Neste Oyj’s Singapore refinery in Singapore, considered one of the world’s biggest SAF plants, under construction on Wednesday, June 22, 2022. The positioning was chosen because its already a petrochemicals center with sound logistical connections and talent is instantly available.
Bloomberg | Bloomberg | Getty Images
The aviation industry still sees so-called “sustainable aviation fuel” (SAF) because the only viable approach to meet its decarbonization targets, at the same time as opposition and the potential for higher costs for passengers pose obstacles to the fast-growing sector.
A flurry of deals have been struck in recent months, from United Airlines partnering with major supplier Neste to supply SAF at Chicago O’Hare International Airport, to South Korea’s goal announced in late August for all departing international flights to make use of a combination of around 1% SAF from 2027.
Inside its first month in office this July, the U.K.’s recent Labour government set its own mandate for SAF to fulfill 10% of jet fuel demand by 2030, while pledging to support production through measures which include a revenue certainty mechanism for SAF producers searching for to take a position in recent plants within the country.
SAF is a broad term describing fuel that’s burned by an aircraft engine, but as a substitute of using kerosene is derived from more sustainable sources. That may include raw materials equivalent to used cooking oil, feedstock, woody biomass, animal fat, crops or waste.
SAF still produces emissions, but proponents argue its greenhouse gas footprint is far lower over the product’s life cycle – by as much as 94%, in line with one report, though that level depends on the source, production and its journey to the aircraft.
Airbus announced various SAF commitments at this 12 months’s Farnborough Air Show, considered one of the largest dealmaking events in aviation held within the U.K. in July. The planemaker said it’s collaborating with producer HIF Global on the event of methanol-based fuels, and investing in alcohol-to-jet fuel producer LanzaJet.
Buzz has been constructing for greater than a decade over SAF’s potential to scale back emissions from air travel.
That is especially because it might probably be blended with conventional fuel and utilized in existing aircraft engines and pipelines, and so has a comparatively low barrier to entry; though regulators have set different levels for the share it might probably be blended.
Nevertheless it stays controversial in some quarters. Campaign groups and NGOs have flagged concerns that some types of SAF are problematic, potentially resulting in deforestation or taking land away from agricultural uses. Some argue it’s an exercise in “greenwashing” that’s unrealistic to deploy at scale.
Supply challenge
United Airlines sees a transition to greater SAF use as considered one of the core parts of its sustainability agenda. The airline has been using it in its existing aircraft since 2016, but “the challenge is that there is simply not enough of it,” the carrier’s Chief Sustainability Officer Lauren Riley, told CNBC on the Farnborough Air Show earlier this 12 months.
Other industry attendees also said SAF remained probably the most effective and realistic method for working toward net-zero carbon emissions from airline operations by 2050, the goal agreed by the International Air Transport Association (IATA) in 2021.
But IATA’s own forecast for SAF production to triple in 2024 to 1.9 billion liters would cover just 0.53% of aviation fuel demand for the 12 months.
United alone consumes around 4.25 billion gallons of fuel a 12 months, in line with Riley.
Projects equivalent to hydrogen-powered and electric aircraft are on United’s longer-term radar, but SAF is the priority relating to short- and medium-term targets, she said.
Investor questions
Core challenges, in line with those within the industry, are ensuring firm regulatory frameworks for SAF are put in place and securing each state and personal funding — with the shortage of the previous holding back the latter.
Rick Nagel, managing partner at private equity firm Acorn Capital Management, told CNBC that the dimensions of the SAF market had boomed from near-zero to roughly a billion dollars over recent years.
Nonetheless, obstacles range from the creation of refineries and related infrastructure, to obtaining the biomass to go in them, together with regulatory cooperation, he said.
“You have this circular reference that happens where you might have demand created by industry goals and environmental mandates, government incentives that not everybody can all the time count on to plug the gaps and make this reasonably priced, the years it would take to place all this infrastructure online, where you are going to put it — while the airlines still must determine easy methods to maintain competitive pricing,” he continued.
“For investors to actually get on board with it, there must be a transparent path to how all that converges.”
Clara Bowman, chief operations officer at Porsche-backed SAF firm HIF Global, told CNBC she was confident the cash would flow into the sector so long as governments and regulators provided the vital reassurances.
HIF Golbal brands its product as an “efuel,” produced with renewable energy from recycled C02 and hydrogen. It currently has a plant in Chile and one planned for development in Texas.
“I feel the financing is there, there’s tremendous liquidity on the earth that is trying to finance green solutions, the problem is having a well-structured project to have the ability to reap the benefits of that financing,” Bowman said.
Regulatory certainty has been slower than she would have liked, but measures equivalent to the European Union’s Renewable Energy Directive and Japan’s 2030 mandate for SAF to account for 10% of domestic airlines’ jet fuel usage and its related subsidies are all encouraging, she said.
Within the U.S., the Biden administration’s Inflation Reduction Act signed in 2022 spurred “extraordinary” growth in SAF firms and startups, in line with United’s Lauren Riley. That in turn encouraged the airline to ascertain a $225 million SAF enterprise fund with partners including Boeing, Google, Embraer and other carriers.
Despite this progress, Riley said banks and investors proceed to feedback that before they have faith to fund shovels in the bottom, policy needed to be more “durable,” with tax credits running for decade-long periods.
Nonetheless, Riley was confident SAF’s momentum would withstand a change of leadership within the White House with a presidential election looming in November; a sentiment echoed by investor Rick Nagel, who said it was a “misconception” that one administration would U-turn on all of the regulatory steps of the last.
“Although the rhetoric might say one thing, if there is a business case there then overall they’re in search of infrastructure projects in America,” he added.
Higher cost
One thing noted by many working on SAF projects is that it within the early days, it’ll be dearer than conventional jet fuel. Consumers — particularly those in wealthier, less price-sensitive markets — are going to find yourself shouldering a few of that cost through higher ticket prices, the industry also acknowledges.
“The reality is, it’ll be dearer, you may’t really sugarcoat that,” said HIF Global’s Clara Bowman.
“Then again, we’re talking a few very small percentage of fuel that you might want to really kickstart this industry and get it to be producing on a big scale. While you start producing plants on a big scale, you may see what happened in solar and wind and batteries, that is really the important thing to driving prices down,” she continued.
“That manufacturing scale up around the globe, it’s something that is happening now. With the dimensions up comes lower prices, more investment, increasing the efficiency of this equipment, because that is where an actual large a part of our cost structure is today. And so we see that as that production scales up because it becomes more efficient.”
There’s also the price of carbon emissions relating to fossil fuels, she noted. “In case you take that into consideration, we expect that over the short- to medium-term, bearing in mind the complete cost, [SAF] will probably be competitive.”
