Oxford Institute for Energy Studies: How to Draft Bankable Hydrogen Offtake Agreements — Key Lessons for Project Developers and Offtakers

Oxford / August 2025 — The Oxford Institute for Energy Studies (OIES) today published a practical guidance paper on hydrogen offtake contracting, arguing that well-designed Hydrogen Sale and Purchase Agreements (H2SPAs) will be central to scaling the clean hydrogen economy and unlocking investment for capital-intensive projects. The paper frames hydrogen offtake contracts as multi-purpose instruments that both allocate commercial risk and integrate government support mechanisms essential to project bankability.

Why offtake agreements matter. OIES highlights that long-term offtake commitments (typically 10–15 years in early practice) underpin financing and reduce demand risk for green and blue hydrogen projects; yet, they are shorter than classic LNG tenors because buyers remain cautious amid expected cost declines and evolving policy support. Government subsidies, tax credits and CfD-style mechanisms are often integral to pricing and must be contractually accounted for.

Practical contracting choices. The paper reviews three common contracting models — H2SPAs, tolling arrangements and standardised forms — and emphasises hybrid pricing structures (partially fixed with indexed adjustments) as pragmatic in the absence of liquid hydrogen benchmarks. Cross-commodity indexation (to electricity for green H2, gas for blue H2) is used as a transitional proxy but exposes counterparties to volatility and dispute risk, so bespoke price review mechanisms and clearly defined triggers are recommended.

Volume, flexibility and transport. Take-or-pay remains a foundational tool but is likely to appear at lower levels (OIES suggests typical negotiated ranges below historical LNG norms, e.g., 60–80%) with tolerance bands, make-up rights and cargo deferral/mechanisms for shipped derivatives (LH2 or ammonia). Contracts must also decide whether transportation is embedded in the offtake or allocated to separate Hydrogen Transportation Agreements (HTAs) — pipelines favour embedded terms while shipping/derivative supply chains often require distinct shipping contracts.

Risk allocation: force majeure, subsidy loss and change-in-law. The guidance sets out hydrogen-specific FM events (electrolyser failure, ammonia cracking failure, blending restrictions) and recommends staged termination/renegotiation processes for subsidy withdrawal events — lenders generally prefer renegotiation or suspension before termination. Carefully scoped change-in-law, targeted reopeners and proactive dispute prevention (joint committees, dispute boards) are highlighted as critical drafting elements.

Outlook. OIES concludes that while bespoke, long-term H2SPAs will anchor the first wave of projects, contracting practice will evolve through phases of increasing flexibility and financial sophistication as benchmarks, certification regimes and trading infrastructure mature. The paper is a practical handbook for counsel, sponsors and industrial offtakers negotiating the next generation of clean hydrogen deals.

TECHNICAL ANNEX

Key Contractual Elements of Hydrogen Offtake Agreements

(Based on Oxford Institute for Energy Studies, 2025)

1. Contract Structure & Term

• Form: Long-term Hydrogen Sale & Purchase Agreement (H₂SPA), sometimes combined with Tolling Agreement or standardised framework.

• Typical Term: 10–15 years for early projects — shorter than LNG due to evolving policy and technology cost curves.

• Purpose: Secure revenue certainty enabling FID and project financing.

• Legal Form: Generally under English law; often integrated with separate Hydrogen Transportation Agreement (HTA) if shipping or pipeline involved.

2. Quantity & Delivery

3. Specification & Certification

• Purity: Typically ≥ 99.97 % H₂ for industrial offtake; can be relaxed for combustion use.

• Certification: Must reference national/European guarantees of origin (GO/H₂Cert) and carbon intensity reporting method.

• Sampling: Contract should specify frequency and method for purity and energy content testing.

4. Pricing Mechanisms

• Hybrid formula (Fixed + Indexed) most bankable.

• Indexation Options:

  • Electricity price (for green H₂);

  • Natural gas/CO₂ price (for blue H₂);

  • or blended formula with adjustment clauses.

• Price Review Clause: Triggered by defined thresholds (e.g., > 15 % deviation over 6 months); mandatory negotiation window 90 days.

• Government Support Integration: CfD-style top-ups, tax credits, or subsidy loss sharing must be embedded in price formula.

5. Risk Allocation & Force Majeure

• Hydrogen-specific FM events:

  • Electrolyser or compressor failure beyond control

  • Grid curtailment of renewable input

  • Ammonia cracking plant outage (for derivative supply)

  • Pipeline blending restrictions or contamination

• Remedies: Suspension → renegotiation → termination (last resort).

• Change-in-Law Clause: Covers introduction/removal of carbon taxes, certification schemes, or H₂ blending rules.

6. Transport & Logistics

• Embedded vs Separate:

  • Pipeline supply → delivery embedded in H₂SPA.

  • Shipped LH₂/NH₃ → separate Hydrogen Transportation Agreement (HTA) or charterparty.

• Title & Risk Transfer: Typically at flange or port gate after quality verification.

7. Flexibility & Termination

• Volume Flexibility: Optional additional take volumes within band.

• Renegotiation Events: Subsidy withdrawal, major index change, or persistent FM > 6 months.

• Termination: Limited rights; subject to cure period and lender consent.

8. Dispute Prevention & Resolution

• Joint Operating Committee (JOC): For operational coordination.

• Dispute Board / Expert Determination: Preferred before arbitration.

• Arbitration: London Court of International Arbitration (LCIA) or ICC; English law governing.

9. Financing Interface

• Contracts should be “bankability-checked” — i.e., accepted by lenders under project finance due-diligence standards.

• Step-in Rights: Lenders may assume Seller’s rights in event of default.

• Assignment: Usually permitted to affiliated SPVs or financiers with notice.

10. Market Evolution Outlook (per OIES)

1. Phase 1 (2023-2027): Bilateral bespoke H₂SPAs; public support critical.

2. Phase 2 (2027-2032): Gradual standardisation, hybrid pricing, shorter terms.

3. Phase 3 (post-2032): Emergence of market benchmarks, certificates, and derivative trading.

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