The shift towards SAFs confronts significant financial challenges, primarily due to their higher production and purchase costs compared to conventional jet fuel. These costs reflect not only the production expenses but also the broader financial barriers in transitioning to sustainable aviation, such as expensive research, development, and scaling of new technologies in SAF production. Fluctuating raw material supplies and prices further compound the uncertainty.

The infrastructure for SAF production is less established than that for traditional fuels. Expanding this infrastructure requires significant investment, which is currently hindered by uncertain policies and market demand. In developing countries, this uncertainty is even more pronounced, making investors hesitant to finance SAF projects. However, clearer regulatory frameworks could improve predictability in market trends and encourage more informed investment decisions.

“Regulatory interventions might be necessary to promote SAF adoption, but they need to be carefully designed to boost demand without negatively impacting the market.”

To overcome these obstacles, regulatory interventions might be necessary to promote SAF adoption. Such regulations need to be carefully designed to boost SAF demand without negatively impacting the market. This could help close the current pricing and demand gap, positioning SAFs as a more feasible option in the aviation industry.

Funding Sources for SAF Projects

The following is a list of potential funders for SAF projects, including private companies, public institutions, and foundations. This list was compiled during the ICAO workshop on SAF financing in Kigali, Rwanda, from May 23-26, 2023, with some further additions [72].

Public Institutions:

• Canadian Infrastructure Bank (CIB BIC)

• Brazil Development Bank (BNDES)

• Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ)

• Emirates Development Bank (EDB)

• Arab Bank for Economic Development in Africa (BADEA)

• Asian Development Bank (ADB)

• Federal Aviation Administration (FAA)

• World Bank

• Green Climate Fund (GCF)

• Caribbean Development Bank (CDB)

• Asian Infrastructure Investment Bank

• European Bank for Reconstruction and Development (EBRD)

• European Investment Bank (EIB)

• Finance Lab (Climate Policy Initiative)

• UNEP Financing Initiative (UNEP FI)

Foundations:

• ClimateWorks

Private Investment Institutions:

• SmartEnergy

• ING Group

• Green Investment Group

• The Arab Investment & Export Credit Guarantee Corporation (Dhaman)

• Genzero

• Deutsche Bank

• Investor Group on Climate Change

• Banque de Montreal (BMO)

• First Abu Dhabi Bank (FAB)

• Hamilton Clark and Breakthrough Energy

• Barclays

• ING

• Societe Generale

• Credit Agricole

• BNP Paribas

• KWF

• Standard Chartered

Investment Initiatives

There are various avenues for funding SAF projects, with many entities eager to support innovation in this field. The range of funding mechanisms available shows the broad financial support for advancing the green transformation of aviation:

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Canadian Infrastructure Bank:

Green Infrastructure: Total funds of $35 Billion CAD. Green infrastructure investment supports Canada’s ongoing transition to a clean growth economy. Energy efficient building retrofits as well as electric and hydrogen refueling infrastructure can have long-term impacts on Canada’s climate related goals and related outcomes

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Natural Resources Canada:

Clean Fuel Fund in Canada, initiated by Natural Resources Canada, is a $1.5 billion initiative aimed at increasing the production of clean fuels across the country. Launched in June 2021, the fund focuses on supporting the development of various clean fuels such as hydrogen, renewable diesel, synthetic fuels, and cleaner aviation fuels. The goal of this investment is to enhance the domestic production of cleaner fuels and provide new opportunities in the energy sector.

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World Bank: 

Launched the Clean Fuels Innovation Facility (CFIF) with GIZ in 2021, a $50 million initiative to support SAF demonstrations in Brazil, India, and South Africa.

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FAA

Fueling Aviation’s Sustainable Transition Sustainable Aviation Fuels (FAST-SAF). In 2023, $300 million has been allocated to support initiatives aiming for the aviation industry’s net-zero emissions target by the year 2050.

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Green Climate Fund (GCF)

Approved a $43 million grant in 2020 to support sustainable biofuel production, including SAF, in Colombia.

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European Investment Bank (EIB)

Agreed to a €120 million loan for Neste, a leading SAF producer, in 2022 to expand production capacity in Finland.

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UNEP Financing Initiative (UNEP FI)

Launched the Principles for Responsible Investment in Aviation (PRI in Aviation) in 2022, encouraging financial institutions to support low-carbon investments, including SAF adoption.

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Asian Development Bank (ADB)

Partnered with Neste in 2022 to launch a pilot project for SAF production in the Philippines.

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Caribbean Development Bank (CDB)

Approved a $10 million loan in 2022 to support the use of SAF at airports in the Caribbean.

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SmartEnergy

Invested $50 million in Fulcrum BioEnergy in 2023, a company developing innovative SAF production technologies.

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ING Group

Announced a €1 billion green loan facility in 2022 dedicated to financing sustainable aviation projects, including SAF infrastructure.

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The Arab Investment & Export Credit Guaranteee Corporation (Dhaman)

Partnered with Etihad Airways in 2022 to provide a $150 million guarantee for SAF purchase, reducing financial risk and encouraging uptake.

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Genzero

Invested $85 million in Velocys in 2023, a company developing SAF technology using waste biomass.

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Deutsche Bank

Launched a “Sustainable Aviation Transition Loan” product in 2022 to finance airlines purchasing SAF.

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Barclays

Partnered with SkyNRG in 2021 to offer its corporate clients the option to offset travel emissions with SAF purchases.

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Hamilton Clark and Breakthrough Energy

Invested $1.6 billion in LanzaTech in 2022, a company developing SAF from recycled carbon emissions.

