Sustainable Aviation Fuel

Existing and planned SAF capacity and supply barriers

Many HEFA feedstocks are monocrops, reliant on fertilizers, that also suffer from association with biodiversity reduction and are vulnerable to climatic and geopolitical price shocks – as the invasion of Ukraine has thrown into sharp relief.

In the lead-up to 2030, we expect to see a surge in the supply of fuel made from alternative biogenic and non-biogenic waste feedstocks including agricultural residues, used tyres and municipal solid waste (MSW). These will be transformed into SAF through more advanced processes such as alcohol-to-jet, pyrolysis and gasification-Fischer- Tropsch. Greenhouse gas savings are more complex to assess in cases where non-biogenic waste is used, though other benefits can be realized such as avoided waste to landfill. However, feedstock constraints are once again a risk: wastes including MSW are sought by other sectors, such as incineration and bioenergy with carbon capture and storage, making supply finite and competitive.

The constraints faced by these waste-to-fuel production pathways mean that the total SAF yield globally will increase but will still be relatively limited, especially in the coming decade. Blending mandates that are too aggressive too early therefore run the risk of spiking SAF prices and/or driving buyout penalties as they force demand to run ahead of supply. This may deter further investment from airlines as the price of SAF relative to Jet A-1 remains one of the major barriers to its adoption. As a result, there remains a significant risk that SAF production levels are unable to meet current expectations.This risk does offer considerable upside for investors, who can benefit from inflated prices as long as demand outstrips supply (which is likely to last for 20+ years).

Cost competitiveness

Future cost competitiveness of SAF with Jet A-1 and the timescale at which this is achieved depends heavily on government regulation pricing CO2 emissions appropriately, learning effects and ancillary instruments such as book and claim markets for SAF usage.

The current price differential between Jet A-1 and SAF is estimated from a few percentage points at one extreme (where US incentives are at play) to up to five times. While it remains cheaper for airlines to offset carbon emissions through trading schemes than through the use of SAF in place of Jet A-1, we do not expect SAF supply to meaningfully exceed government-mandated levels. Our modelling suggests that such a pivot point may not be reached before 2040 at the current projected rate of carbon pricing increase. Much hinges on economies of scale and the expected reductions in the cost of SAF as technology is deployed, but whether producers can do this remains to be seen. In the meantime, airlines will have to decide how to distribute the costs of rising SAF usage – debates which may have serious implications for low-cost carriers business models.

Moreover, the length of this time horizon raises important questions about the shape of the future regulatory landscape. We expect the regulatory approach to aviation emissions to evolve significantly over the coming decade, and today’s focus on SAF is likely to be joined by new priorities and approaches as decarbonisation strategies are fleshed out. Direct carbon emissions will be eclipsed by total sector CO2 equivalent (CO2e) as the primary concern for regulators, expanding attention to contrails management and the tracking thereof, alongside the focus on ever-higher SAF blends.

Conclusions

At present we are seeing a race by airlines to secure access to HEFA supplies, both to meet immediate voluntary demand and as a natural hedge against expected supply mandates from 2025 onwards.

Meanwhile, a number of advanced fuel technologies have already evolved from concept and prototype to demonstration phase, and are seeking further investment to achieve commercial scale. Wider commerciality of these facilities will reduce cost and increase the affordability for end users, but this is contingent on multiple feedstocks challenges being overcome.

We believe PtL will be therefore instrumental to truly unlocking greater SAF use, and investors will need to consider this long-term technology outlook alongside promoting sustainable, short-term HEFA supply. Different market players are facing different barriers but to capitalize on their opportunities and accelerate investment in SAF, in particular PtL, there are actions that can be taken and risks to be mitigated.

Opportunities

• Airlines: Investing in and using SAF will contribute to reducing the impact of flying and ensure corporate sustainability commitments and increasing expectations from passengers are met. 
• Fuel producers: For existing refineries and oil and gas majors, SAF represents a significant opportunity to retain and utilize existing expertise and infrastructure while driving decarbonisation of the business, diversifying from oil investment and providing a positive story. There are also opportunities for new market entrants to gain visibility and secure early-mover advantage while a limited number of competitors produce SAF. 
• Energy generators: The availability of excess renewable electricity or nuclear power offers an opportunity to energy generators and utilities to optimize and flex supplies, diversify investment portfolios and tap into a new market. Generators can benefit from earlymover advantage, efficient energy-andfuel integration and strong track-record that can facilitate investment. 
• Airports and fuel distributors: Ensuring availability of SAF close to airports serving the most carbonintense routes and, in the future, more capillary distribution can reduce logistic barriers and facilitate SAF usage. 
• Lessors and investors: SAF, especially PtL fuel, provides an opportunity for the aviation finance community to diversify risk within a sector they already understand well, pre-empting future environmental scrutiny on the wider aviation value chain. 
• Regulators and policy-makers: SAF is key to decarbonizing air transport and its widespread use contributes significantly to national and international carbon emissions reductions targets. Local SAF production and use can improve a country’s fuel security and foster domestic supply chains, retaining fuel expertise, infrastructure and skills and creating new jobs, industrial development and additional inward investment.

