Seeking SAF symphony: In conversation with Smartenergy’s Raghu Viswanathan
Raghu Viswanathan
Director of eFuels, Supply Chain, and Strategy
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Smartenergy
Ahead of the launch of PA Consulting’s report on scaling sustainable aviation fuels (SAF), we’re running a series of exclusive interviews with key stakeholders across the SAF ecosystem. This includes producers, airlines, airports, and investors from across the globe.
This time, we speak to Raghu Viswanathan, Director of eFuels, Supply Chain, and Strategy, at Smartenergy, a Swiss-based investment company dedicated to renewable energy. In this role, he looks at the downstream part of fuel for the projects in development. That includes identifying suitable offtake partners and the business models that can bring success in the e-fuel space.
Which areas of SAF are Smartenergy most interested in from an investment perspective and why?
There’s a well-known narrative about the attractiveness of e-fuel. To beat the drum again, I’d say HEFA (Hydroprocessed Esters and Fatty Acids) has limitations and challenges, including the sourcing of the feedstock. It's not something we could control. That’s the real contrast between biofuels and e-fuels.
In a typical market, as supply increases prices come down. And that’s what we anticipate will happen within the e-fuel space. With biofuels, more demand for the feedstock means feedstock prices would go up – which is not in the control of the developer or the producer – and that would increase the price of HEFA. There could be a discussion about whether the price would still be lower than e-fuels, but that's a debate for another day! As an investor in this market and from conversations we've had with investors, the general mindset is – the more parameters we can control, the more comfort we have.
Apart from parameters you can’t control, what do you see as the biggest risks with investing in SAF?
As an investor you often get the best value by taking risks at the early stages of the technology, or the market. But what we see as first mover advantage can also play as first mover curse, because the market might not be willing to take the product. The price is expected to go down which makes things uncertain for off-takers. But the market presents quite a good opportunity in specific locations where there’s a possibility of bringing down the costs of production.
We also need to be mindful that, you know, it's not one investor who can enable us to move forward. It has to be a suite of investors, because we're talking about big money, even at the development stage.
What do you think the most impactful things that airlines and airports can do to enable investment?
That’s an interesting question, because airlines and airports are not the obligated party, so why would they? The only drivers for them are their separate targets, so how can they be in sync? Or how can they enable more demand?
On one hand, Refuel EU will enable the airlines to count their uptake of SAF for their ETS (Emissions Trading System) and CORSIA (Carbon Offsetting and Reduction Scheme for International Aviation). Their fuel suppliers can do the same regarding airports. So, I think we need to bring a mechanism where there are additional targets, and that will be a burden on the market or the customer. Though I don’t think we need more regulation.
Airbus and Air France-KLM, along with few other players, have come together and created a funding alliance for SAF. Collaborative initiatives like that could trigger more uptake even before the EU flexibility mechanism expires in 2035. While it’s often suggested airlines need to agree to longer offtakes, we need to think outside the box to enable them to be more proactive in doing offtakes.
What's your take on policy support for SAF investment?
To be honest, I'm a big fan of mandates. Incentives aren’t sustainable, especially in the current market dynamics. Incentives can disappear at any point and then come back depending on who’s at the helm. And if you look around, nobody voluntarily follows rules just because they'll get a bonus or an incentive. Only if you’re punished for not following rules do people comply. That's fundamental human nature, and it’s why I think mandates will always be more effective than incentives. But I'm not pushing for more mandates at the EU level.
I'm an idealist on this. I'm very positive about the whole thing. I hope one day, aviation being a global market, that we’ll see some kind of global mechanism. There’s the International Civil Aviation Organisation’s (ICAO) CORSIA, but that's an offset programme right now and I have a strong feeling that will eventually evolve to include some form of mandatory uptake. I'm not putting all the onus on ICAO, but I think they’ll have a similar role to play to the International Maritime Organisation in putting forward global mandates for the shipping industry. And I also think we should be mindful about asking for global Book & Claim. We need a global mandate or mechanism to support it.
What one thing do you think will be most transformative in driving progress?
In a recent panel discussion that included OEMs (Original Equipment Manufacturers), one suggested we should probably look at OEMs being offtakers. In some cases, they are. But I have another suggestion. Why not direct them to build and upgrade engines to require fuel with a mandatory SAF component? Then it’s not a mandate or an incentive anymore – it’s a basic requirement.
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As an optimist, Raghu likely falls within the 44 percent of SAF investors in our research who are positive about widespread SAF adoption by 2030. And he pinpoints the two main risks associated with investing in SAF identified by investors in our survey:
financial risks due high SAF costs (66 percent) and policy risk from uncertain or changing regulations (56 percent)
and like 84 percent of his fellow investors, he sees collaboration across the SAF ecosystems as key to adoption.