SAF Expert Insights: Pricing Perspectives
During our recent webinar with BloombergNEF, misalignment around SAF pricing was the central theme, and the volume of audience questions made it clear just how important and complex the issue has become.
To capture the industry’s pressing concerns, we collected some of the more common and challenging questions raised and put them directly to our expert speakers and sponsors for the SAF North America Congress. In this article, read Nacero’s views, and download the full report.
Should SAF pricing be directly linked to carbon intensity, with more efficient, lower-CI fuels commanding a premium?
Considering a price premium for SAF with lower carbon intensity above the price premium for other RED-compliant SAF adds a degree of difficulty in determining the price of SAF that should be utilized in the ReFuelEU Aviation penalty calculation. The pricing indicators required in the penalty calculations for biogenic SAF and synthetic SAF already cover a CI range from RED compliance at 32.9 g CO2e/MJ to synthetic SAF at ~10 to 15 g CO2e/MJ, respectively. Requiring multiple pricing bases to be made available according to a sliding CI scale is something better considered in the future after the availability of fuels to meet SAF uptake targets in 2030 has been established and the effectiveness of the penalty in promoting SAF uptake has been evaluated. Furthermore, the UK SAF Mandate has a different qualification threshold (minimum GHG emissions reductions of 40% relative to a fossil fuel comparator of 89 g CO2e/MJ) giving SAF producers another outlet for their higher CI production. Allowing offtakers to compare compliant product offerings without the need to correct for CI differences should simplify the procurement process for SAF.
How will fossil jet fuel pricing evolve with rising carbon costs, and how does this affect SAF competitiveness?
The price of fossil jet fuel is fundamentally driven by the price of crude oil, from which fossil fuels are refined. The price of crude oil, in turn, is primarily determined by global supply and demand dynamics, which are heavily influenced by two main factors:
Global GDP (Demand): Economic growth is a primary driver of energy demand. As the global economy expands (higher GDP), industrial production, trade, and travel increase, which boosts the demand for crude oil to produce jet fuel and other fossil fuels.
Geopolitical Factors (Supply): The global oil supply, and therefore the crude oil price, is sensitive to geopolitical events. Conflicts, sanctions, political instability in major oil-producing regions, or production decisions by OPEC+ can disrupt supply chains, creating price volatility and impacting the cost of crude oil.
Even with the increasing uptake of SAF due to mandates, it is possible that there will still be growth in fossil jet fuel demand from increasing air travel that outpaces the SAF blending requirement. Assuming there is not an unprecedented upward shift in crude oil pricing, SAF competitiveness will rely upon penalties applied to the use of fossil jet fuel and it should not be expected that price parity will be achieved.
What’s the outlook for HEFA pricing post-2030, particularly as EU mandates scale up?
As mandates and global demand require SAF production ramp up and the demand for limited supplies of HEFA-based SAF feedstocks (fats, oils, and greases) increases, the price of those feedstocks and therefore the price for HEFA-based SAF will increase. The rate of rise for these prices is highly uncertain because feedstock price will be prone to significant volatility based on supply-demand dynamics for HEFA feedstocks but also possible sustainability issues as fraud becomes more lucrative. A key differentiator for Nacero is that we have focused on a pathway utilizing RNG, which is certifiably sustainable as well as being a more abundant and scalable feedstock.
How significant is the markup from SAF traders compared to what obligated parties pay, and how does this affect access?
SAF traders will take a position based on their fundamental supply & demand views but only market forces will determine the price in the future. The trader’s profit or loss will be determined by whether or not they anticipated the correct price movement. Traders will not limit access to physical SAF assuming they take positions at different price points and there should always be a strike price at which they are willing to sell. Direct, long-term partnerships between producers and offtakers are the most efficient and cost-effective way to scale the SAF market and by working directly with Nacero, our partners can ensure a stable supply of high-quality SAF at a predictable price.
Are governments considering delays to mandated SAF targets due to insufficient volumes in the short-to-mid term?
While there are discussions about the challenges of meeting ambitious SAF targets in mandated markets, particularly the synthetic SAF sub-targets, there does not seem to be sufficient support to delay them even though there may be lobbying efforts underway to do so. The social and political pressure to decarbonize aviation is only increasing which will make it difficult to walk back mandate commitments. In voluntary markets, such as the U.S., especially given the current political climate, there is low willingness to pay for a SAF premium so any delays to mandated SAF targets elsewhere will have a detrimental impact to projects aimed at supplying SAF into those mandated markets.
Can we realistically achieve carbon-neutral aviation goals by 2030 given the current scale and pace of SAF deployment?
Global carbon-neutral aviation by 2030 seems to be, at the current pace, significantly out of reach. Taking into consideration the voluntary nature of the U.S.’s SAF Grand Challenge, it is more appropriate to focus the question on whether carbon neutrality in aviation can be achieved by 2030 in the EU – where the mandates and penalties are in place. This goal is ambitious, but not impossible. However, we cannot rely on first-generation technologies like HEFA alone. To achieve our goals, we need to rapidly scale up next-generation pathways like Nacero’s RNG-based SAF. By embracing a wider range of feedstocks and technologies, we can accelerate the pace of SAF deployment and make significant strides towards a carbon-neutral future.
How does lifecycle CO₂ reduction vary across SAF pathways, and how should this influence pricing and incentives?
We do not believe any preference should be given to any specific pathway, the focus should solely be on lifecycle CO₂ reduction at the lowest cost regardless of the pathway. See response to question #1.
