Joint Ventures in Energy Projects: An Alternative to Acquiring a Business

Business expansion does not always require the acquisition of another company. When entering a new market, delivering a large-scale project or combining complementary capabilities, a partnership can sometimes create more value than taking ownership of a business.

This is where a joint venture can be particularly relevant. The partners remain independent, but combine capital, knowledge or other resources for a shared objective, allocate risk and agree in advance on the boundaries of their cooperation.

Under Lithuanian law, a joint activity arrangement is a contractual partnership. Its structure can therefore be shaped to a significant extent by the agreement between the parties.

This logic is especially important in the energy sector. Large-scale solar and wind projects, energy storage facilities and infrastructure developments require more than capital. They also require access to land, spatial-planning expertise, grid connection, permitting, technical know-how, contractors and financing capability.

Few companies are equally strong in all of these areas, particularly when entering a new market. An international investor with capital and technical experience may therefore partner with a local business that understands the regulatory environment, permitting processes and local market – without acquiring that business.

However, a joint venture agreement must address far more than the question of who is responsible for which task.

Partner contributions

Who contributes capital, and who provides expertise, relationships, development work or other non-cash resources? How will these contributions be valued, and who will fund additional project costs?

Decision-making

Who leads each part of the project? Which decisions may be made independently, and which require the approval of all partners? What happens if the partners reach a deadlock?

Liability

A joint activity arrangement does not automatically mean that each partner is liable only for its own part of the work. Where the arrangement concerns commercial activities, the partners may be jointly and severally liable for common obligations.

It is therefore particularly important to define who may enter into commitments on behalf of the partners and within what limits.

Exit and project failure scenarios

What happens if permits or financing are not obtained, regulation changes, a partner fails to perform or the parties can no longer agree on project strategy? Who retains project documentation, permits, studies and unfinished work?

Competition law

If the partners are competitors, the boundaries of competition law must also be assessed. This is particularly important when determining what commercially sensitive information may be exchanged during the project.

A joint venture can be a flexible alternative to an acquisition, allowing parties to combine capabilities that neither could offer alone.

However, the quality of a partnership is not demonstrated by how well the parties agree at the beginning of a project. It is demonstrated by whether they have agreed in advance on what happens when the project no longer goes to plan.

These arrangements are often what distinguish a sustainable long-term partnership from a future dispute.