Hydrogen and batteries, the future shipping fuel?
The Norwegian government has the maritime application of hydrogen and batteries high up on the agenda. In the spring of 2021, the government is submitting a roadmap to the Norwegian parliament where investments in hydrogen and battery infrastructure along the Norwegian coast is in focus. Special environmental requirements for shipowners delivering maritime transportation services on behalf of public authorities, such as costal ferry operators, are also to be further outlined. This, in combination with the fast-tracked tightening of emissions requirements in Norwegian fjords, results in commercial opportunities for foreign shipyards building and retrofitting vessels for Norwegian shipowners.
Norwegian authorities will demand extensive use of hydrogen or battery-based vessels
It is expected that the Norwegian government will demand the use of hydrogen and battery propulsion for a certain fraction of the vessels operating the Norwegian ferry routes from 2023. NORLED, one of the leading Norwegian ferry operators, has already committed to operating one of their ferries with hydrogen fuel cells – with more to come.
In combination with existing funding opportunities for zero-emission vessels, the European Union’s “Green Deal” and the increasing cut in national emissions towards 2030, a strong demand from Norwegian shipowners for newbuilds and retrofits is expected. Only last year, Norwegian shipowner Havila ordered a full retrofit of one of their new battery / LNG cruise vessels currently under construction. The retrofit, which is expected to be completed in 2023, will combine a 3.2MW hydrogen fuel cell with battery storage. Demand from passengers and local authorities for eco-tourism is also getting traction in the cruise market, pressuring shipowner from both sides to go greener. By 2026 the most popular cruise fjords in Norway is furthermore to be zero emission zones, requiring extensive retrofits of the vessels currently sailing the fjords.
In the wake of the environmental requirements imposed by the Norwegian government and the shift into green shipping, we have seen an increased number of Norwegian based subcontractors and suppliers becoming world leading within "green" design as well as the supply of battery / hybrid systems, electro and power management systems. Norwegian owners ordering vessels to be built at foreign shipyards would often require that these suppliers and subcontractors are employed by the builders to provide design and vital packages to the vessel.
As such, the demand for hydrogen and battery-operated vessels are likely to be on the agenda for many shipowners in the coming years, and shipbuilders should prepare for the increase in demand by positioning themselves and highlighting their competence. One possible step worthwhile considering is to team up with some of the Norwegian based suppliers and subcontractors, for instance by entering into framework and/or cooperation agreements. Yards which have already established and formalised such a relationship with key suppliers could have a competitive edge when tendering for new projects from Norwegian owners.
Shipbuilders should be aware of contractual pitfalls when dealing with new technologies
The demand for hydrogen and battery-based operations adds complexity to the construction, and often the shipbuilder has to fit and install untested technology. This also often involves using a wide range of sub-contractors and suppliers without prior relations with the shipyard. In order to protect its economic interests, it is highly important that the shipyard ensures that the contractual regulation between shipowner and the various suppliers is on back-to-back terms. Special warranty clauses, especially common in Norwegian newbuilds, should also be subject to close scrutiny before entering into a contract.
It is important for the shipbuilders to address such matters at an early stage in order to avoid disputes. Selmer has extensive experience with advising shipbuilders on contract terms, both in respect to owners and suppliers, and with assistance during negotiations, follow up and handling of disputes, with an emphasis on the importance of securing the contract while maintaining the shipbuilder’s interests.
Aquaculture industry moving offshore
The Norwegian aquaculture industry is one of the most important export industries of Norway. Traditionally, fish farming installations have been located within protected waters in the numerous fjords of Norway. The government has in recent years opened up for moving the installations offshore. A few projects have already been completed and numerous projects are expected to commence in the coming years opening up a new marked for traditional offshore construction and shipyards.
Yards intending on pursuing future tenders for such constructions must be aware of the novel design challenges of such installations and align the contractual terms with the design risk exposure the yard is willing to accept. The installations are additionally more aligned with offshore installations than typical vessel construction with the effect that EPC(I) contracts may be more suitable for governing the construction of the vessel than traditional shipbuilding contracts. Having Norwegian owners or purchasers also entails that a suitable contract will be the NTK 15 contract (Norwegian total contract 2015) or contracts deriving from NTK 15.
The shipbuilding team of Selmer is well versed in NTK 15 and has been involved in negotiating, project follow up and dispute resolution involving NTK 15 for the biggest projects in Norway and on the Norwegian continental shelf.
Standard Form Norwegian Shipbuilding Contract 2000
Norway has a long tradition as a shipbuilding nation and was one of the foremost shipbuilding nations in the world until the mid-1970s. Since the 1950s, the shipowners and yards have established a tradition of using agreed contract forms when building vessels at Norwegian yards or purchasing vessels from foreign yards.
The standard form, or Standard Form Norwegian Shipbuilding Contract as it is called, has been created as a result of negotiations between the Norwegian Shipowners’ Association, the Norwegian Shipbuilders’ Sales and Marketing Organization and the Norwegian Shipbuilders’ Association. It is therefore regarded as an “agreed document”. Several revisions have been made during the last decades, but the latest Standard Form Norwegian Shipbuilding Contract 2000 (“SHIP 2000”) has been the preferred standard contract for shipbuilding projects in Norway for the last 20 years. In addition, SHIP 2000 has gained increasing popularity internationally with several yards outside Norway having accepted the Norwegian standard shipbuilding contract.
Even though SHIP 2000 has been a preferred alternative, questions have been raised by some shipyards as to whether it is time for the standard contract to be revised. Furthermore, recent developments in the shipbuilding industry in regard to an increased focus on clean energy solutions for the global shipping industry have given the shipbuilding projects another dimension.
New conditions such as battery operation, electric propulsion and shore power systems have become a larger part of the shipyards' everyday life. In addition, the use of hydrogen has begun to evolve. Consequently, several shipyards are of the opinion that the recent technological developments in shipbuilding has reinforced an imbalance in the allocation of risk in the SHIP 2000 contract.
In order to take these new conditions into account, it may be likely that some shipyards may require a new revised version of SHIP 2000 in the coming years. Nevertheless, these new conditions require a different approach when preparing shipbuilding contracts for the future.
Selmer has a long and extensive experience in drafting and negotiating all types of shipbuilding contracts. We assist several Norwegian and foreign shipyards and shipowners during all stages of a shipbuilding project. Our long experience with the industry's standard contracts within shipbuilding means that we can tailor our legal advice to the client's needs during all stages of a shipbuilding project.
Written by:
Norman Hansen Meyer , +47 481 61 627
Andreas Kyllingstad , +47 48 29 78 86
Adnan Vejzovic , +47 905 55 064
Snorre Qveim-Leikanger , +47 412 02 500
Contact Selmer's shipbuilding team:
Norman Hansen Meyer, , +47 481 61 627