Five to midnight: how the STIP can boost e-SAF scale-up in the EU

Summary:

• For Sustainable Aviation Fuel (SAF), the Clean Industrial Deal (CID) contains some helpful measures, in particular on the support of renewable and low-carbon hydrogen, affordable energy prices and by increasing and simplifying access to financial support via InvestEU and EIB.  
• However, to accelerate financial investment decisions, the Commission should swiftly follow through with concrete derisking mechanisms for SAF in the forthcoming Sustainable Transport Investment Plan (STIP). It is vital that the measures in the STIP are implemented in 2026 and are able to support projects immediately to meet ReFuelEU blending targets.
• In this response, we offer concrete ideas from the sector that could significantly boost the number of FIDs taken for e-SAF projects in Europe by as soon as next year.

Why aviation needs e-SAF

European industry is facing a monumental challenge. Strong headwinds in the form of high energy prices and fierce global competition threaten our industry. At the same time, it is imperative to continue delivering on our climate commitments to ensure a more sustainable future for all Europeans. This situation places Europe at a crossroads: either continue to lose out on industrial competitiveness to China and the United States or implement bold policy interventions to build a globally competitive, green industry that also supports energy security goals.

e-SAF¹ is a critical example of a solution that needs such bold policy intervention, and the stakes are high if we do not seize the window of opportunity created with this Clean Industrial Deal. Widely regarded as the most scalable solution to reduce aviation greenhouse gas emissions and improve energy autonomy in Europe, e-SAF has secured an important position in EU renewable fuel policy. ReFuelEU and the Climate Target Plan 2040 affirmed that by 2030, EU fuel suppliers would need to supply 1.2% and 5% e-SAF by 2030/31 and 2035, respectively, to be on track for the necessary long-term emission cuts in aviation. If we do not manage to collectively start scaling this pathway by 2030, there will not be a second SAF pathway to fall back on once we run out of bio-based feedstocks.

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Why we need bold measures now

Despite the importance of e-SAF for the future of aviation, to date, not a single company has managed to take a financial investment decision (FID) to build an e-SAF project. Compounding this, major fuel suppliers are not involved in any e-SAF projects. This is extremely worrying, since ReFuelEU mandates 1.2% of e-SAF by 2030/31, translating to ~600,000 tonnes of e-SAF. Failing to deliver on the mandate in time means high liabilities for non-compliance penalties which will be passed onto airlines and EU consumers.

To enable first movers and channel investment into e-SAF, we need to get project financing right. While e-SAF has little trouble in attracting equity because of its promising market outlook, debt remains the main bottleneck. Lenders require revenue certainty to provide the billion-euro loans that will be needed to develop new facilities. The main factors impeding revenue certainty for e-SAF are:

1. market and pricing predictability
2. volume risk on first-of-a-kind technology
3. availability of feedstock and infrastructure

Without appropriate policy interventions, e-SAF will materialize over time but mainly outside of Europe and at a pace too slow to meet the mandates. This makes Europe too reliant on third countries and represents a missed opportunity to lead the pack on e-SAF. The Clean Industrial Deal and the Sustainable Transport Investment Plan – if executed well – arrive just in time to unlock investment from the private sector and capitalize on the full potential of e-SAF for Europe.

How does the Clean Industrial Deal support e-SAF?

