Europe has created demand for sustainable aviation fuel. It must now create the conditions to finance supply and production.
Article by Lionel Chapelet, Partner, PMP Strategy
Europe has made a significant policy commitment to sustainable aviation fuel, starting with 2% in 2025 and increasing to 70% in 2050.
The policy direction is clear. The harder question is whether it will translate into operating plants.
That is the central issue that emerged from a round table I recently facilitated at the Sustainable Air Fuels Summit. The market is not short of ambition, targets or announcements. It is short of projects that can convert demand, technology and public policy into predictable revenues and financeable infrastructure.
For Europe, this is becoming a capital allocation problem.
A mandate can create demand, but it does not automatically create bankable revenues. Investors and lenders need confidence that a project will be able to sell its output at a price that supports construction and debt repayment during all the project period, not only the first years covered by offtake contracts. Airlines and corporate buyers, meanwhile, need protection against committing to high prices for fuel that may become cheaper as technologies mature.
The result is a familiar gap between policy intent and investment reality.
Mandates do not replace bankable contracts
SAF remains materially more expensive than conventional jet fuel. Many supply agreements therefore combine the price of kerosene with a SAF premium. This can provide some protection against movements in the oil market, but it does not remove the underlying cost gap.
For airlines, producers and investors, a letter of intent is not the same as bankable demand.
A financeable offtake agreement needs sufficient volume certainty to support the project’s debt case, a transparent price formula, credible counterparties and clear treatment of environmental attributes. It must also address regulatory changes, production shortfalls, price volatility and the possibility of redirecting volumes to another eligible market.
The strongest structures may involve a portfolio of airlines, fuel traders, corporate buyers and, where appropriate, public-sector counterparties rather than reliance on a single customer.
This is particularly important for first-of-a-kind projects. Their sponsors must secure feedstock, technology, infrastructure, certification, offtake and financing at the same time. If any one of these elements remains uncertain, the project can struggle to reach financial close.
The Revenue Certainty Mechanism will be closely watched
The UK’s proposed Revenue Certainty Mechanism is more than another policy instrument. It will be a test of whether government can bridge the gap between a mandated market and a financeable one.
The mechanism should provide sufficient visibility to support investment without becoming an open-ended subsidy. Its design will need to address the duration of support, the allocation of downside risk, the treatment of different production pathways and the interaction with private offtake contracts.
It must also be credible to investors. A scheme that is complex, slow to allocate or vulnerable to political change may not provide the certainty it is intended to create.
The objective should be to crowd in private capital, not replace it. Public support can address risks that are systemic or difficult to insure, but it should not compensate for weak execution, an uneconomic project or a SAF technology without a credible path to scale.
Scale-up will require more than HEFA
The second challenge is industrial scale-up.
HEFA remains the most mature SAF pathway, but its growth is constrained by the availability of sustainable feedstocks. Used cooking oil continues to represent a significant share of SAF production in Europe, while much of the feedstock is sourced internationally.
The industry must therefore develop additional pathways, including alcohol-to-jet and power-to-liquid.
E-SAF is particularly important. It is currently less mature and more expensive, and represents only a very small share of European aviation fuel consumption compared with the 2030 target. Yet it may provide one of the clearest routes to reducing dependence on constrained biological feedstocks.
For executives, the question is not simply which SAF pathway is cheapest today. It is how technologies, feedstocks, energy systems and infrastructure will fit together over time, and where risk should be taken in a market that will need several pathways to reach scale.
Risk allocation will determine whether projects are financeable
Each project risk should sit with the party best able to manage it.
Technology performance risk should sit primarily with the technology provider, supported by the EPC contractor. Construction risk should be managed through an appropriate EPC structure and strong project governance. The developer, however, must retain integration risk.
A SAF project is not simply a technology package. It combines feedstock, process technology, hydrogen or electricity, utilities, logistics, certification, offtake and financing. The developer is responsible for making those elements work together.
Strategic investors can contribute more than capital. Airlines, energy companies, refiners and infrastructure investors can bring access to feedstock, offtake, operating expertise and market credibility.
This is one reason why the Europe industrial strategy matters. Europe has a strong aviation, energy and engineering base, but those capabilities will only translate into a competitive SAF industry if they are connected through projects that can be delivered on time and financed at scale.
SAF and the airport expansion debate
The issue has wider significance because Europe is also debating the future growth of its aviation sector.
SAF is increasingly presented as part of the answer to the question of how aviation can expand while remaining compatible with climate objectives. That argument will only remain credible if the supply of SAF grows in line with the policy narrative.
Several media have already highlighted the tension between airport traffic development in an unpredictable economic and political context and the limited near-term availability of SAF.
This does not mean that SAF has no role to play. It means that claims about its role must be matched by evidence of production capacity, investment and delivery.
The real test is repeatability
SAF will have truly turned a corner when it is no longer financed as a series of exceptional projects, but as repeatable industrial infrastructure.
Three developments will signal that transition: more commercial-scale projects reaching financial close with non-recourse financing; a more diversified offtake market, with meaningful commitments from airlines, fuel traders and corporate buyers; and public support becoming more targeted and less essential for each individual project.
There are already encouraging signs. SkyNRG has announced financial close for its 100,000-tonne-per-year DSL-01 facility in the Netherlands, which it described as the first non-recourse project financing in the sector.
For Europe leaders, SAF should not be treated solely as a procurement or compliance issue. It is a strategic question spanning investment, regulation, energy security, partnerships and risk management.
Europe has taken important steps to create demand and support domestic production. Its competitive advantage will now depend on whether it can turn that policy framework into projects that investors, lenders and industrial partners are prepared to back in a context where investors and lenders could be tempted to invest more in other booming infrastructure areas such as data centers.
SAF will have turned a corner when the market can finance scale, not just ambition. The Europe’s next test is whether it can make that transition happen.
Lionel Chapelet is a Partner at PMP Strategy, where he advises aviation, energy and infrastructure leaders on strategy, investment, industrial development and the transition to sustainable fuels.
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