Offtake Models That Are Unlocking Climate Tech's Commercial Potential

From Pilot to Profit, Offtake Strategies Powering Successful Climate Startups

As the world shifts away from fossil fuels, developing scalable technologies that maintain our quality of life without worsening climate change is crucial. Many innovative solutions for a circular carbon economy already exist, but remain limited in scale. First-of-a-kind (FOAK) projects need significant investment to grow, yet securing financing is challenging due to the high risks associated with unproven technologies.

How do Offtake Agreements Boost Investment?

Investors are often hesitant to fund climate tech projects because new innovations that succeed in labs may fail in real-world applications. Offtake agreements help mitigate this risk by guaranteeing future sales. In these agreements, a buyer commits to purchasing a portion of the seller’s output once production begins, ensuring revenue from day one. This reduces investor uncertainty and increases funding opportunities while demonstrating market demand.

The Offtake Agreement Pyramid: Matching Needs to Project Stages

Not all offtake agreements are the same—different types suit different development phases, much like Maslow’s Hierarchy of Needs:

• Soft agreements (TRL 4-5): Non-binding letters of intent (LOIs) or memorandums of understanding (MOUs) help build early trust without heavy commitments.

• Binding agreements (TRL 6-7): Legal contracts for pilot/demo phases, often tied to specific milestones.

• Bankable agreements (TRL 8-9): Long-term commitments for FOAK and Nth-of-a-kind (NOAK) projects, providing financial stability for scaling.

Using the right offtake type at each stage helps secure funding by de-risking projects for investors.

4 Best Practices for Effective Offtake Strategies

1. Focus on Partnerships, Not Just Sales

   
   Strategic corporate partners can offer more than just offtake agreements—they can co-develop technology, provide expertise, and enhance credibility. For example, Holcim’s partnership with Sublime Systems included both equity investment and offtakes, creating mutual benefits.

2. Diversify Offtakers to Reduce Risk
   Relying on a single buyer is risky. Engage multiple offtakers across the value chain, including your buyers’ own customers, to protect against market shifts or failed agreements.

3. Build Flexibility into Contracts
   Uncertainty is inevitable, so contracts should include adjustable terms like cost caps, tiered pricing, and competitive bidding. Avoid rigid commitments until the technology is fully proven.

4. Align with Offtakers’ Business Cycles
   Tailor agreements to fit buyers’ procurement, R&D, or seasonal timelines. This increases adoption chances by integrating smoothly into their operations.

Climbing the Offtake Pyramid for Success

Offtake agreements are essential for financing FOAK projects. By starting with low-risk commitments and progressing to bankable contracts, companies can balance scalability with market demands. A strategic, step-by-step approach helps build investor confidence, secure funding, and ultimately scale climate solutions to combat global warming.

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-Shen Pandi and team