Funding sources for sustainable aviation fuels
In a significant stride towards decarbonising the aviation industry, a diverse group of strategic investors have backed American SAF producer LanzaJet. This prestigious list includes Groupe ADP, a French airport operator, MUFG, a Japanese bank, Southwest, an American airline, and Microsoft's Climate Innovation Fund.
The investment in LanzaJet comes at an opportune moment, as the world witnessed a major milestone on 28 November 2023. Flight100, a Boeing 787 powered by Rolls Royce Trent 1000 engines, completed a transatlantic flight from London to New York, marking the world's first 100% sustainable aviation fueled flight.
Jimmy Samartzis, LanzaJet's chief executive, emphasised the company's strategy of cultivating a diverse portfolio of investors. The expansion of production scale is expected to lower prices over time, but regulatory incentives are also seen as crucial in expediting the process.
The UK government is expected to introduce a revenue support mechanism for SAF production soon, which could provide a much-needed boost to the industry. SAFs are currently estimated to be three to four times as expensive as jet fuel, a barrier that needs to be addressed for widespread adoption.
Institutions investing or committed to SAF production include Airbus, which aims to use SAF by 2030, China National Aviation Fuel Company (CNAF), major airlines like Qantas and FedEx, and the UK government through its Advanced Fuels Fund. Future investments are expected from a wide range of industry players, governments, and financial institutions, with the aim of scaling SAF globally.
Elsewhere, Australia's federal budget has been cited as supporting the SAF industry, with IFM Investors looking forward to continuing their work with the government to accelerate superannuation investment in the Australian SAF industry.
The process of replacing conventional jet fuels with SAFs in aircraft fleets is likely to be gradual, with most airlines currently opting to blend SAF with jet fuel. As the SAF industry matures, its appetite for institutional capital will rise, with the investment case for SAFs being dependent on economies of scale and regulatory incentives.
The increased investor optimism in SAFs follows Flight100's demonstration of SAF's technological promise. By 2050, 65% of the air transport industry's emissions reduction is expected to come from SAFs. This optimism has been further fuelled by the US Inflation Reduction Act and Europe's blending mandate, which have motivated significant investments in the SAF industry.
Even industry pioneers like Richard Branson, the founder of Virgin Atlantic, have expressed their enthusiasm. After Flight100 landed in New York, Branson made a statement about the assumption of impossible tasks, hinting at the industry's potential for groundbreaking change.
Since 2011, over 350,000 flights have flown on blends ranging from 10% SAF to 50% SAF, demonstrating the industry's progress and potential for the future. As more investments and milestones are achieved, the aviation industry moves one step closer to a sustainable, carbon-neutral future.
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