Water, Power and Gas Supply: Due Diligence for Hotel Investors

A hotel's ability to operate in the past does not necessarily mean it can support the next investor's business plan. Adding rooms, upgrading food and beverage services, extending operating hours or replacing gas equipment with electrical equipment may all change supply requirements. Water, electricity and gas bills in an acquisition data room can help explain past consumption and expenditure. On their own, however, they cannot establish whether future capacity will be sufficient, whether supply is reliable or how much additional investment will be needed after acquisition.

Water, power and gas supply therefore belong in hotel investment due diligence. Investors need to identify any gap between the proposed operating model and the property's actual supply conditions, establish whether it can be closed and determine who bears the cost and responsibility for delivery. Those findings should inform the investment budget, handover conditions and opening schedule.

In an international hotel context, these services are generally discussed as utilities. Water and energy need to be accounted for separately while being assessed within the same operating framework. An all-electric hotel may have no gas supply; other properties may rely on district heating or alternative fuels. Due diligence should follow the actual supply arrangements rather than assume that every hotel needs the same systems.

Start with the operating plan to ask the right questions

Hotels of similar size may have different requirements under limited-service and full-service operating models. The International Finance Corporation's 2007 Environmental, Health, and Safety Guidelines for Tourism and Hospitality Development identify guest use, housekeeping, laundry, cooking, pools and grounds maintenance as hotel water uses. They also note that building design and operating patterns influence energy use. The guidelines provide a reference for international practice; their application still requires consideration of the project's location and professional assessment.

The investment team should first ask the proposed operator to explain which services must be retained, which will be added, when guest rooms and public areas will be used simultaneously, and how food and beverage, laundry and hot water services will be organised. Engineering advisers can then assess demand and reconcile it with supply contracts, connection conditions and equipment on site. Simply multiplying historical bills by an occupancy forecast can miss the effects of changes in service delivery.

Consider a hypothetical example: an investor plans to reposition a hotel that serves breakfast only as a property offering all-day dining and banqueting. The additional requirements extend beyond purchasing kitchen equipment to food preparation, washing, ventilation, hot water and associated electrical loads. Even if the room count remains unchanged, the existing supply assumptions cannot simply be carried forward.

Water: check the source, quality and ability to meet peak demand

Water due diligence begins by establishing the actual source, the party responsible for supply, the conditions governing its use, and whether normal and emergency supplies depend on the same source. Review records of interruptions, low pressure and water quality, then have qualified specialists assess storage, treatment and distribution within the building. A water connection at the property boundary is no substitute for checking what reaches the points of use.

Regional conditions and property conditions need to be distinguished. The World Resources Institute's Aqueduct tools can screen locations for water stress, drought, floods and other water risks. A map classification is not a guarantee of supply to an individual hotel. Investors still need to verify seasonal restrictions, supply conditions and available alternatives with the local supplier and the property.

Peak demand involves more than the total volume used in a day. Whether concentrated guest showering, breakfast washing and laundry operations can be supported simultaneously should be assessed against the proposed operating schedule. Hot water also requires checks on heating and storage capacity. Wastewater discharge and treatment capacity should be reviewed alongside supply, so that confirming incoming water does not leave constraints on its subsequent disposal overlooked.

A property in a water-stressed area should not be rejected solely on the basis of that classification. A reliable, compliant and affordable supply arrangement may justify further investigation. Conversely, a low regional risk rating should not obscure problems with the property's own distribution, storage or treatment systems.

Power: distinguish consumption, peak demand and available capacity

Monthly electricity consumption measures how much electricity was used over a period. The power required by equipment operating at the same time determines peak demand. Investors do not need to size equipment themselves, but they should require engineering advisers to distinguish contracted capacity, connection capacity, the building's electrical distribution capability and the proposed load, explaining where constraints arise.

Low historical consumption may reflect good efficiency, but it may also reflect closed floors, an inactive restaurant or shorter operating hours. Bills should be considered alongside occupancy, the services provided and equipment operating records for the same period. Interval data, where available, can help identify periods of concentrated demand. If it is unavailable, further measurement requirements and uncertainty should be recorded in the due diligence findings. An estimate must not be presented as confirmed spare capacity.

In its guidance on increasing supply to commercial properties, UK Power Networks explains that project costs and timing depend on the work required, with applications subject to review and sometimes a site visit. This example provides no timetable for hotels in other countries. It does, however, illustrate why the cost and completion date of a capacity upgrade require evidence specific to the project.

A proposal that increases electrical load therefore needs more than a general engineering contingency. The team should establish whether the supplier will accept the application, what work is required on site, which third-party conditions apply and when the upgraded supply can be used. Until critical conditions are resolved, revenue from new services opening on schedule should not be treated as certain.

Gas: identify operational dependencies and assess alternatives

For hotels using gas, distinguish piped supply from deliveries to on-site tanks, then review the supply contract, actual uses, equipment condition and relevant inspection records. Appropriately qualified specialists should assess whether capacity, pressure, storage and safety conditions suit the proposed use. An unremarkable bill cannot replace those checks. The UK's Health and Safety Executive guidance for catering and hospitality also addresses professional inspection and maintenance. Its specific qualification requirements belong to that jurisdiction; requirements in other markets must be checked locally.

The next question is what would be affected by a restriction in gas supply: the kitchen, domestic hot water, space heating or several services at once. The operator should identify which services must continue and which can be temporarily adjusted. Engineering advisers can then establish whether the proposed alternatives are feasible.

