Coupling investment with long-term demand certainty

opinion

by Oscar Henderson

March 15, 2024

Everyone who attended SAF Investor London 2024 two weeks ago wants SAF development to speed up. But the conference highlighted how difficult it is to find the capital to do this.

The disconnect between investors and producers was a key discussion point throughout the two days. Lenders, investors and arrangers are keen to support the industry but would like long-term certainty. “It’s a 10 – to 15-year model that you have to put together,” said James Falzon, associate director, European Bank of Reconstruction and Development (whose session you can watch here).

IAG announced a 14-year, 260m gallon offtake with TWELVE during the conference. It has also made investments in producers, like Nova Pangaea Technologies in the UK.

It is clear that airlines do have to move up the supply chain. “The airlines are the people who hold the risk here, and we need to do more than, historically, the airlines have done before,” added Jim Davis, programme director, Sustainable Flight, IAG. But airlines can only take SAF development so far.

Financiers would ideally like more longer-term agreements, otherwise “you will continue to see a financing challenge”, added Kevin Bogenreif, MD, Summit Next Gen.

This is a challenge for airlines. Thomas Fowler, director of Sustainability and Finance, Ryanair said: “Given this is a new market and price … I don’t think anyone wants to commit a price for the next six years”.

Despite the discussion around long-term offtake agreements, 70% of attendees thought governments were going to encourage investors most, whether this be through price certainty schemes, mandates or incentives.

Ingrid Holmes, executive director, Green Finance Institute said that investors will need “certainty on the level of revenue coming through from those plants when they are in production”. A scheme supporting this is due to come into place in the UK from 2026.

However, strong policy is not the only solution. “Since the approval of ReFuelEU, we have not seen an explosion of FIDs [Final Investment Decision] when it comes to SAF production projects or PtL [Power-to-Liquid] projects, in particular. And what that is showing is…we need de-risking instruments,” added Mariano Berkenwald, manager – Europe, Breakthrough Energy, in the session looking at the future for ReFuelEU.

But the conversations held in London encouraged everyone that we are heading in the right direction; some 58% of attendees are fairly optimistic about SAF production in 2024 (14% were very optimistic). This is set to be a crucial year for SAF production with European ReFuelEU mandates coming into force in 2025.

But this all only matters, according to Gene Gebolys, CEO, World Energy, “If we create a service that people want. That will unleash private sector investment, private sector demand in a service that enables capitalism to work.”

Thank you to all those that attended and made it a fantastic launch event.