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ClimateWorks

Supported SkyNRG in building the world’s first commercial SAF refuelling facility at Amsterdam Airport Schiphol, launched in 2021.

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INSIGHT: Project Development Phases in Large-Scale Industrial and Engineering Projects

In the realm of large-scale industrial and engineering projects, such as SAF plants, understanding the sequence and nature of various developmental phases is essential.

These phases, from the initial concept to decommissioning, outline the lifecycle of a project and assist in managing resources, timelines, and expectations. Each phase plays a distinct role, contributing to the project’s progression and eventual success. Below is a detailed overview of these typical phases, accompanied by an approximate cost distribution, providing a clear roadmap for project development in complex industrial and engineering environments.

• Conceptual Design or Pre-Feasibility Phase: This initial stage is all about exploring and developing the project idea. It typically involves preliminary studies and high-level planning, with costs generally ranging from a few hundred thousand dollars, depending on the project’s scale and complexity. 
• Feasibility Study: Following the conceptual design, this phase conducts a thorough analysis to assess the project’s economic, technical, legal, and scheduling feasibility. The costs here can vary from several hundred thousand to a few million dollars.
• Front End Engineering Design (FEED): This critical phase involves the creation of detailed project plans, including technical specifications and layouts. The costs for FEED are significant, often representing 1-5% of the total project cost and running into several million dollars.
• Final Investment Decision (FID): This is a pivotal stage where stakeholders and investors make funding decisions based on the detailed designs developed during FEED. The cumulative costs up to this point are often substantial, frequently in the tens of millions of dollars.
• Detailed Engineering and Design: After FID, the project enters a phase of refining designs and plans with increased precision. The costs for this phase can add an additional 1-5% to the total project cost, mirroring the FEED phase.
• Construction or Execution Phase: The most capital-intensive part of the project, typically accounting for 60-80% of the total project cost. Costs for a medium-sized biofuel plant, for example, could range from $100 million to several hundred million dollars.
• Commissioning and Start-Up: Following construction, this phase focuses on testing and ensuring the operational readiness of the project. Costs are around 2-5% of the total project cost.
• Operational Phase: Involves ongoing expenses such as feedstock, labor, maintenance, and utilities, which can vary widely but constitute a significant ongoing budgetary component over the project’s lifespan.
• Decommissioning: This final phase involves the safe shutdown, dismantling, and site restoration at the project’s conclusion. Decommissioning can cost approximately 1-15% of the initial capital cost.

Note: These cost estimates are indicative and subject to variation based on specific project parameters, technology, location, regulatory conditions, and market forces. Detailed cost analysis is typically undertaken during the feasibility and FEED stages to derive precise project-specific estimates. Each phase demands meticulous planning, execution, and management to ensure the project’s success.

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The Impact of Support Mechanisms: Financial Viability Analysis of SAF Production Projects

The SAF production industry, being in its nascent stage, faces significant financial challenges. This analysis aims to illustrate the impact of financial support on the feasibility of SAF production projects. We will explore three scenarios: a project without financial support, one with a $100 million grant, and another with a $100 million interest-free loan for the first 10 years. This comparison will demonstrate the potential impact of financial assistance in overcoming the economic hurdles associated with SAF projects.

Simplified Methodology Explanation:

Internal Rate of Return (IRR):  IRR is a metric used to evaluate the profitability of an investment. It represents the annualized effective compounded return rate that can be earned on the invested capital. Essentially, it’s the interest rate at which the net present value (NPV) of all cash flows (both positive and negative) from a project or investment equals zero.

Assumptions:

Project Cost: $490 million for all scenarios

Project Lifespan: 20 years

Revenue Growth: Starting from $50 million in the first year, increasing by 5% per year

Operational Costs: 30% of annual revenue

Hurdle Rate: 9%

Grant (Scenario 2): $100 million, non-repayable

Loan (Scenario 3): $100 million, interest-free for 10 years, then a market rate of 5% thereafter

Discount Rate for NPV calculations: 9% (same as the hurdle rate)

SCENARIO 1

WITHOUT SUPPORT:

Initial Investment: $490 million

IRR: Approximately 8.29%.

Outcome: This scenario does not meet the hurdle rate of 9%, making the project financially unviable without support.

SCENARIO 2

With A Grant of $100 Million:

Initial Investment: $390 million ($490 million – $100 million grant)

IRR: Approximately 11.04%.

Outcome: This scenario exceeds the hurdle rate, indicating strong financial viability due to the grant, which effectively reduces the initial investment.

SCENARIO 3

With an Interest-Free Loan for 10 Years:

Initial Investment: $390 million ($490 million – $100 million loan)

Interest Payments: None for the first 10 years; 5% per year on the remaining loan balance from year 11 onwards.

IRR: Approximately 10.09%.

Outcome: This scenario exceeds the hurdle rate, indicating financial viability, but it is less favorable than the grant scenario due to future loan repayment obligations.

Financial Support Mechanisms will Make or Break SAF Production

The analysis shows the impact of financial support mechanisms on SAF production projects. The non-repayable grant in Scenario 2 provides the most improvement in financial viability by reducing the initial investment burden. Scenario 3, with the structured loan, also demonstrates improved viability compared to no support, but the obligation to repay the loan makes it less favorable than the grant scenario. This insight highlights the impact on financial support in fostering the development of emerging industries like SAF – Without support, they are not viable; with it, they flourish. For policymakers, understanding these dynamics is crucial when considering support options for the SAF industry and other similar sectors focused on sustainable development. Although these are highly simplified scenarios, it reflects the current reality: SAFs are not viable without support at some stage in the value chain.