep pace. Interconnection queues remain congested and increasingly uncertain, particularly as the growth of artificial intelligence and data center power demand reshapes where and when new generation is needed.
At the same time, the tax credit environment is entering a new phase. A significant volume of renewable energy and storage projects were placed in service between 2023 and 2025. As a result, many of these assets will approach the end of their tax credit recapture periods between 2028 and 2030, and tax equity partnership “flip” milestones will begin to occur in greater volume. This dynamic is expected to bring more operating assets to market over the next several years, creating both liquidity and competition in operating asset transactions.
At the macro level, interest rate expectations may also influence asset pricing. As borrowing costs decline, investor demand for infrastructure assets offering stable yield is likely to increase. A more competitive buyer landscape may drive up valuations, heightening the risk of overpaying or underwriting assumptions that prove difficult to sustain in practice. Execution risk remains elevated as well. Stressed equipment and labor supply chains continue to introduce cost inflation, schedule risk and construction uncertainty across the sector.
Against this backdrop, the margin for error in underwriting energy and infrastructure investments has narrowed. Asset acquisitions that once appeared straightforward now require deeper scrutiny across development readiness, technical performance, market exposure, financial resilience and organizational structuring for tax efficiency.
For investment funds, developers and utilities pursuing acquisitions, the central question is no longer simply whether a project can be built or operated, but whether the assumptions underpinning long-term cash flows are durable enough to withstand volatility, policy shifts and operational stress over the coming decades.
In this environment, successful energy and infrastructure investments depend on a disciplined diligence process that challenges assumptions early, connects commercial and market realities to financial outcomes and provides decision-makers with a clear understanding of where risk truly resides before capital is committed.
Development and permitting: Is the project truly ready?
Early-stage risk can often be the most mispriced. For acquisition or investment in projects under development, investors should examine whether the developer’s track record supports confidence in construction execution and long-term operations. Does the team have experience delivering comparable projects? Are key permits secured and defensible? Is site control clean and are there environmental, land or title constraints that could delay progress?
Interconnection status is another critical inflection point. Queue position, infrastructure upgrade costs, and timing assumptions can materially shift economics. A project described as “advanced development” should withstand scrutiny when mapped against regulatory approvals and grid readiness.
Development risk is not binary; it is a spectrum. Understanding where a project truly sits on that spectrum is foundational to valuation.
Technical fundamentals: Are performance assumptions realistic?
Projected cash flows depend on reliable production over the life of the asset. Investors should consider whether system design, technology selection and construction plans align with long-term performance expectations.
Are EPC arrangements structured to manage execution risk?
Does the O&M strategy support availability and asset longevity?
Are contracts for services back-to-back with revenue contracts allocating non-performance risk appropriately?
For operating assets, what level of capital expenditures are necessary to ensure long-term performance?
Resource and energy yield assessments deserve particular scrutiny. Energy production forecasts should reflect realistic assumptions and clearly articulate uncertainty ranges. Sensitivity to degradation, curtailment and operational downtime must be understood.
Increasingly, long-term physical climate risks such as heat stress, flooding, and extreme weather events also warrant consideration. Resilience over a 20 to 30-year asset life cannot be assumed without risk analysis and adjustment.
Commercial and market exposure: How durable is project revenue?
Contracts define risk allocation; markets define long-term value. Investors should closely evaluate whether key agreements such as PPAs, site leases, EPC contracts and O&M agreements support modeled assumptions and appropriately allocate performance, payment and timing risks. Pricing mechanisms, escalation provisions, liquidated damages and change-in-law protections directly affect revenue durability.
Counterparty strength is equally critical. Even well-structured contracts can deteriorate under credit stress. Understanding payment security, default remedies and protection mechanisms are essential, particularly for long-duration assets.
Where merchant exposure exists, attention shifts to broader market dynamics.
What drives long-term pricing in the relevant region?
How sensitive are revenues to supply additions, policy shifts or demand variability?
What happens when the current contract expires?
What opportunities exist to contract for additional revenue or expand the system?
Durable returns depend on durable revenue and cost assumptions.
Financial sustainability: Do cash flows hold under stress?
Financial models bring together every prior assumption. Investors should examine whether revenue projections, operating costs, maintenance capital expenditures, degradation curves and curtailment assumptions are internally consistent and supported by the underlying commercial and technical diligence.
Do availability assumptions align with the O&M strategy?
Are escalation mechanics consistent with contract terms?
Are lifecycle replacement costs and reserve requirements properly reflected?
Beyond validating inputs, it is critical to understand how risk flows through the model. Stress-testing downside scenarios, such as reduced production, delayed commercial operation, pricing compression, incentive variability or cost overruns, often reveals whether projected returns are resilient or overly dependent on optimistic assumptions.
How sensitive are returns to production variability or merchant power pricing?
What is the break-even pricing threshold?
How much schedule delay can the project absorb before materially impairing IRR?
Capital structure also shapes risk. Debt sizing, covenant headroom, distribution lock-up triggers and refinancing assumptions can materially alter equity outcomes. A structure that maximizes leverage in the base case may amplify downside exposure under moderate stress.
Tax credits and incentives frequently represent a meaningful value component when developing new energy and infrastructure projects. Eligibility, compliance requirements, recapture exposure, timing and monetization risks must be clearly understood and accurately reflected in cash flow projections. If credits are transferable or structured through tax equity, how do those mechanics affect cash flow timing and investor economics?
Ultimately, financial sustainability is measured not by modeled upside, but by the project’s ability to withstand volatility without eroding long-term value.
Building conviction through diligence
The most effective diligence process is not a checklist; it is an integrated analysis that connects development risk, technical performance, commercial structure, market exposure, financial resilience and tax strategy.
For infrastructure funds, this integration supports disciplined bidding and protects downside risk in competitive processes. For utilities, it ensures that acquired assets align with long-term reliability obligations, regulatory frameworks and renewable procurement strategies.
Ultimately, the goal of diligence is not simply to identify risk. It is to understand which risks are manageable, which are structural, and how they should be reflected in valuation, structure and negotiation. In long-life energy and infrastructure investments, clarity at the outset is what enables confidence at close.
We are here to help
Baker Tilly has advised on over $4 billion in energy and infrastructure projects, serving as a trusted partner to investors and developers across the full project lifecycle. We combine commercial, technical, financial and regulatory expertise to deliver actionable insights that help investors confidently underwrite, execute and maximize returns on complex infrastructure transactions.
We understand the unique challenges facing today’s energy investors, including interconnection uncertainty, evolving tax credit rules, incentive stacking considerations, emerging offtake structures, merchant exposure and regulatory risk. Our professionals guide clients from early-stage diligence through investment committee approval, negotiation support and post-close execution, ensuring risks are identified early, quantified rigorously and addressed proactively.
Our purpose-built due diligence framework integrates development, market, financial and tax analysis into a unified investment narrative. Rather than delivering siloed reports, we translate findings into clear implications for valuation, structure and downside protection. The result is not simply more information; it is stronger investment conviction.
Please contact us to learn how we can help you build conviction in your next energy or infrastructure investment.
