Key takeaways 

• Joint ventures are becoming an increasingly important delivery model in Australia’s renewables sector, enabling contractors to combine specialist capabilities, share risk and deliver large-scale generation and storage projects more effectively.
   
• An integrated joint venture model is often better suited to renewables projects, where success depends on close collaboration, coordination across multiple disciplines and management of complex project interfaces.
   
• While project sponsors typically require joint and several liability from joint venture participants, partners have flexibility to allocate risk, responsibility and rewards between themselves, making careful structuring essential.
   
• Clear planning and robust joint venture agreements are critical to success, particularly in relation to governance, risk allocation, intellectual property, exit rights and dispute resolution, helping participants avoid misalignment and project disruption.

Australia’s renewables sector is continuing to experience a period of steady growth, despite industry challenges. Generation and storage projects continue to be developed at scale to meet ambitious national clean energy and decarbonisation targets. These projects are capital intensive, technically complex and increasingly require delivery partners to combine complementary capabilities, leading to a recent rise of joint ventures as a strategy for delivery, integration, operations and asset maintenance. This article considers joint ventures at the delivery partner level, rather than as a procurement option for project sponsors.

Joint ventures can be effective instruments to enhance performance, providing access to a broader range of skills and resources to drive efficiency and success at large scale, but can also be susceptible to setbacks especially where there is a divergence of interests or the settings for the joint venture depart from best practice. 

Why form a joint venture? 

There is particular opportunity for joint ventures in the renewables sector given the different specialisations that need to be co-ordinated for project delivery, including most commonly the civil scope (for foundations, hardstands, access roads and earthworks), electrical scope (for the substation, key electrical components and commissioning) and the specialist equipment or technology (such as batteries or wind turbines). 

One structure with a single source of responsibility for multiple specialisations can, in the appropriate circumstances, be attractive to project sponsors, funders and delivery partners alike as it reduces the interface risk on these projects. The upside for project sponsors also includes potentially extra competitive pricing from consolidating and expanding the scope of key works packages, where there are fewer individual engagements and tiers of subcontracts in the supply chain, to reduce the prospects of margin-on-margin. 

Unincorporated joint ventures, governed by contract rather than direct legislation, are typically the preferred collaborative joint venture format in the renewables sector and can provide participants with:

• access to different markets or projects in new locations;
• additional balance sheet strength;
• access to new technologies, skills and resources; and 
• a partner to share risk and reward.

Upstream and downstream liability 

Joint ventures can be strong contenders for renewables work where liability is joint and several as between the joint venture participants and the project sponsor. By contrast, split contracts or other arrangements involving several liability, which require the project sponsor to operate as though it is contracting with each participant individually, are comparatively rare and are often perceived as less bankable on traditional financing metrics. 

Most renewables transactions will therefore dictate that all obligations are enforceable by the project sponsor against each participant in the joint venture (jointly and severally). Downstream, however, it is open for the joint venture participants to decide how best to allocate liability as between themselves and how they will share the risks, responsibilities and rewards of the joint venture, such as:

• contributions for initial funding and working capital;
• allocation of resources and personnel for key project roles and committees;
• adoption of technology;
• use of accounting, management and communications systems; and
• frequency for distribution of profits.

Integrated versus split-scope 

The key choice in the establishment of a renewables joint venture is between an integrated and split-scope model. A summary of the key features is included below.

Integrated joint ventures, with participants sharing in the upside and downside of the joint venture in proportion to their respective percentage interests (commonly equally split where there is a reciprocal contribution of skills and resources, or adjusted to reflect the extent of each specialisation in the context of the joint venture), are most effective where there are high levels of trust and confidence between participants. 

For renewables, there tends to be stronger alignment with the features of an integrated joint venture from a cultural fit perspective, given extensive co-operation and co-ordination is already a defining feature of successful projects. In particular, these projects often involve a high volume of critical interface milestones, requiring the different specialisations to complete, demobilise, handover and remobilise in key project areas at specific intervals. There can be upside in adopting the same collaborative approach outside and inside the joint venture.

Split-scope joint ventures, by contrast, involve a different mindset, as each participant is only accountable for what it brings to the joint venture. Split-scope joint ventures tend to work best on projects with fewer interfaces, lower complexity and clearer delineation of responsibility. When selecting a split-scope model, the advantages (including the convenience of operating within known zones of experience) should outweigh the challenges, which in some cases can result in a prioritising of individual self-performance, create a claims culture with adversarial pressures, and incentivise cross-accusations, denials and deflections, rather than problem solving.

Setting up for success 

Joint ventures are likely to become increasingly popular to meet the demands of Australia’s energy transition. As the scale and complexity of each project continues to rise, fewer participants are expected to be able to carry the full range of skills, resources and capabilities to deliver these projects alone. However, the risks inherent in joint ventures, which are elevated for renewables given their technical complexity, can derail a project if not managed effectively.

One of the keys to successful joint ventures is preparation and planning. The documenting of the joint venture agreement and the clear allocation of risks and responsibilities remains one of the most effective ways participants can set themselves up for success. Additional considerations that benefit especially from clear drafting in joint venture agreements include:

• scope of exclusivity arrangements;
• setting objectives and standards of conduct (typically on a reciprocal best for project basis);
• governance structures and voting rights;
• treatment of intellectual property;
• exit mechanisms and transfer provisions, including change in control triggers; and
• processes for default, escalation and deadlock.