UK set to levy fuel suppliers to fund SAF

opinion

by Fayaz Hussain

March 10, 2025

You wait ages for a bus only to find two or more arriving at once. This even has a name – bus bunching. A similar condition appears to have affected European and UK SAF policy over recent weeks.

After the EU announced reference prices for sustainable aviation fuel (SAF) penalties last week, the UK’s Department for Transport has launched a consultation into the SAF revenue certainty mechanism.

The UK government hopes to generate nearly £10bn ($12.9bn) from levying fuel suppliers to ensure revenue certainty for SAF producers.

“[The revenue certainty mechanism] will provide investors and producers with comfort over long-term revenue regardless of price fluctuations in a nascent but critical industry for UK decarbonisation goals,” said Sarah Ellerby, CEO, Nova Pangaea Technologies – the company developing Refnova Technology for 2G ethanol production to enable SAF production.

“This will provide greatly needed investor confidence in SAF projects and support deployment of the capital investment necessary to reach the mandate levels in the UK SAF legislation.”

At the core of the mechanism is a guaranteed strike price model. This involves a contract between SAF producers and a government counterparty on a fixed strike price. In case of market prices moving below the strike price, the government will pay the difference to SAF producers. In case of the opposite, producers will reimburse the counterparty.

As an example, the government said that a non-HEFA SAF plant producing 100 kilotonnes per annum would incur an estimated cost of £100-150m ($129-194m) in the case of market price being lower than the strike price under a 15-year contract. On the flip side, if prices are high, this would yield payments to the tune of £1-2bn ($1.3-2.6bn) over the same period.

To fund the price gap, the UK government said it will levy SAF suppliers under the “Polluter Pays” principle, ensuring the mechanism is funded by the industry. The government said that the reason behind levying fuel suppliers is to distribute the costs across the aviation sector.

The move also has administrative benefits. Levying a small number of fuel suppliers (proportionate to their market share) is easier than targeting the entire industry. And since suppliers are obliged under the mandate to ensure SAF availability, the mechanism will help increase SAF availability and lower production costs which helps them comply with the mandate.

For producers, the mechanism solves key challenges. For first-of-a-kind (FOAK) plants, a guaranteed strike price ensures revenue certainty bringing financing costs down to help projects achieve financial investment decision. It also provides project developers much-needed policy and regulatory certainty, the lack of which can be a major investment deterrent.

“The newly announced revenue certainty mechanism signals that the government recognises a core challenge in SAF: price volatility and investor uncertainty. By ensuring predictable revenue streams, the UK is taking a pragmatic step towards creating a viable SAF industry, attracting capital and securing a domestic supply chain,” said OXCCU CEO Andrew Symes. OXCCU is working on developing a low-cost power-to-liquid CO2 Fischer-Tropsch technology for SAF.

“For businesses like OXCCU the priority remains clear: building technology that drives costs down and efficiency up. Regulations will set the framework, but technology and investment will ultimately determine whether SAF succeeds.”

While the mechanism signals a significant boost for non-HEFA-based FOAK projects, it casts a shadow over the prospect of power-to-liquids SAF in the UK. The government acknowledges the significant cost challenges associated with PtL production.

Although the mechanism does support eSAF, the government conceded that specific economic hurdles for PtL require targeted strategies to unlock its potential.

The consultation will run from March 3rd to March 31st 2025. After reviewing feedback from the consultation, the government is expecting that all the required legislation for the revenue certainty mechanism is laid by the end of 2026.+