How Does e-SAF Differ From SAF?

Imagine a low-emissions kerosene replacement that is synthetically manufactured from abundant sources, creating a virtually unlimited supply.

“The magic of synthetic fuel is that it is simply made from air and water. That may sound like alchemy, it may sound extraordinary, but it is simply chemistry,” Zero Petroleum CEO Paddy Lowe said.

This “alchemy” creates a sustainable aviation fuel (SAF) that is variously known as electrofuel (e-fuel), power-to-liquid (PtL), or just e-SAF. But how is e-SAF different to regular SAF? Conventional bio-derived HEFA SAFs use feedstocks such as used cooking oil, waste, or forestry residues, whereas e-SAF is created from water, carbon dioxide and renewable electricity. “It’s like going from [oil] refining to chemical engineering,” International Airlines Group (IAG) head of sustainability Jonathon Counsell said.

IAG and its group airlines—Aer Lingus, British Airways, Iberia, LEVEL and Vueling—are active in the e-SAF market. Californian e-SAF producer Twelve joined IAG’s Hangar 51 startup accelerator in 2020. By February 2024, this evolved into a 14-year purchase agreement, covering 260 million gallons (785,000 tonnes/984 million litres) of e-SAF, which will power IAG’s fleet from 2025. IAG estimates this will cut lifecycle emissions by 90%, compared with conventional kerosene.

“PtL is going to be an important part of our future, probably the most important part of our SAF story,” Air Transport Action Group (ATAG) executive director Haldane Dodd said. “We will still be using HEFA in 2050, but it’s going to be a fairly small part of the overall mix.”

With this in mind, European Union (EU) regulators have mandated fuel suppliers to blend e-SAF into their deliveries. Germany’s mandate is the most ambitious, requiring 0.5% of aviation fuel to be e-SAF by 2026, rising to 1% in 2028 and 2% by 2030. The UK has taken a gentler approach, calling for 0.2% e-SAF by 2028, rising to 3.6% by 2040. Meanwhile, under ReFuelEU, EU member states must blend 1.2% e-SAF by 2030 and 5% by 2035, building to 35% of the total EU aviation fuel supply by 2050.

Counsell and Dodd see the EU mandate as quite demanding relative to the e-SAF development cycle. “I can’t see there being enough [e-SAF] in the market to meet the PtL sub-targets in the EU,” Counsell said.

ANALYSIS

An analysis by eco-lobby group Transport & Environment (T&E) has identified 56 e-kerosene projects in the European Economic Area (EEA), including 36 large-scale industrial projects and 20 pilot projects. “That’s plenty to comply with ReFuelEU, but the issue is that none of these projects have managed to reach a final investment decision (FID) yet. Most of them are still at quite an early stage,” T&E aviation policy officer Camille Mutrelle said, noting that a facility producing roughly 50,000 tons of e-SAF per year requires €1 billion ($1.1 billion) in investment.

Arcadia eFuels CEO Amy Hebert estimates that approximately 10 e-SAF projects above 50,000 tons need to reach FID by the end of 2025 to meet the mandates. However, Arcadia is struggling to secure the 12-year airline offtake agreements that are needed for FID. To move things forward, Hebert would like to see direct support for early producers, government-backed revenue certainty mechanisms, and clearer non-compliance penalties.

“Something has to give,” she said. “There are probably 10 to 15 projects that could easily reach FID next year, if the EU finds a way to unlock the offtake problem.”

Whenever SAF is discussed, there is typically a carrot-and-stick comment that often compares US incentives with EU mandates. However, there are other barriers blocking the ramp-up. One is the sheer volume of electricity needed to produce e-SAF.

“You can’t just cannibalize what’s already supplying the grid,” IAG sustainable fuels and carbon manager Leigh Hudson said. “You’ve got that lead time—how do you source that additional renewable electricity?”

T&E estimates that the EU 2050 e-SAF mandate will require 11% of Europe’s projected renewable electricity. Moreover, the EU has specified that e-SAF plants must either be located in countries where the grid is over 90% renewable, or the e-SAF company must add enough renewable energy to the grid to support their project.

“The only countries in Europe that have that [90% renewable grid] now are Iceland, Norway and a couple of areas in Sweden,” Hebert said. “There’ll be more by 2030, but you can’t take an FID decision until you know the grid is above 90%. You can’t say ‘I hope it will be that way in 2028’ and spend several billion euros building a new plant on a hope strategy. No one will give you the money.” The alternative is to create additional supply, but this introduces project-on-project risk.

If the EU were to allow the first few e-SAF plants to operate an 80% renewable grid, Hebert believes this could spark e-SAF projects in other EU countries. “Otherwise, everyone has to build in Iceland and Norway, and those are going to be very expensive capital projects,” she said.

