See Part 1 of the 2024 Ishka ESG conference summary for key takeaways on bank aviation decarbonisation targets, young and old aircraft investment strategy dilemmas, and views on sustainable finance adoption in aviation.
From SAF delivery hurdles to incoming SAF policy, Ishka SAVi explores some of the key takeaways from Ishka’s third full-day ESG aviation investor conference in London on 13th March. For a third year running, Ishka ESG: Evolution, Implementation & Disclosure brought together some of the industry’s most prominent sustainability voices, from airlines and SAF players to lenders and policymakers.
SAF production ‘setbacks’ illustrate usage target hurdles
One of the highlights of Ishka’s 2024 ESG conference was the presence on the stage of some of the world’s largest SAF users. Their recent experiences facing SAF delivery delays put a spotlight on difficulties that operators may face in the coming years as they seek to meet SAF usage targets.
“Like many other airlines, we were a bit surprised through the year when we had one of our key SAF suppliers say ‘we’ve had a production problem and we’re going to have to defer a lot of deliveries’,” recounted a major airline, who said at least three major SAF producers had “serious shutdowns” in 2023. Another airline admitted to similar issues from a shared supplier. The first carrier highlighted that diversification of suppliers was key in limiting delivery disruptions and it was able to grow its SAF consumption in 2023 whereas for other airlines, the representative said, SAF usage may have declined last year.
Separately, a major industry association representative noted that the 2023 shortfall was due to a delay in several SAF facilities coming online in 2023. “This year, we are going to have a much better result,” the representative affirmed. As for speedy scale-up risks, the same association representative noted that investment by oil majors in SAF remains “slow” at this stage. “We need to push for that earlier inclusion [of SAF capacity] of the big energy companies.”
Trump-proof SAF projects and an imminent UK SAF mandate
Speakers familiar with the UK Department for Transport’s (DfT) work on finalising a UK SAF mandate shared they expect the policy to be finalised “in the next month” with some saying it could be announced “before Easter.” The UK SAF mandate aims for 10% of all the UK’s jet fuel demand to be covered by SAF by 2030, the highest percentage out of all national policies proposed to date.
Meanwhile, several panellists expressed confidence that a Labour-led UK government (as anticipated by most polls) after the country’s next general election would continue to support SAF policy initiatives. There was similar confidence for EU and US SAF policy to endure regardless of the election results. One policymaker underlined that the EU’s heavily “market-based” policy mechanisms are expected to continue, while others shared views that US SAF projects benefit Republican-led and Republican-voting states and, therefore should retain political favour in case of a Trump victory.
Pinpointing ‘bankable’ SAF projects and offtakes
The word “bankable” is fast becoming a catchphrase in aviation finance discussions addressing SAF, from bankable and financeable SAF projects to bankable and dependable offtake agreements. “We need certainty about long-term revenue and long-term costs because the only thing that will repay the debt is stable cash flows,” commented one European banker addressing the debt needs of SAF project financing. Regulatory certainty was another hurdle, and the banker alluded to the recent scrapping of some European power-to-liquid SAF national sub-targets to accommodate the EU-wide harmonised rules of ReFuelEU Aviation.
“To introduce leverage into a green field [SAF] project you need a reliable set of cash flows long-term that is contracted, that you can lend against, that’s why we lend into grid parity renewables […] that is the linchpin for unlocking bank balance sheets,” commented a non-European lender separately during the conference.
As for offtakes, two representatives of a major airline underlined the need for carriers to commit to “bankable,” “take-or-pay,” and “binding” SAF offtake agreements “with price commitment”. “This is not MoUs, we should challenge all airlines that make these big announcements […] they count for nothing, you can do one in half an hour,” stressed the airline executive. Unlike MoUs, “bankable” offtake agreements can be used by SAF producers to attract project financing.
The Ishka View
There appears to be, at least publicly, growing confidence by European airlines and trade associations in the achievability of SAF scale-up and other decarbonisation efforts. “We are in a positive place […] in the last 18 months we can now point to tangible examples of real progress,” commented a member of an industry association. A major airline representative referred to 2024 as a “breakthrough year” and referenced a figure of 80 SAF plants in operation, under construction or soon to begin construction around the world as a sign of that progress. Nevertheless, as the 2023 production shortfalls show, there will be hiccups along the way. For 2024, IATA expects global SAF production to triple to 1.5 million metric tonnes – a major leap although still some 10 times lower than the ICAO CAAF/3 ambition for SAF usage by 2030.
As expected from a European-held event, the role of Europe in spearheading SAF policy dominated discussions at the recent Ishka event. There was also acknowledgement that a number of other countries around the world have in the past year announced SAF policies inspired by Europe-style mandates. The next wave of policies that those countries could (and likely will) pursue are mechanisms to help airlines mitigate SAF-related costs. If they choose to be inspired by Europe once again, then the next 12 to 18 months will reveal whether Europe’s SAF cost mitigants (such as the EU ETS free allowances for SAF in 2024 intra-EEA flights) or revenue-certainty mechanisms (such as the one to be proposed in the UK) should show the way forward.
Regardless of their impact, both initiatives should also bring price transparency to SAF for the benefit of all global market participants. In the case of the EU, the European Commission will be publishing in early 2025 the average costs of uplifting different types of SAF in the EU.
See Part 1 of the 2024 Ishka ESG conference summary for key takeaways on bank aviation decarbonisation targets, young and old aircraft investment strategy dilemmas, and views on sustainable finance adoption in aviation.
