Despite good intentions, bridging the SAF price gap is a major challenge

Everyone knows the challenges of sustainable aviation. The fuel is too expensive, and too rare. Major carriers with bigger pockets buy as much as they can; small airlines and freighter operators struggle to get access.

But still, increasing numbers of carriers – together with forwarders – are announcing SAF plans.

Yet the news isn’t good in the medium term. According to a new paper, released yesterday, prices are not going to come down any time soon.

“Despite anticipated improvements over time, production costs will likely remain higher than current conventional jet prices by 2050,” notes Sustainable Aviation Futures in its report on the North American market. And, it claims: “The high cost of SAF compared with conventional jet fuel in the mid- to long-term means that SAF development will likely be very limited without policy support.”

sustainable aviation fuel

Luckily, there is growing policy support in North America.

Government departments in the US have joined together to launch the SAF Grand Challenge, which aims to enable the production of 3bn gallons of SAF by 2030, and 35bn gallons (132bn litres) by 2050 – the forecast demand for jet fuel in the US by then. (IATA has said that about 300m litres of SAF was produced in 2022, less than 0.1% of demand.)

The challenge includes a roadmap to get to those numbers, including looking at feedstocks, supply chain development and scaling up technology and policy.

One of the key parts to this in the US is the Inflation Reduction Act, which includes tax credits for both blenders and producers, which is expected to boost commercialisation of SAF. In addition, three states, Washington, Illinois and Minnesota, have created a “very favourable policy environment for SAF producers, while the policy in Illinois with directly benefit airlines as well”, notes the report.

“Together with low carbon fuel standards in California, Oregon and Washington (with more states set to adopt this type of policy), as well as the federal Renewable Fuel Standard, greater price parity of SAF with conventional jet fuel will be achieved.”

However, it notes: “In an industry with small profit margins and intense competition, outright purchasing of SAF by individual airlines (if volumes were available) could become an unsustainable proposition at high SAF blends, as fuel contributes about 30% to the overall cost.

“Bridging the price gap and creating a level playing field are, therefore, two key issues that must be addressed by policymakers.”

In Canada, the Clean Fuel Standard came into force on 1 July, “but offers limited support for SAF, allowing an opt-in of SAF to earn credits under the act”, says the report.

The country has also established the Canadian Council for Sustainable Aviation Fuel (C-SAF), a multi-stakeholder organisation that includes airlines, fuel producers and feedstock suppliers and recently completed a roadmap for SAF in Canada.

However, Canada has no current SAF production and companies say the US Inflation Reduction Act is likely to draw investment away from its neighbour – already some $8bn-worth of proposed projects in Canada are being re-evaluated.

Even with policy support, pioneer facilities will be about 50% more expensive to build and it will be some time before full commercial scale is achieved, notes the report.

Some 5,000-7,000 refineries will be required globally by 2050 – and require $1.08-$1.45bn in investment.

The report explains: “The investment cost for SAF facilities is generally much higher than for first-generation biofuels such as bioethanol and biodiesel, which must be reflected in higher capital support and loan guarantees.”

It adds: “While the HEFA (Hydroprocessed Esters and Fatty Acids) pathway is fully commercial, production costs of other technologies will have a level of uncertainty. Different technologies will have potential cost improvements in different areas.”

Currently, only European refineries are co-processing fats and oils for SAF production on a commercial scale.

You can download the complete report here.

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