Securing offtakes. It is well-known and challenge when it comes to scaling novel green technologies.

The challenge is a simple game of which can come first - the chicken or the egg.

Financing is the chicken. Companies looking to scale their technology require money to finance their capex requirements (for example, to build a manufacturing facility). And the the investment criteria that traditional financiers (think: banks and PE firms) require to consider a new project ‘bank-able’ is revenue certainty, the ideal version of which would come in the form of a legally-binding commitment to offtake majority volumes of product at a certain price.

Offtake agreements are the egg. Prospective customers seek proof of technological and operational scalability and often expect for the product to be offered at a similar cost to its non-green counterpart. It becomes a challenge for the firm that is scaling their emerging climate technology to prove that the product works and to achieve economies of scale prior to gaining capital required to construct their manufacturing facility.

The low-carbon cement industry is no exception to this well-known climate scaling challenge. To dive in, I wanted to explore one of the pieces of the puzzle: the offtake challenge. Beginning with an overview of the cement market dynamics: the commoditised market nature and complex construction stakeholder ecosystem, both of which challenge disruptors entering the market. And finally, putting together an argument for why government entities are the ideal first offtakers of green cement solutions.

Cement Market Dynamics

The starting point to understanding the offtake challenge is beginning with the market dynamics of the cement industry.

Cement producers are one contribution to the construction value chain, which includes many firms with unique expertise and contributions to the overall building project.

• Raw material inputs: the mineral inputs to cement which comprise four chemical components (calcium, silica, alumina and iron)
• Concrete companies: the direct purchasers of cement [Cement + Water + Aggregates = Concrete]
• Architects & Engineers: involved in specifying projects to ensure design and safety needs are met
• Developers: oversee the project management to transform the building project and have significant influence in contractors used
• Private & Public Purchasers: companies or government bodies commissioning the project
• Other (e.g. insurance companies; regulators): must become comfortable with long-term viability and risk reduction of novel product(s)

There is significant consolidation between various players of the value chain, for example, with some concrete companies owning their cement supply and the raw material input source (e.g. limestone mines). This market consolidation makes it difficult for disruptors to reach parity on economies of scale, especially without owning their own value chain. The complex stakeholder ecosystem adds another barrier in that novel cement technology providers have a significant number of players to influence for their product to end up in a building project.