Hardware based climate technology creators should separate out the projects division to increase chances of success

Last Updated: 23 July 2025

Many hardware climate technology owners are falling for the trap to build their projects division under the same entity and the leadership.

More often that not it ends up being a step too far !

In the big scheme of things, hardware engineering based climate technologies are still in their nascency. To bring any technology to market requires deep understanding of both the engineering value-chain as well as the complexities of the market one is dealing with.

Off late technology companies are trying to do both and not being very good at it. The underlying issue is that developing the technology requires a very different skill set to commercialising it, and even more so when the commercialisation happens through Build-Own-Operate-Transfer (BOOT) projects which also requires strong bid-management, asset management and project finance skills. Finding and then managing all those skills under one legal structure and management is easier said than done.

The following illustration depicts what a good optimum structure looks like and one that shows how to separate out the two functions: technology engineering, and project development.

Illustration:

There are many actors involved in the value chain, and although there is no hard-and-fast rule that actors cannot play multiple roles, it is imperative that they understand that the risks involved vary with the entity type.

Entities Involved or Different roles that need to be played

(1) Technology Licensing Company: One that licenses the technology to interested parties or its own subsidiary in various jurisdictions.

(2) In-Country Top-Co / Master Licensee: The master licensee (top-level company or Top-Co), ideally one for each jurisdiction, that licenses the technology from the Licensing Company. This could be a wholly owned subsidiary or a joint-venture or a third-party licensee (master-franchisee agreement).

(3) In-Country Systems Integrator: The entity that indigenises the local supply chain and shall guarantee that all constituent parts of the system shall perform as per specification. This can be done by the In-Country Top-Co,

(4) EPC Contractor: The entity that will do the turnkey systems Engineering, Procurement and Construction. The engineering design part is likely to be done in collaboration with the Systems Integrator. The EPC function, brings a number of additional components to the implementation which carry their own risks.

(5) Project Owner Hold-Co: For projects that are to be developed under a concession such as Build-Own-Operate-Transfer (BOOT) model, it is suggested that the Technology Licensor sets up a separate projects ownership company, if at all it wants to participate in the project construction and operations.

(6) Global Investors: Are entities that wish to partake in the ownership of the entire projects portfolio.

(7) Local Investors: Are those that wish to participate either at the project SPV level, or may even want to be part of the global investment company.

(8) Local Lenders: Will typically only lend to special purpose vehicles (SPVs) and not necessarily to the global Hold-Co since the income generated in most-cases will be in local currency operations.

Why can't a company achieve all of the above under one set-up? Is it really important to establish such an elaborate structure?

The answer to that question is, that of course the entity can achieve the above under one set-up. Look at all the global utility companies, who have gotten there over decades of operating and managing assets. But this is not an easy labyrinth to establish, let alone navigate. We explore this further:

• Understanding performance guarantees: The Systems Integrator has to give a guarantee of the entire system to the EPC contractor, who in-turn has to give guarantee to the project sponsor (client) or project owner (in case of BOOT) projects. So if all functions were being performed under one roof, then in effect one is giving a guarantee to itself. And if the functions are separated, then the guarantees are to be provided to the next actor in the value chain. The value of the guarantee is limited to the role the actor is playing.

  
  

  However, in case all the components sat under one roof, then the entire aggregate of guarantees has to sit on the balance sheet of the firm.

• Accessing capital: If all functions were sitting under one structure, then it becomes difficult for investors to separate out the risks of IP, systems integration, EPC, operations and asset management functions. These are disparate functions carrying different risks. Separating out these risk functions, allows the company to invite separate set of investors for each component. For instance, investors in the project, who typically would be seeking to take the development and construction risk would not want to carry any of the technology performance risks. They would expect the technology to have been robustly tested and supplied with a strong set of performance guarantees over the lifetime of the project. Otherwise having a bundled set up makes it difficult for investors to separate out engineering services, IP and project risks.

• Scaling Up: Separating the functions also allows the company to scale-up rapidly, as it can have different partners in different jurisdictions. And as a technology owner, you want to maximise your commercial sphere by selling technology to as many prospective clients as possible. Why would you restrict selling the technology just to yourself.
  

• Talent: Finally, getting talent for specific functions under the same management is likely to be challenging. For instance, asset management professionals would want to have their own set-up as decision making for large capital investments requires a very different approach to that when running engineering services business.

Summary and Recommendations

• Separate out the functions - so that all stakeholders, internal or external, can ascertain where do they sit from a risk management functions.

  
  

• Identify and Quantify risks - important to identify and quantify risks so that the appropriate level of "risk-premium" that can be attached to that particular function. This helps determine what is the return on investment investors will get for backing the proposition.

  
  

• Remove conflicts of interests: If all, one needs to have control in all the various functions, and this can be driven by having ownership in different functions, through a network of intermediate holdings.

• It is always preferable to hire individuals with focused expertise for each function, rather than relying on generalists who are capable across multiple domains.

Useful links / Engage with us:

• Technology Readiness Level (TRL) and Commercialisation Readiness Level (CRL) scoring.

• Want to better understand the nuances of each node on the value chain - Send us an enquiry through the "Services" section of the website.

• ETV / VIPERS process of technology commercialisation

• Next ETV workshop