Green hydrogen projects represent a significant opportunity for global energy transition. However, these projects are often marked by considerable technical, financial, and regulatory challenges. One strategic approach to overcoming these obstacles is the formation of joint ventures (JVs), which enable risk allocation, expertise sharing, and access to new markets. This article explores the legal structuring of JVs in green hydrogen projects, as well as the use of Memoranda of Understanding (MoUs) as essential preliminary tools.
The legal structuring of a JV involves several critical stages, from choosing the legal entity to defining the rights and responsibilities of each partner. In green hydrogen projects, it is common for JVs to be formed between companies from various sectors, such as energy, chemicals, and transportation, each bringing specific expertise essential for the project’s success. The choice of legal structure is one of the first steps and can vary between a Corporation (S.A.) and a Limited Liability Company (Ltda.), depending on the project’s scale and financing needs. A Corporation allows capital raising through the issuance of shares, making it ideal for large projects requiring substantial initial investment. Meanwhile, a Ltda. offers more flexibility and less formality in procedures, which is more common in smaller-scale projects.
A shareholder agreement, for instance, can be a crucial document in structuring a JV—defining the share capital and the participation of each partner, establishing governance mechanisms like the board of directors, and including conflict resolution and partner exit clauses. Regulation and compliance are equally essential, requiring adherence to local and international hydrogen regulations regarding safety, emissions, and transportation, as well as compliance with environmental and occupational health standards. Establishing a compliance committee can be a recommended practice to ensure ongoing adherence to these standards.
In global projects, there are notable examples such as the NEOM project in Saudi Arabia, a JV aiming for large-scale green hydrogen production using solar and wind energy. Another example is the partnership between Shell and Sinopec for low-emission hydrogen use in refineries. These projects highlight the importance of JVs in making green hydrogen initiatives feasible, enabling the combination of financial, technical, and infrastructure resources from leading companies in various sectors.
MoUs, on the other hand, are preliminary documents that establish intentions of cooperation between parties before formalizing a JV, for example. They are essential for aligning expectations, outlining objectives, and setting a framework for future negotiations. A well-drafted MoU may include various components, such as each party’s preliminary responsibilities and timelines for conducting feasibility studies and other business activities. Confidentiality clauses are typically included to protect sensitive information during negotiations.
The benefits of MoUs include flexibility for adjustments as the project develops and the completion of feasibility studies, while providing a legal basis for initial cooperation without binding the parties to rigid obligations before concluding all negotiations. In 2023, Oman’s OQ Gas Networks signed an MoU with Hydrogen Oman to explore the development of a hydrogen network. This type of agreement is essential to ensure initial alignment between partners and facilitate the transition to a formal JV contract.
In practice, essential clauses in both JVs and MoUs play a vital role in defining obligations and mitigating risks. In a JV agreement, some indispensable clauses include the definition of share capital, which establishes each partner’s initial financial contribution and the allocation of future resources. The governance clause is equally important, setting forth the board structure, voting rights, and procedures for strategic decision-making. The conflict resolution clause, which can include mediation and arbitration methods, is essential for preventing and managing disputes. Additionally, the exit clause defines the conditions and procedures for a partner’s withdrawal, protecting the project’s continuity.
Moreover, in green hydrogen projects, the environmental compliance clause is critical in both JVs and MoUs. This clause ensures that all project activities comply with local and international environmental laws, mitigating legal and reputational risks. The intellectual property clause is another important consideration, especially in projects involving innovative technologies. It defines ownership of patents, know-how, and other intellectual property rights developed or used during the project.
Whether through an MoU or JV, the goal is to maximize efficiency and minimize transaction costs, creating a business environment that fosters innovation and investment. Practical examples of the mentioned clauses can be observed in various international projects. For example, in the Rotterdam Port green hydrogen project, governance and conflict resolution clauses were crucial to aligning the interests of multiple parties involved, including governments, energy companies, and private investors. In the case of MoUs, the agreement between Siemens and Siemens Energy for developing green hydrogen solutions included detailed exclusivity and confidentiality clauses, ensuring a secure environment for sharing sensitive information and mutual commitment to project objectives—encouraging greater commitment from the parties involved and efficient resource allocation during the initial project phase.
In the context of intellectual property, clauses defining ownership and usage rights of technological innovations developed within the project are fundamental to encourage innovation. Clear drafting of these clauses reduces uncertainties and potential litigation, ensuring that the benefits of innovation are appropriately captured and distributed among partners, promoting a conducive environment for ongoing research and development.
In summary, joint ventures and Memoranda of Understanding are essential strategies for making green hydrogen projects viable. Proper legal structuring and clarity in cooperation intentions are critical for mitigating risks and ensuring the success of these ventures. With growing global interest in green hydrogen, these practices will become increasingly common and important for sustainable energy transition. Careful drafting of clauses in both types of contracts is vital for aligning expectations and building strong and lasting partnerships capable of meeting complex challenges and realizing the transformative potential of green hydrogen in the global energy matrix.