How realistic are projected HEFA volumes, given concerns over feedstock traceability and potential fraud?
There have been examples of sustainability issues with used cooking oil feedstocks, so concerns around feedstock traceability and potential fraud do represent a threat to achieving the projected HEFA volumes. Recognizing that the availability of HEFA feedstocks is already limited and any other reduction caused by future sustainability problems will exacerbate the problem, the focus should shift to supplementing HEFA SAF volumes. Nacero’s production pathway using RNG provides a simpler and more transparent feedstock supply chain where sustainability of the entire supply chain will be easier to verify and certify.
Should greater attention shift from HEFA to PtL, given their more verifiable and scalable inputs?
Yes – greater attention should be placed on non-HEFA pathways to produce SAF but that does not mean PtL is the next logical, scalable solution available, and it does not represent the only pathway with verifiable inputs. PtL can and should be considered in parallel with other solutions that are currently more scalable solutions and do not have feedstock traceability issues. The RNG-to-SAF pathway offers the best of both worlds: immediate scalability of biogenic feedstock and the proven technological foundation for the future of e-fuels. However, there is one significant barrier in place that prevent U.S. (and non-EU) RNG-to-SAF projects from providing SAF to markets where it’s needed, which is the exclusion of mass-balanced RNG from the U.S. gas grid from being recognized in the EU's Union Database for Biofuels (UDB).
What feedstock flexibility and certification safeguards are required to support credible SAF scale-up?
For credible SAF scale-up, robust, transparent, well understood, and repeatable certification schemes that can accommodate a variety of sustainable feedstocks will be required. Nacero has chosen to pursue ISCC certification but recognizes that there are other rigorous certification standards like RSB available. Regardless of the certification scheme, measurable and certifiable emissions performance and a clear chain of custody are essential for ensuring product sustainability. This is why Nacero has partnered with third party entities (e.g. Carbon Direct, Context Labs, Foxley, etc.) to validate our lifecycle GHG reduction and our full supply chain sustainability and traceability. Any mechanisms in place to combat possible double counting of environmental attributes or fraud are welcome, but other barriers put into place using the claim that they are required for sustainability assurance can prevent scale up and availability of SAF to the markets where it is needed. One such barrier is the EU's Union Database (UDB) which does not recognize mass-balanced RNG from the U.S. gas grid, citing the claim that the U.S. gas grid is not "fully connected" and is at risk for double counting. Removing this barrier will allow SAF supply solutions such as ours to meet the needs of the EU marketplace and be instrumental in supporting the decarbonization goals of the EU.
Are certification schemes like ISCC sufficient to prevent fraud, and what improvements are needed for global enforcement?
Very simply put, the answer is no because certification schemes like ISCC only require periodic audits of compliance but do not provide any means of continuous tracking between audits. It is incumbent upon fuel producers to continuously monitor, measure, and verify performance in accordance with the ISCC requirements throughout the supply chain and not use the audits as the only compliance check. Digital means of ensuring traceability as well as periodic internal and/or third-party audits will be key measures to combat documentation error or in the worst case, fraud. Fuel producers must also take care to properly understand and communicate their certification status, and not to claim ISCC EU certification without their facilities being in operation, which is a prerequisite for obtaining ISCC EU certification.
What is the typical duration and structure of current SAF offtake agreements—multi-year or short-term?
For HEFA-based contracts, which are the predominant ones in place right now, Nacero’s understanding is that long-term fixed price offtake agreements are not available to offtakers because a fixed feedstock supply price cannot be offered. Offtake contracts are short term contracts where volume may be agreed upon but exposure to feedstock pricing volatility still exists. Uncertain HEFA-based SAF prices have made long-term fixed price agreements more interesting to some airlines which is better for project developers using alternate production pathways. Nacero’s offering of fixed-price long-term contracts provide price stability and security of supply to offtakers and should unlock the revenue required to secure debt financing for Nacero’s production facility.
How do offtake MOUs differ from binding contracts, and what does this mean for project bankability?
An MOU is a statement of intent to develop definitive agreements, but most aspects of MOUs, including volume and price, are not a legally binding commitment. While MOUs can be a useful first step in securing needed Pre-FID funding, definitive offtake agreements are required to make a project bankable. It is essential that fuel suppliers and offtakers work together closely to move from MOU to definitive agreements as efficiently as possible, using conditions precedent if necessary to highlight outstanding issues, as this is the key to unlocking the capital needed for SAF projects to achieve FID, get constructed and come online.
Are voluntary buyers—airlines or corporates—willing to pay the premium for eSAF outside of mandated markets?
Nacero cannot get interest in the voluntary market for SAF from our production pathway, which needs a lower premium over jet fuel than eSAF, but there are some airlines and corporations active in this market. The action of this limited number of companies in the voluntary market will not be enough to add significant supplemental demand over the mandated market. Since fuel purchasers are competitively driven to buy the cheapest available fuel that meets the regulation requirements, mandates and penalties for non-compliance will be the primary driver for SAF demand.
Why are some major airlines showing low or zero SAF use in 2024 despite publicly stated commitments?
For voluntary markets, there are more cost-effective ways than SAF to offset their carbon footprint. See response to question #17.
Would airlines invest in intellectual property for next-gen SAF technologies to lower future costs?
The aviation industry has made significant commitments to next-gen SAF technologies, which collectively have not performed well. This underperformance is a headwind to capital formation for future next-gen SAF technology investment.