Sustainable Aviation Fuel

InPerpetuum recently attended The Price of Sustainability: Exploring the Economics of Sustainable Aviation Fuel webinar hosted by Sustainable Aviation Futures in collaboration with Johnson Matthey. The economics of Sustainable Aviation Fuel (SAF) face several key challenges that make widespread adoption difficult, as currently SAF contributes less than 1% of total jet fuel demand and costs 2-7 times more than conventional jet fuel without incentives.

Here is a breakdown using our 7-layer approach regarding the current challenges.

1. Market
Currently difficult to forecast SAF costs due to lack of global index and standardised pricing, the market is projected to grow significantly as production scales and governments incentivise greener aviation solutions. With an estimated 681 million litres delivered worldwide in 2023 and over 400 billion litres of jet fuel demand, indicating plainly the market has a long way to go with a lot of room for opportunity.

2. Logistics
SAF production is not yet scaled up to meet demand in a cost-efficient way. Current SAF facilities operate on a relatively small scale, limiting their ability to benefit from economies of scale. Furthermore, there’s a lack of infrastructure, such as dedicated pipelines or distribution networks for SAF, which increases transportation and handling costs. Transporting and refining different feedstocks requires additional infrastructure, which increases costs and complicates logistics.

3. Feedstock
Many SAF production methods rely on biomass, agricultural waste, or other organic materials that are in high demand for other uses (e.g., biofuels, chemicals, or power generation). This competition can increase the price of feedstocks, especially if supply is constrained. Additionally, large-scale SAF production might lead to issues like land-use change, further straining agricultural systems as they are affected by weather, global demand, and market dynamics. This volatility makes long-term SAF cost projections difficult for both producers and airlines. Other feedstocks in innovative technologies include CO2 & Green Hydrogen, the cost to produce Green H2 poses another barrier to entry

4. Policy and Regulation
SAF production is heavily dependent on governmental support. While many governments are encouraging SAF use through subsidies, mandates (UK & EU), or tax credits, the long-term stability of these policies is uncertain. If regulatory support wanes or fluctuates, it could reduce investor confidence in SAF projects, especially given the capital-intensive nature of production facilities.

5. Economics and Investor Relations
Airlines already operate on thin margins, and while some customers and businesses are willing to pay a premium for lower-emission flights, most consumers are price-sensitive. This limits the ability of airlines to pass on the higher costs of SAF to consumers, making widespread adoption more difficult without substantial subsidies. SAF projects also require high upfront capital investment in production facilities, which are seen as risky by investors given the current cost disparity with conventional fuels, policy uncertainties, and the long time needed to recoup investments. Many producers struggle to secure the necessary financing to scale production and long-term offtake agreements where pricing is apt for a model suitable for keeping investor returns high and consistent.

6. Sustainability, Social and Land Use
The carbon savings from SAF can save up to 90% of net CO2 emissions, with additional benefits for air quality and contrail formation, dependant heavily on the type of feedstock and production process used. Ensuring that SAF delivers genuine reductions in lifecycle emissions involves complex carbon accounting, which can be difficult to standardise across countries and regions. Furthermore, if SAF uses land-intensive crops some stakeholders may perceive a risk.

7. Technology
Many SAF production methods, like Fischer-Tropsch and Hydro-processed Esters and Fatty Acids (HEFA), are still in the early stages of commercialisation and operate at lower economies of scale. A call for technological innovation is embedded in the conversation for the development of the sector. Potential for input of diverse feedstocks, reducing CAPEX and OPEX through efficiency and providing scalable technology to meet the future demand. Continued research and development in feedstock processing, alternative production methods (e.g., Power-to-Liquid, electro-fuels, FT-CANS, methanol/ ethanol to jet), and scaling up technology will reduce production costs.

Without significant changes in policy, investment, and technology, the economics of SAF will continue to pose a challenge for its widespread adoption in the aviation sector.

Contact InPerpetuum today to find out how we can help your business combat these challenges.