By Dimitri Papaefstratiou and Charles Morrison

Our energy markets are currently experiencing a fascinating transition into uncharted territory. On the one hand, it is quite clear that the continued dependence on fossil fuels to power our global energy needs is no longer sustainable. The science is more conclusive than ever – even with the actions being taken today, the planet will continue to heat up for many decades to come. As the most recent Intergovernmental Panel on Climate Change report highlights, “global warming of 1.5°C and 2°C will be exceeded during the 21st century unless deep reductions in carbon dioxide (CO2) and other greenhouse gas emissions occur in the coming decades.” On the other hand, the energy needs of mankind continue to grow inexorably, as more and more people live in developing, increasingly urbanised societies. Our existing fossil fuel model is unsustainable in the long term, but some of its resilience can be explained by its ability to reduce previously profound income inequalities and lift millions out of energy poverty. Humanity is therefore faced with an enormous challenge – how to make fundamental changes in the workings of our societies whilst continuing to alleviate global energy poverty and without shutting the developing world out of future prosperity.

Charles Morrison
Charles Morrison

To address such a challenge, fundamental changes will be required to our entire model of energy production and consumption. Humanity will need to rely much more on renewable energies as well as develop and rapidly adopt new technologies, many of which we currently can only dimly conceive of. Nevertheless, we do have recent examples of such profound changes in our societies; these include the adoption of the internet, the mobile telephone and the renewable energy revolution, which bear witness to the powerful nature of good ideas that start as niche projects, become widespread and then finally ubiquitous. Today’s children certainly cannot conceive of a world without the internet or mobile telephones, in the same way that many of us take electricity for granted.

If the vision of a sustainable, energy-abundant future is alluring, the paths to realising such a vision are strewn with obstacles. Despite rapid developments in the global energy market, significant technical challenges remain and await intelligent solutions. The supporting infrastructure and supply chains required for large scale deployment of newer technologies, many involving the adoption of hydrogen as an energy source or elements of carbon capture, are not yet available. Regulatory frameworks intended to incentivise and safeguard such deployment are still under development in most major energy markets. Grant funding and other forms of public sector support are available but are often more limited than the private sector players would hope for. For example, such support is often limited to capital expenditure but does not extend to operating expenditure or major input costs (such as the cost of power). The development and large-scale deployment of new technologies are inherently risky and capital intensive and have led to the formation of many new partnerships or joint ventures between counterparts who may have otherwise been competitors. Most infrastructure projects that are being developed to realise the energy transition are at conceptual stage and will require innovative approaches to structuring, contracting and risk allocation in order to secure investment and ultimately prove bankable. The numerous challenges inherent in realising the energy transition will no doubt provide very fertile ground for lawyers.

Many project finance lawyers will wistfully recall earlier days when projects needed to be understood and structured from first principles, when the work that lawyers did in piecing together the fundamentals of largely bespoke transactions cast them in a central role. Little by little, in all but the largest projects, this central role was increasingly undermined by commodification and the requirements of transaction management in a fee-competitive market. Yet the enormous societal challenges posed by the energy transition have the power to upend many of our present market assumptions, catapulting us back to the future, in a market in which lawyers can reclaim their primary role as architects of this new future. This is therefore a very exciting time to be part of a new generation of project finance legal pioneers, designing the contractual and regulatory architecture on which the energy transition will be implemented and will flourish. Lawyers have a unique and valuable perspective to structuring and implementing energy transition projects and can offer solutions to a multitude of problems, from the strategic to the mundane. We have a critical role to play at the heart of the energy transition, including in the structuring development and financing of a new generation of energy and infrastructure projects.

Dimitri Papaefstratiou
Dimitri Papaefstratiou

For all our apparent self-regard, lawyers cannot pretend to be alone in shaping this future. Our viewpoint is valuable and unique but is one of a number of such perspectives. Even in the later stages of their evolution, project development and project finance were always pluralist disciplines, involving transaction advisers, technical advisers, tax and modelling advisers, insurance experts and many others. The same is true of the vast majority of advisory work in the energy transition space – whether it involves the design or application of regulatory frameworks, grant incentives, formation of partnerships, new forms of offtake arrangements or project development and structuring. In fact, the further one engages with energy transition projects, the clearer it soon becomes that no single professional discipline has the answers to all the questions and challenges that emerge. Our clients do not just have “legal” problems – they have broader problems that require input from many different perspectives to resolve. Even purely “legal” challenges can often be more effectively addressed by using different approaches, including those of commercially-driven transformation specialists and the application of legal technology and contracting process expertise.

As part of EY’s Energy Law team, we have witnessed the importance of an integrated multidisciplinary approach – especially in newer markets, such as the emerging hydrogen market. This is rapidly developing into a very significant new energy market, attracting growing interest and significant funding in developing cleaner and more cost-efficient hydrogen. The International Energy Agency reported in October 2021 that governments have committed at least USD 37 billion to the development and deployment of hydrogen, with an additional investment of USD 300 billion from the private sector. Our Energy Law team at EY is working with a number of clients on leading edge technologies in the hydrogen space, spanning green hydrogen and green ammonia production, investments in hydrogen-fuelled vehicles and hydrogen-based synthetic fuels. Our clients are looking to make important investment decisions based on a broad range of considerations – including views on future hydrogen availability and pricing, the likely evolution of the green hydrogen market, the availability of grant funding to name but a few, including legal risk analysis and contractual structuring. Within this context, it feels increasingly important to be able to credibly advise clients on the full suite of their concerns alongside market leading professionals leveraging different advisory perspectives within a single professional services firm.

If previous experience of such major societal changes is instructive, it shows us that any such major change will produce winners and losers, both at the individual and corporate level. We regularly speak to numerous clients, but also colleagues in law, who question how they and their business will be affected by such profound changes to come. Within the broader business world, the path to success will require grasping the opportunities, as well as meeting challenges and mitigating risks. Much about this new future is uncertain but in this changeable environment, we confidently expect that lawyers who are able to grasp the bigger picture and look beyond their immediate horizons will help to steer their clients and society through uncertain times and work to design our new future.


The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organization or its member firms.