LUFTHANSA

In March, Lufthansa Group CEO Carsten Spohr estimated that it would take all of Germany’s renewable energy to power Lufthansa’s fleet with e-SAF. A September Lufthansa policy brief called on the German government to abolish its e-SAF mandate, arguing it “cannot be met,” especially as some projects are being put on hold and the government’s summer 2024 e-SAF tender was unsuccessful. “No bidders were found, partly because the contract value and duration were underestimated in view of the investment volume and the development time required to construct a PtL plant,” Lufthansa said.

There has been speculation that the German mandate may not be compatible with ReFuelEU, and that the EU mandates might be watered down following the summer 2024 elections. “I think that, collectively, we are all expecting there to be quite a brutal review of the [ReFuelEU] policy, perhaps in 2025, on PtL,” IAG’s Hudson said.

T&E’s legal advisors believe the German mandate is EU-compliant, but uncertainty remains. “Now it’s up to policymakers to make that decision,” Mutrelle said. “It sends a signal of instability to the markets to just scrap a mandate like this. Then it’s very easy to project that situation onto ReFuelEU … it is really important that policymakers, especially at EU level, state very firmly and clearly that the mandates are here to stay.”

This is concerning, because mandates help unlock e-SAF funding. However, Zero Petroleum’s Lowe believes European governments will remain “quite robust” on their mandates. “I think the numbers they put down are actually good ones and very much achievable,” he said.

PRICE PARITY

Lowe said e-SAF was seen as “a weird, ridiculously expensive idea,” two or three years ago, but over the past 12 months this attitude has shifted. “There’s only so much used cooking oil in the world,” he said. “The killer point is that [HEFA-based SAFs] don’t have a pathway to cost parity with fossil fuels … they just won’t get cheaper, because the feedstocks are not derived from industries that are on a cost-down trajectory.”

Lowe was previously involved in Formula 1 motor racing. During his time as executive director at Mercedes, technical director at McLaren and CTO at Williams, he supported 12 Formula 1 world titles and 158 race wins. He is equally ambitious about e-SAF. “It’s an entirely industrial process,” he said. “It’s a machine. And, like all machinery in industrial history, it will get cheaper,” he said. “We actually model that we will get to cost parity with fossil fuel inside 10 years.”

Zero has formed partnerships with Airbus, Boeing and Rolls-Royce. Lowe downplays the electricity barrier, saying that if just 6% of Australia’s land area—and he notes there are plenty of uninhabitable regions—was used for solar power, it could create enough e-fuel to replace “all the fossil fuel we use on the planet, not just for aviation.” Lowe expects most e-fuels plants will be co-located with renewable energy facilities in very remote places.

Other e-SAF producers are more cautious with their outlook. “I don’t see a path to fossil fuel parity right now,” Hebert said. Her thinking is guided by high European electricity costs, electrolyzer readiness and the fact that fossil fuel has fully depreciated infrastructure and is “heavily subsidized.”

She thinks e-SAF might reach six-to-nine times fossil prices by 2030-2032, if the 90% renewable grid requirements were reduced, but “realistically” she thinks e-SAF multipliers will be closer to eight to 12 times higher until 2042. This is more conservative than the International Council on Clean Transportation (ICCT), which sees the price gap of e-kerosene dropping to 3.5 times fossil kerosene in 2030 and 2.5 times in 2050.

Mutrelle also sees Lowe’s e-SAF price parity outlook as “very optimistic.” However, she agrees that HEFA—currently at two-to-three times fossil prices—is unlikely to reach fossil parity. “For e-kerosene there are significant cost decreases to be expected at several stages of this process. On paper, you can produce as much renewable electricity as you want. You don’t have the fundamental limits that biofuels have,” she said.

PENALTIES

Another missing piece is enforcement mechanisms. Fuel suppliers must pay at least twice the price difference between fossil kerosene and e-SAF for any undersupply and they still have to make up the missed e-SAF quota. This sounds simple, but vital details are missing.

Firstly, the penalties affect distributors, not producers. “Most fuel suppliers don’t even really know themselves whether they’re considered a fuel supplier under ReFuelEU or not, so there’s still quite a few details to fine-tune,” Mutrelle said.

Secondly, there is no reference price for e-SAF, and EU member states are still finalizing their penalties. “That e-fuel market price and penalty has to be set for 12 years. They can’t change it every year. If it’s changed every year, forget it. Then we can’t get the 12-year offtake agreements to get the projects financed,” Hebert said.

Major oil companies also control the supply chain and are not obligated to make facilities available to smaller producers, making it hard for e-SAF producers to gain access. “If they [the oil majors] get hit with penalties, they’re just going to pass them along to the airlines,” Herbert said.

In July, Shell paused its involvement in a Swedish PtL plant. “This was the only major e-kerosene project that we knew of in which a big oil company was involved,” Mutrelle said.