What not to read on your vacation
If you are looking for a relaxing beach read or airport novel there are lots of options out there. But whatever you do, do not download the latest Sustainable Aviation Fuel (SAF) study by the US National Renewable Energy Laboratory (NREL) on your Kindle.
Spoiler alert: it concludes that neither the fixed assets nor the contractual arrangement (both for feedstock supply and product offtake) are enough for SAF project financing. It is a depressing read.
The study says that when SAF developers do manage to find financing, they have to trade-off on higher costs because financial institutions are wary of the inherent risks in emerging sectors like SAF, including supply chain disruptions, policy uncertainties, technological challenges and market volatility.
This risk aversion, coupled with little commercial data for novel SAF technologies, has led to higher financing costs and limited capital availability for many projects.
“The identification and measurement of individual risks and the overall risk level determine the likelihood of loan repayment and the expected return on investment. Emerging industries may face various risks; for the SAF industry, these risks can include supply chain slowdowns, uncertain policies, technological uncertainties and end-product market fluctuations affected by public and political trends,” the study highlights.
“Thus, SAF projects may encounter higher financing expenses and uncertain availability of financing due to the risk-averse nature of banks and lack of commercial data for novel SAF technologies.”
The study found that smaller companies, often at the forefront of technological innovation, face particularly steep challenges in securing financing. In contrast, larger, established players tend to have easier access to capital.
On one hand, SAF project developers move through hoops to make the economic case for these facilities to investors; they aren’t the only ones looking to raise capital. Other project developers such as those in the renewable diesel space, using similar technologies and utilising same feedstocks as SAF, are also competing for these financial resources.
While offtake agreements, which guarantee a market for SAF, are essential for securing project financing. However, the NREL said the reluctance of fuel purchasers to commit to long-term offtake agreements is also a major hindrance in project development.
“From the signed [SAF offtake] agreements since 2020, 32% are commitments for less than three years, while 50% are signed for four to eight years,” the study’s findings showed. Only 22% of the offtake agreements span beyond 10+ years, majority of which are from buyers who have invested in these SAF producers.
The NREL concedes that funding made available under the Inflation Reduction Act through the Bioenergy Technologies Office’s scale-up funding for demonstration plants and Loan Programs Office’s support for pioneer biorefineries will play a critical role in helping SAF projects.
This, of course, could all change when the next chapter in US politics starts being written.
Let’s hope it has a happy ending.
If you are not on a vacation and want to read the complete report, click here.
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