Actions needed to scale up SAF supply

• Airlines: Secure early SAF supply by using floating marketindexed pricing mechanisms and consider potential for strategic investments in SAF production. Push for stronger SAF sustainability credentials and ensure transparency when promoting the technology to passengers, to secure their buy-in. Advocate for government support and strategic clarity on advanced fuels technologies.
• Fuel producers: Secure offtake agreements with airlines – derisk by courting new sources of funding, e.g. the aviation finance community, the green finance community. Ensure project development plans represent credible propositions to achieve commercialisation and provide confidence to investors. Work jointly with competitors to share lessons learned at different stages of plant development (from feasibility stage to commercialisation), helping to reduce technology risk and reassure the market that SAF can be delivered.
• Energy generators: Partner with SAF producers to de-risk SAF investment, acquire expertise and technology and familiarize with the fuels and aviation markets. 
• Airports and fuel distributors: Prepare and ensure the supply chain can accommodate both fossil jet and SAF, and the latter can be delivered timely and safely to the airport or to the aircraft, if requested. Ensure SAF is available where demand requires by expanding delivery and storage infrastructure, both in proximity of main hubs and, in the future, in more remote locations. Facilitate SAF traceability and reporting initiatives. Absorb some of the cost premium airlines bear for SAF by introducing innovative refuelling schemes (e.g. reduction in landing charges).
• Lessors and investors: Consider opportunities to explore low carbon fuels through commercial due diligence and market screening of suitable technical partners.
• Regulators and policy-makers: Plan for ambitious SAF uptake targets to set the direction for the market, drive investment and facilitate SAF scale-up. Introduce both supply side incentives and demand mandates, as well as book and claim certification schemes. Ensure regulatory clarity and support policies that penalize actors who are noncompliant. Align national policies internationally, where possible, including structures for traceability, reporting, verification, point of sale and generating credits. Fund research and trials to strengthen scientific evidence on the non-CO2 impacts of SAF, rewarding non-CO2 savings appropriately and supporting operational efficiencies and airspace modernisations to maximize the advantages of SAF.

Actions needed to drive PtL investment specifically

• Airlines: Jointly prioritize offtaking agreements with SAF projects that primarily use or aim to incorporate PtL. To reduce higher PtL costs in the short term that may deter airlines’ investment, airlines could partner with each other thus reducing the size of each airlines’ contribution.
• Fuel producers: Scale up development of standalone PtL plants or integration of PtL within other facilities to share infrastructure (e.g. Fischer-Tropsch). Explore ways of capturing CO2 from the SAF production process and reutilising or selling it to produce PtL. Explore partnerships with industrial clusters.
• Energy generators: Trial conversion of renewable electricity or nuclear energy to fuel during off-peak times to showcase PtL as an available and viable technology. Plan, alongside regulators, for greater electricity grid capacity to sustain significant green electricity demand from PtL.
• Airports and fuel distributors: Facilitate the distribution of PtL fuel ensuring PtL plants and airports are well connected and logistical barriers are reduced.
• Lessors and investors: Support the establishment of innovative ways of financing that reduce PtL fuels’ technology risks and drive cost reductions.
• Regulators and policy-makers: Introduce submandates or tailored incentives (e.g. adhoc funding) to drive uptake of PtL.

Relevant SAF risks and mitigation

• Airlines: SAF is more expensive than conventional kerosene and may result in an increase to air ticket prices. Airlines will need to bring consumers with them on the journey to sustainability to ensure transparent pricing and communications. To reduce the risk that projects may not deliver fuel as agreed, airlines may look to diversify their portfolio, both geographically and technologically, and de-risk investments as part of consortia with long-term fixed price certainty for agreed volume ranges.
• Fuel producers: Developing a project but failing to secure capital to progress to construction may stifle investment and confidence in individual project’s capabilities and in the wider sector. SAF projects should therefore look to reduce the existing and perceived barriers, aiming to strengthen their current proposition and facilitate the flow of capital. Projects should consider alignment with local longterm policy and technology direction to decide whether to invest on advanced fuels or PtL, keeping in mind that firstmover- advantage has already passed on the former, while still to play for on the latter. Projects should consider integrating carbon capture into SAF production facilities to improve the carbon credentials of the fuel produced and hedge against future changes in carbon pricing / emission trading schemes policy.
• Energy generators: Green electricity use should not be diverted from the grid to produce SAF unless electricity demand allows this. PtL production specifically should therefore take into consideration electricity demand from more urgent to decarbonize sectors, for example to support the electrification of vehicles and heating. A system-integrated approach where multiple parties work together to make best use of electricity in line with demand can help decarbonize both the energy and aviation sectors.
• Airports and fuel distributors: Airports and fuel distributors should ensure SAF is handled, moved and transported safely, appropriately and in line with existing jet fuel or other fuel specifications. As SAF typically gets commingled with conventional jet fuel in specific sites, distribution channels should ensure ad-hoc requests for SAF supply to specific airports or aircraft can be easily fulfilled. With fuel being traded and blended/ moved several times before reaching the aircraft, traceability of SAF molecules as well as sustainability credentials will be necessary to ensure airlines or fuel producers can claim for SAF use or supply and comply with local mandates.
• Lessors and investors: Investment in SAF plants is perceived to be high risk due to the technology risk, feedstock challenges and revenue uncertainty that current SAF project developers face. A wide range of investors should aim to jointly funnel capital towards highly-prospective projects with an aim to demonstrate SAF can be deployed at scale and unlock future capital.
• Regulators and policy-makers: By setting ambitious SAF uptake targets governments can drive SAF investment, but too aggressive mandates or lack of appropriate policy and funding support may spike SAF prices and create supply bottlenecks. This can lead to excessive reliance on buy-outs or similar schemes with no CO2 savings being delivered. Weak sustainability criteria and different monitoring, reporting and verification requirements globally can affect supply and add logistical and administrative complexity. Harmonized international rules can reduce sustainability risks and facilitate compliance with mandates. Care will also be needed to balance policy ambition with local competitiveness in the face of aviation’s international nature.