• Affordable energy: By lowering energy bills for industry and rolling out 100 GW of renewable electricity capacity until 2030, supply constraints on the power grid would be relieved. This would enable more e-SAF projects across Europe, as projects on grids with a >90% renewable share can run baseload, making them more competitive at the global level. To fully encourage the uptake of SAF, the European Taxation Directive should also be concluded to disincentivize the use of polluting conventional jet fuels.
• Boosting demand for clean products: The goal to further promote the uptake of renewable and low-carbon hydrogen is positive for the SAF market. The CID announces additional rounds of Hydrogen Bank auctions and a novel ‘Hydrogen Mechanism’ aimed at linking offtakers and suppliers of hydrogen. To date, however, the Hydrogen Bank has not proven effective for e-SAF, evidencing that other de-risking measures are needed to get projects off the ground.  
• Public and private investments: The CID will mobilize over €100 billion to support clean manufacturing in the EU. This €100 billion will make use of funds from the Emissions Trading System and InvestEU, as well as one-third in voluntary member state contributions. Unfortunately, this conditionality on member state contributions will weaken the CID because of national budgetary laws and national political priorities. The Commission will further amend InvestEU to increase InvestEU’s risk-bearing capacity, which could be particularly helpful to e-SAF, which InvestEU has failed to support to date. This is a measure that could rapidly bring attractive debt to projects and ensure they can keep momentum. Finally, simplified and flexible rules will allow quick approval of State aid measures for decarbonization projects like e-SAF, especially if they have an IPCEI status.
• Circularity and access to materials: Enabling the circular economy and access to resources is a key priority for the Commission,  and in turn beneficial for the SAF industry. By converting used cooking oil and other waste products into cleaner fuels for aviation, SAF producers have already been putting the principles of circular economy in action. However, for e-SAF, access to renewable hydrogen and captured CO₂is critical instead. There will be fierce competition  for these resources as blending mandates increase, and the Commission should give more thought to how to ensure the security of supply of both.
• Global markets and international partnerships: As protectionist measures are multiplying across the globe, there is a risk that global overcapacities will be redirected to the EU market. The Commission will therefore work on further anti-dumping or anti-subsidy duties where necessary. This could prevent low-cost, subsidized SAF from third countries from damaging the development of a European SAF sector.
• Implementing the Clean Industrial Deal across sectors: Most relevant for SAF, the Commission will come forward with the Sustainable Transport Investment Plan (STIP) by Q3 of 2025. The STIP will outline short-and medium-term measures to prioritize support to specific renewable and low-carbon fuels for aviation and waterborne transport. Below we offer concrete ideas to accelerate e-SAF.

Our four asks for the Sustainable Transport Investment Plan

Together with Project SkyPower, we developed the following policy recommendations to address the most urgent barriers stalling e-SAF projects today, which can be addressed in the STIP.

1. Make e-SAF a strategic priority in the Sustainable Transport Investment Plan. Securing a position for e-SAF in the forthcoming Sustainable Transport Investment Plan could unlock the necessary funding to accelerate the scale-up of e-SAF.
2. Create long term revenue certainty via a capitalized market intermediary that enters into auctioned long term offtakes with producers to derisk a first wave of projects set to come online by 2030.
3. Establish a bridging mechanism until a capitalized market intermediary comes online to give first movers priority access to the new funding instrument.
4. Mitigate performance risk and project-on-project risk via government and EU-backed safeguards and financing structures, creating a financial backstop to ensure debt service payments can be made in case the project defaults.

1. Make e-SAF a strategic priority to decarbonize aviation

The European Commission should include e-SAF as a  key strategic priority in the Sustainable Transport Investment Plan in Q3 of 2025. This would justify allocating the necessary budgets to the Sustainable Transport Investment Plan in the Multi-Year Financial Framework (MFF) coming in July 2025.

2. Revenue certainty mechanism

To keep the cost of capital to an acceptable level, loans to finance a SAF project need to be between 10 and 15 years. For the duration of the tenor, a lender needs long term revenue certainty to ensure that the loan is paid back. This in turn means that producers need to secure 10-15 year offtakes from a creditworthy offtaker.

In addition, n^th-of-a-kind projects are expected to be significantly less costly compared to first-of-a-kind projects as they make use of economies of scale, which makes airlines and fuel suppliers hesitant to sign long-term offtakes with producers. This pricing risk  currently slows down offtake discussions, as offtakers do not want to end up in a situation where, in five years’ time, competitors sign much more competitive deals for e-SAF as projects come down the cost curve.

This situation demonstrates that a mandate alone will not lead to long-term offtakes. A targeted policy intervention is needed  this year to address long-term revenue certainty for e-SAF and ensure that project milestones can be met for the first wave of e-SAF facilities.

SkyNRG supports the use of the H2Global mechanism to deliver on this long-term revenue certainty mechanism. We recommend that the European Commission, with the support of member states, earmarks funding from auctioning revenues in the Aviation Emissions Trading System (ETS) to the mechanism to ensure that the sector finances its own transition. The H2Global mechanism has four design elements which make it a budget-efficient mechanism with broad support from the financial sector:

1. Double-sided auctions: both offtakers and e-SAF producers put in bids for the price they are willing to buy or sell the fuel, respectively. This competitive element on both sides ensures that the remaining premium is kept to a minimum.
2. Capitalized market intermediary: serving as the market-maker between the offtaker and e-SAF producer and it channels external funding to cover the remaining premium between the result of the producer auction and the offtaker auction.This intermediaryis the entity signing the offtakes with both sides and requires backing from a public entity, such as member state governments and/or InvestEU, EIB.
3. Contracts for difference: European Commission funding bridges the difference between the winning offtaker bids and the e-SAF producer bids.
4. Asymmetrical contract durations: allowing for the pooling of offtakes. Offtakers can engage in shorter term offtakes (e.g. 3-5 years), while the e-SAF producer enters into a long- term offtake (10+ years) with the market intermediary.

