The requirements for sustainable aviation fuel (SAF) financing
The SAF industry faces technological, regulatory, and market risks. To 2030 and beyond, facilities will require new and unproven technologies, high capital expenditures (CapEx), and will spend a long time pre-cash flow. Managing uncertainties for production are key to aviation's decarbonization, and the Air Transport Action Group (ATAG) surveyed potential SAF financiers to gauge finance risk as a barrier. Here, we outline the challenges, examine survey responses, and consider additional policy that will be required.
The need for SAF finance
ATAG's Waypoint 2050 estimates that between 330 million to 445 million tonnes of sustainable aviation fuels (SAF) will be required, alongside technological and operational improvements. In 2022, production was just 0.2 million tonnes. This necessitates 5,000 to 7,000 new facilities—an investment between $1 trillion and $1.5 trillion. Over 28 years, the annual CapEx requirement will equal 6%-10% of 2022’s oil and gas CapEx.
The rapid growth in electric cars, vans, and heavy vehicles will decrease demand for liquid fuels on-road, shrinking the market for renewable on-road fuels despite blend percentage increases. Decarbonizing aviation and the sector growth means aviation will become the largest share of renewable liquid fuel demand, presenting opportunities for producers and financiers. Securing investment for next-gen technology is crucial.
New technologies required
Scaling production means phasing in various feedstocks and production technologies.
Today, the HEFA pathway is mostly used. However, waste oils and crop-based feedstock constraints limit this to 6%-8% of required capacity. Future production will likely rely on alcohol-to-jet (AtJ) and Fischer-Tropsch (FT) pathways, using a diverse range of feedstocks including agricultural and forestry residues, municipal wastes, and selected crops.
Commercial FT and AtJ facilities began limited production in 2022, laying the foundations to scale into the 2030s. Longer term, renewable electricity can produce SAF through power-to-liquids (PtL). While expensive today, developments across renewable power generation, hydrogen production, and direct air capture will reduce costs, allowing scaling into the 2040s.
The three phases of production present different financing needs. HEFA is mature with lower CapEx, limited technology risk, and shorter payback period, but is sensitive to feedstock availability and commodity pricing. FT and AtJ are less proven commercially, with higher risk, but use readily available, cheap feedstocks largely uncorrelated to commodities. Both face higher CapEx requirements and longer lead times to cash flow. PtL requires abundant renewable energy, taking time to be commercially viable, and requiring substantial upfront CapEx.
The current policy landscape
To support SAF industry growth, various proposed regional, national, and local legislation includes production and consumption incentives and blending mandates. Policies like the EU's ReFuelEU mandate set long-term targets and monitoring, but lack pricing clarity and have not yet been implemented.
Other schemes, like the U.S. Inflation Reduction Act, provide pricing clarity, but less long-term certainty. For example, the Clean Fuel Production Credit (CFPC) supports the U.S. SAF industry, but is set to expire in 2027.
SAF clearing houses in the U.S. and U.K. will accelerate new sustainable fuels approval, with more under development. However, these do not assess commercial viability or sustainability. Rules and guidance around the fuel’s carbon properties evolve with changing regulation.
While long-term SAF production growth is necessary to decarbonize, long-term regulatory certainty has yet to follow. The financing challenge now and in the coming decade is to overcome investors’ technology and policy uncertainties so they can provide the necessary funding for the next generation of SAF production.
The ATAG SAF finance policy survey
ATAG surveyed a select group of financiers with a known interest in SAF about the potential role of policy. Many have existing aircraft portfolios and most are Europe-based. Among them, 25% were already active, with 45% proactively looking for SAF finance opportunities.
SAF financing motivation
Interest in SAF financing is linked to SAF’s environmental benefits. Two-thirds of responses were split between SAF’s role in decarbonizing aviation finance portfolios (1/3) and the opportunity to create sustainable finance products (1/3). These include the green bonds issued by HEFA producer Neste. This indicates SAF's appeal to both traditional aviation finance lenders, by enhancing their portfolio carbon reduction goals, as well as meeting the needs of the rapidly growing sustainable fund industry.
The survey also showed that 20% of respondents considered SAF financing as a viable standalone investment opportunity regardless of environmental impact. The remaining 13% said SAF finance primarily supports corporate ESG needs, brings reputational benefits, and allows active participation in aviation's ambitious pathway to net zero.
Risk concerns
Survey responses indicated that the largest barrier to providing the necessary financing to scale up production is uncertainty about technology maturity. Beyond technology, securing long-term regulatory certainty is a key requirement.
Technology uncertainty
This concern relates to assessing which technologies and producers may successfully construct projects and scale, including sufficient feedstock supply and pricing. The lack of technical due diligence or transparency, and the dominance of small companies, with no track record in new generation production, pose challenges in identifying financially viable opportunities.
Policy uncertainty
These concerns encompass three evenly weighted areas of feedback:
- The requirement for stable long-term legislation through mandated volumes, and/or production and consumption incentives to provide firm guidance on SAF as a decarbonization priority.
- Regulatory oversight to provide transparency, certify emerging technology and define the lifecycle sustainability of products.
- Policy to support risk distribution supporting growth.
Key takeaways
To enhance the availability of finance for SAF production, a combination of policies and collaboration between the industry and the finance community are needed.
Oversight
This oversight includes producer/airline SAF accreditations, standards for environmental lifecycle assessment, industry reporting transparency, and wider availability to technical due diligence. The survey indicated a need for financiers to understand and manage technical risks and assess project viability. This means increasing visibility on production ramp feasibility, SAF demand, sustainability certifications and making technical due diligence available. Despite the creation of clearing houses, there is not yet a way to establish the required information to assess if a project technology or feedstock is scalable, or to provide standards for environmental lifecycle assessment.
SAF policy clarity, intent, and long-term stability
Clear, stable regulation is needed to improve investor confidence. While the key role of SAF in net zero climate policy is widely recognized, policies are not yet available at the scale, value, or long-term stability required. Suggestions include:
- Commitments to the role of SAF as a key decarbonization pathway.
- Developing global frameworks (e.g., through ICAO and bilateral cooperation).
- Well-defined regional and jurisdictional regulation.
- Broader use of both incentive schemes and mandates to support the developing market.
Risk sharing
Introducing and proliferating government or commercial loan guarantees, like those performed by export credit agencies to support domestic manufacturing, helps to spread risk. Other suggestions include purchase or price guarantees to support financiers with additional long-term certainty regarding project viability.
A final word
SAF production is a new industry, requiring support for financing and sustainable growth. Additional policy and communication in the form of standards, support, and risk sharing are essential to enabling aviation’s net zero goals for 2050.