Switching to electrical equipment requires a fresh assessment of the power supply. If both the kitchen and hot water systems are to be electrified, the comparison should extend beyond equipment purchase prices and gas bills to additional electrical loads, distribution upgrades and the applicable electricity tariff structure. Lower gas demand does not necessarily mean lower total investment or supply risk.

For an all-electric hotel, record gas as not applicable. Where a property uses district heating, liquefied petroleum gas or other energy sources, investigate its actual supply chain. International comparison is useful for identifying different supply conditions, not for prescribing the same equipment solution to every project.

Match backup arrangements to specific services

The presence of a water tank or generator does not establish which hotel services can be maintained. Investors should be shown the loads covered by backup arrangements, how long they can be supported, whether changeover and maintenance records are complete, and whether replenishment is available. Actual capability requires engineering calculations and appropriate verification; it cannot be inferred from the name of the equipment.

Dependencies between systems also need examination. Delivering stored water to the points of use, for example, requires checking the power provision for the relevant pumps and controls. Backup fuel that depends on deliveries requires an assessment of replenishment when transport is restricted. These are scenarios to investigate, not events assumed to have occurred at every hotel.

Cummins' generator application manual distinguishes emergency applications from standby applications intended to prevent business losses. Accordingly, the capacity required for statutory emergency provision and the capacity needed to maintain full hotel operations should be listed separately. Compliance with an emergency requirement does not automatically mean that all guest rooms, kitchens and public areas can operate normally. Investors need to understand which operating capabilities would actually remain available during a supply restriction, with local professionals confirming the safety and compliance boundaries.

Translate supply gaps into investment conditions

Supply due diligence should ultimately inform the investment model. Recurring costs need to be reassessed against the proposed operation, while necessary expenditure on connections, capacity upgrades, replacements and backup facilities should be identified separately. The effect of delivery times on opening or trading during refurbishment also needs to be explained.

The US Department of Energy's guidance on utility rate options distinguishes energy charges, demand charges and fixed charges. This helps explain why the same electricity consumption may not produce the same bill, but it is not a universal pricing framework. For any property, review the actual contracts and tariffs and establish whether historical discounts, fixed-term prices or other conditions will continue after the transaction.

The assessment can consider normal supply alongside a disruption scenario grounded in available evidence. Identify backup operating costs, necessary remedial work and the activities that could be affected, distinguishing quotations from estimates. Where evidence is lacking, do not assign apparently precise probabilities or loss figures to interruptions.

Confirmed gaps with feasible solutions can be reflected in budgets, price discussions or handover arrangements. Where critical supply capacity, necessary approvals or engineering delivery dates remain uncertain, commitments that depend on them should be deferred. Missing information is not proof of a defective facility. First specify what is missing, who will provide it and when a conclusion can be reached.

How to use a one-page supply due diligence worksheet

The project lead can create a separate row for water, power and, where applicable, gas, recording six items for each: the operating services supported; the capacity the plan requires; the evidence for existing capacity; gaps and backup arrangements; costs and timing; and the person responsible for verification and the resulting conclusion. Where a service depends on several supplies, note those connections in the relevant rows. This avoids separate disciplines approving their own elements without confirming that the combined system can deliver the service.

At the outset, the operator defines the proposed services, the seller or developer provides supply and equipment records, engineering advisers check capacity and gaps, and the finance team incorporates verified costs into the appraisal. Local specialists should examine questions about contract continuity, rights of use or permits. The investment lead should consolidate unresolved issues before the agreed decision date, keeping the document review connected to investment approval.

Completion is not a matter of filling every cell. Demand for critical services should have a traceable basis; supply capacity should have supporting evidence; gaps should have executable solutions; and costs, deadlines and responsibilities should align. Items that cannot be confirmed should remain open, with the investment assumptions they affect clearly identified.

A hotel's water, power and gas supply ultimately determine whether certain operating promises can be fulfilled. Before committing funds, investors should bring the operating plan and the property's supply conditions into the same review. Gaps that can be closed belong in the investment budget. Conditions that remain unconfirmed belong on the decision table, rather than being left for the team taking over the hotel.

References

International Finance Corporation: Environmental, Health, and Safety Guidelines for Tourism and Hospitality Development, 30 April 2007. See the sections on resource consumption and project applicability. https://www.ifc.org/content/dam/ifc/doc/2000/2007-tourism-hospitality-development-ehs-guidelines-en.pdf

World Resources Institute: Aqueduct, water-risk screening tools and their scope. https://www.wri.org/aqueduct

UK Power Networks: Add power — Cost, time and what's involved, guidance on increasing capacity at commercial properties. https://www.ukpowernetworks.co.uk/i-already-have-electricity-commercial/add-more-power/add-more-power-cost-time-and-whats-involved

US Department of Energy: Evaluating Your Utility Rate Options, explanations of energy, demand and fixed charges. https://www.energy.gov/cmei/femp/evaluating-your-utility-rate-options

UK Health and Safety Executive: Gas safety in catering and hospitality, 2017, a UK reference for gas equipment inspection and maintenance. https://www.hse.gov.uk/pubns/cais23.pdf

Cummins: Liquid-Cooled Generator Set Application Manual, 2015 edition, sections 2.2.3 and 2.5. Referenced only for principles concerning application types and load assessment, not for its specific technical parameters. https://www.cummins.com/sites/default/files/2024-08/t030-Liquid-cooled-gen-set-application-manual.pdf