Contributed by Benjie Jenkins, Shishir Bhargava, Matias Litewka and Josh Kwicinski

Massive capital demands, complex regulatory requirements, and high interest rates are threatening to bring the green energy transition to its knees at a crucial time for maintaining momentum.

Leading wind turbine manufacturer Siemens Gamesa requested a 15 billion euro bailout in November of 2023, and offshore wind developers Orsted and Equinor have scrapped high-profile U.S. wind projects due to capital costs, regulatory challenges, supply chain delays, and logistical hurdles. Excitement over generous government subsidies and incentives for green hydrogen has been tempered by the announcement of strict qualification rules and the lack of a clear regulatory framework, which some companies and industry groups argue will stifle development in a sector seen as a key enabler for the energy transition. Meanwhile, oil and gas companies have been on a tear of megadeals that reflect strong optimism around the future of fossil fuels, despite efforts to rebrand themselves as greener “energy” companies while downplaying their petroleum roots.  

To be fair, recent years have shown positive trends. Global renewable capacity additions surpassed 300 GW in 2021 and could reach 500 GW this year, and annual investment in new capacity is likely to hit $500 billion. However, the International Renewable Energy Agency (IRENA) estimates that by 2030, the world will need to add 1000 GW of new capacity every year to keep global warming below the critical threshold of 1.5 degrees Celsius set in the 2015 Paris Agreement. That would mean an average annual investment of more than USD 1.3 trillion by 2030 – a number that the world is nowhere near reaching. 

Addressing the greatest collective action challenge that humanity has ever faced will require monumental efforts in both the public and private sectors. Governments must take radical action to catalyze the energy transition with a variety of carrot-and-stick approaches to incentivize clean energy investments and penalize carbon emitters. Both the US and the EU are setting aside hundreds of billions of dollars to facilitate the transition to clean energy. The Biden Administration’s Inflation Reduction Act (IRA) includes a constellation of provisions meant to catalyze supply, totaling nearly US $370 billion in clean energy incentives for producers and technology providers. The bulk of the IRA’s incentives come in the form of tax credits, but the IRA also offers “direct pay” subsidies for clean energy projects to tax-exempt entities like nonprofits or local governments, and – crucially – to taxable entities specifically for green hydrogen and carbon capture projects.  

Europe has countered Biden’s policies with incentives of its own, including a plan to mobilize over €1 trillion of funds to finance the energy transition through a flurry of climate initiatives – both on the demand and supply side. Among the most notable is the EU Hydrogen Bank, which in November 2023 provided an initial set of per-unit subsidies worth €800 million to companies producing clean hydrogen.  

However, significant hurdles remain to phasing out fossil fuels in electricity generation and deploying carbon capture and clean hydrogen broadly enough to meaningfully impact climate change. Companies need to make massive capital outlays and take disproportionate market risks in nascent sectors where the markets remain highly immature, while simultaneously proving out, scaling, and reducing the cost curve of promising technologies across multiple steps in the value chain. Companies will need to work together to overcome these barriers. Partnerships – whether joint ventures or less-formal formal alliances – are not a nice-to-have but an imperative, and should be treated as a standard modus operandi in clean energy.  

Despite headwinds in the clean energy sector, new partnership formations are a bright spot in the post-pandemic era. The Ankura JV Index, a global barometer of JV and partnership activity, shows that new green energy partnerships have been gathering steam since pandemic lockdowns receded. In 2022, new formations in 2022 were up 51% year-over-year compared to 2021, and a further increase of 32% in 2023 (see Exhibit 1). The established generation sectors of wind and solar account for a substantial portion of these deals, but the new and rapidly developing clean hydrogen sector has dominated, especially in 2022 and 2023. Carbon capture and storage, another nascent sector, has also made large contributions in recent years. 

Clean energy partnerships are accelerating

There are a variety of reasons why companies would choose partnerships as opposed to internal builds, acquisitions, or licensing arrangements – and many of these partnership motivations are magnified for companies at the vanguard of the energy transition. Clean energy companies are choosing partnerships for one or more of the following reasons:  

• Sharing risk and capital. Most clean energy projects range from a few hundred million dollars at the lower end to several billion at the higher end. Partnerships allow companies to pool resources, spread their capital across multiple investments, and share risks – all of which are essential when investing in rapidly developing technologies that are either not yet proven or remain too expensive to be deployed at scale. For example, in the United States, Air Products and AES recently announced plans to build a $4 billion green hydrogen facility in North Texas. By utilizing a joint venture structure, the partners can share the massive upfront capital cost that comes along with building 200 tons of green hydrogen production capacity per day, fed by a staggering 1.4GW of in-house wind and solar energy – enough to power more than a million homes.  

• Securing project economics. Markets for some emerging clean energy technologies such as green hydrogen, sustainable fuels, and carbon capture are immature at best and non-existent at worst. Partnerships between producers and offtakers help secure project economics and are a critical requirement to make projects bankable and secure external financing. Take, for instance, the NEOM Green Hydrogen JV in Saudi Arabia, a tri-party JV between NEOM, ACWA Power, and Air Products, which aims to produce 600 tons per day of carbon-free hydrogen using 4 GW of solar and wind energy. Air Products is the exclusive offtaker for the project entering into a fixed fee offtake agreement with the JV. The project achieved financial close last year with $6.1 billion of the total $8.4 billion investment coming from external financing.  

• Combining complementary capabilities and needs. Many clean energy projects require expertise across diverse domains, often beyond the traditional purview of individual companies. Collaborative ventures facilitate the sharing of specialized knowledge, allowing partners to access a broader skill set. Green hydrogen projects co-developed with renewable generation or manufacturing plants, or carbon capture projects co-developed with new fossil fuel projects, are just some of the complex combinations that favor partnerships.

  For instance, consider HyDeal España, which is poised to become one of the largest hydrogen joint ventures in Europe, with 3.3GW of electrolyzer capacity and 4.8GW of solar photovoltaic capacity to power the electrolysis process. It is also building a large network of hydrogen pipelines. The project features four shareholders positioned at different levels of the hydrogen value chain: DH2 Energy (electrolysis), Enagás (infrastructure and transmission), and ArcelorMittal and Grupo Fertiberia (both offtakers). ArcelorMittal and Fertiberia have already committed to purchasing millions of tons of offtake from the venture, while Enagás will assist in connecting HyDeal España to a greater hydrogen network. It is likely that, by themselves, none of the shareholders involved in HyDeal España would have either the capital or know-how to build a project on this scale and complexity.

  Through a joint venture, however, they are able to reduce their individual capital contributions whil