← Business Models: Core (all topics)
Take-or-pay
What it is
A contract clause obliging the customer to pay for a minimum volume whether or not it takes delivery. It underpins on-site industrial gas contracts, gas transmission and other pipeline-supplied products
It exists because the supplier's cost is the asset, not the molecule
Impact on industries
- Transfers volume risk to the customer, which is what makes a dedicated plant financeable at all
- Delivers predictable cash flow through industrial downturns, so the supplier's earnings are far less cyclical than the customer's
- Enforcement against a distressed customer is difficult in practice - a plant that cannot pay is not made solvent by a contract clause
- Pricing reflects the protection, so customers pay a premium for capacity they may not use