Offtake Challenges
Companies do not normally lock themselves into long-term purchasing commitments of ~10 years when the availability and price of the product remain uncertain.
Offtake agreements set out terms associated with volume. Suppliers need to enter contracts to sell sufficient volumes of the clean technology solution they produce to cover their fixed costs of production and provide a steady revenue stream for bankability.
There are limited reference points on the price of low-carbon products in an illiquid market and the factors influencing the price will change over the duration of the agreement.
Suppliers seek robust termination terms to address the risk of a lack of alternative offtakers. Offtakers often require flexibility to reduce volumes or terminate due to strategic business decisions.
Low-carbon products lack commonly accepted standards and certification schemes. Alignment is needed between the supplier and offtaker on product specification, i.e., what constitutes ‘near/net-zero emissions’ and whether the agreed definition aligns with relevant regulatory/market access definitions.
The availability of enabling infrastructure, such as ports, storage and grid networks, can become a bottleneck in project delivery.
Regulatory uncertainty and market fragmentation delay investment decisions.
Improving trust between negotiating parties is essential to accelerating low-carbon investments, as divergent expectations and assumptions pose challenges to the offtake negotiation.
Driving industrial decarbonisation across the value-chain requires C-suite and board leadership
Purchasing functions are by nature designed to be risk-adverse and they are used to employ a relatively short-term framework when procuring key commodities.