From 2031 until 2040, the Aviation ETS will generate approximately EUR 15 billion in auctioning revenues. By allocating just 20% of these revenues to this mechanism (EUR 3 billion), the European Commission could successfully support 300,000 tonnes of e-SAF for a period of 10 years.²This is sufficient to successfully derisk 3 – 5 commercial scale projects and contribute to almost half of the ReFuelEU Aviation target for 2030/2031.

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3. Bridging mechanism

As evidenced by the Innovation Fund and the UK’s Revenue Certainty Mechanism, projects often delay milestones until the moment the final grant is awarded, thereby also delaying a financial investment decision. If e-SAF projects want to be online by 2030/31, they will have to take FID in 2026. Since getting H2Global ready and funded for e-SAF will realistically take until 2027, not in the least because of the scheduled ETS revision in 2026, we need a bridging mechanism to ensure projects maintain momentum towards their milestones.

A bridging mechanism could take the shape of a pre-selection process where projects undergo screening in 2025/2026 and already start contracting with a European financial institution, such as the Sustainable Fuels Bank as referenced by Tzitzikostas’ hearing. In this way, first movers are granted priority access to e-SAF funding for when the auctions take place. This mechanism could already be brought online as a result of the Sustainable Transport Investment Plan, scheduled for Q3 2025.

4. Financial backstop

Risks that a long-term revenue certainty mechanism will not address are the aforementioned volume risk for first-of-a-kind projects and project-on-project risk associated with availability of feedstock and infrastructure risk.

Debt providers need to have reasonable certainty that debt payments can be made, and first-of-a-kind technology does not come with the necessary performance guarantees to ensure that an e-SAF facility will produce its projected volumes. Neither the Engineering, Procurement, and Construction (EPC) contractor, nor the project developer or technology licensor have the balance sheets to offer such guarantees.

In addition, there is inherent project-on-project risk in e-SAF projects. The success of the project relies on availability of CO₂ supplies which need to be synchronized with the milestones of an e-SAF project. No feedstock, no e-SAF. When there is insufficient CO₂, the market is not liquid enough to backfill any defaulting volumes of CO₂ from suppliers.

For both these risks, the sector urgently needs a financial backstop mechanism. This is a financial instrument that could be developed through the EIB/InvestEU that provides insurance or guarantee products that satisfies lender requirements. This entity could also ensure that debt payments can be made in case the project defaults as a result of one of these risks.

The financing of the backstop mechanism could be managed in multiple ways:

• As a form of project insurance against defaulting, with e-SAF projects paying an insurance premium to participate.
• As a repayment mechanism, allowing for cost recovery once the plant generates sufficient free cash flow after operating expenses, debt service costs, and a minimum return for equity.

In the Clean Industrial Deal, the European Commission has announced to increase the risk-bearing capacity of the EIB. This financial backstop mechanism would be an ideal fit with this announcement, which would enable the EIB to de-risk strategic European projects.

Call to action

If these policy interventions are adopted, SkyNRG and the signatories of the open letter believe the private sector can accelerate action towards (i) scaling e-SAF production capacity to ensure the success of ReFuelEU Aviation and (ii) supporting the longevity of the e-SAF industry in Europe.

Failing to come forward with the right policy interventions risks setting back a novel industry and undoing years of progress and funds allocated by first movers. The future of aviation needs to decarbonize and e-SAF has a major role to play.

Please reach out if you want to learn more about what SkyNRG is doing to scale e-SAF with Project SkyKraft, our 100,000 t/y e-SAF project in Sweden. If you have any questions about policy recommendations in this position paper, please fill in the form below.

1. Sustainable aviation fuel produced from renewable electrolytic hydrogen and CO₂, as defined in ReFuelEU. ↩︎
2. Assuming an average support level of EUR 1,000/t e-SAF. ↩︎