WEF & Kearney: Meeting Global SAF Demand a US$45bn Challenge
Sustainable aviation fuel (SAF), derived from non-petroleum feedstocks, offers significant emissions reduction in air transportation, making it a greener alternative.
And yet, despite its potential, hurdles in economics, politics and technology impede its widespread use.
A new report from the World Economic Forum (WEF) and Kearney forecasts that, by 2030, demand for will reach 17 million tons annually – constituting about 4% to 5% of total jet fuel consumption.
It says the capital investment required to achieve this could be anywhere between $19bn and $45bn, depending on the choice of technology deployed.
Rising demand for SAF
Demand for SAF is being driven by strong sustainability commitments within the industry and stiffening regulatory standards.
Already, 43 airlines have committed to utilising roughly 16.25 billion litres of SAF by 2030, with new agreements popping up regularly.
Furthermore, the WEF and Kearney's research, which forms part of their Airports of Tomorrow initiative, suggests that reaching these targets necessitates substantial capital expenditure.
“If we're serious about hitting SAF targets by 2030, it is essential that SAF producers, governments and investors are working collaboratively to de-risk production and scale employment," contends Claudia Galea, Global Sustainability Director at Kearney.
“There are a number of financing roadblocks for SAF to scale-up effectively, so addressing these barriers requires a multifaceted approach with technological innovation, policy frameworks and innovative financial structures to increase investment appeal for SAF projects across their lifecycle."
The Challenge of Scaling SAF
While demand for SAF is on a steep incline, production capacity lags considerably. Current global output is just 4.4Mt/a, with an expected rise to approximately 6.9 Mt/a by 2030, thanks to planned expansions and new projects.
However, an additional 5.8Mt of production capability needs secure investment by 2026 to meet the sky-high demand projected for the end of this decade.
Several substantial barriers stand in the way of expanding SAF production.
These include: high costs, as SAF can be two to five times more expensive than conventional jet fuel; technological challenges with many production methods still in the infancy or developmental stages; difficulties in securing adequate and sustainable feedstocks; and uncertainty in the market driven by inconsistent policies and shaky demand projections.
To address these issues, the joint report produced by WEF and Kearney identifies 10 pivotal conditions that could help enhance investment attractiveness in SAF projects across their lifespan.
- Research and innovation grants for early-stage, high-risk SAF technologies to reduce upfront costs
- Multilateral development bank support, particularly in developing regions with complex regulatory landscapes
- Guarantees and insurance, such as loan guarantees, first-loss capital, and insurance solutions
- Strategic investments, such as collaboration with airlines, airports, OEMs and energy players to provide demand assurance and foster a supportive ecosystem
- Long-term offtake agreements to provide stable revenue and reduce demand uncertainty
- Book-and-claim mechanisms allow corporate travellers to take an active role in funding SAF
- Green bonds tied to SAF production offers a powerful tool for raising impact-driven capital
- Private equity capital and operational expertise, can accelerate commercialisation and scale SAF projects
- Infrastructure investors with lower capital costs and a long-term investment horizon
- Tolling models can mitigate market risks by charging a fixed fee for refinery capacity while customers supply feedstock and retain ownership
Giorgio Parolini, WEF's Aviation Decarbonisation Lead, adds: "Banks will often view SAF projects as high risk due to their novelty, extended timelines and reliance on emerging technologies, so project developers must bear this in mind when attempting to attract capital.
“For SAF to reach scalable production, a shift in financing mechanisms will be necessary, leveraging both private and public capital to mitigate perceived risks and catalyse substantial cash flow into the sector.”
The future of SAF
Despite formidable challenges, the benefits of scaling up SAF production are substantial. Not only could it drastically cut the aviation sector's carbon footprint, but it also has the potential to spur job creation, boost energy security and foster innovation across renewable energies.
Boston Consulting Group (BCG) is among those to anticipate robust growth in SAF demand extending over the next few decades, projecting it to account for 12% of the global aviation energy demands by 2050.
European mandates starting in 2025 are expected to ignite significant long-term demand for SAF. However, uncertainties in US policy frameworks, voluntary market dynamics and forthcoming Asian regulations may influence these projections.
Notably, recent capacity expansions have led to a brief period of overcapacity, reducing profitability, but as demand catches up, profit margins should recover, enabling reinvestment in the industry.
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