Sustainable Aviation Fuel Models
Executive Summary
Key Takeaways
- ✓ Sustainable aviation fuel project economics are driven by feedstock cost and availability risk, a blending mandate or offtake structure determining demand, and a cost premium over conventional jet fuel current production economics have not yet closed.
- ✓ Feedstock cost and availability should be modelled with explicit supply chain risk, since many SAF pathways depend on feedstocks, used cooking oil, agricultural residue, or synthetic pathways, whose supply is constrained or competes with other uses.
- ✓ Blending mandates, regulatory requirements that airlines or fuel suppliers use a minimum SAF percentage, are an increasingly common demand driver and should be modelled as a distinct demand mechanism from voluntary corporate offtake commitments.
- ✓ The cost premium over conventional jet fuel should be modelled explicitly and tracked over time, since SAF remains materially more expensive to produce than conventional jet fuel in most current pathways, and project viability frequently depends on this premium being covered by mandate, incentive, or voluntary offtake premium pricing.
- ✓ Many current SAF projects depend materially on production incentives to close the cost premium gap, and this dependency should be modelled as an explicit, separately identified component distinct from base project economics.
Objective¶
This guide covers modelling sustainable aviation fuel (SAF) project economics within Climate Finance & Climate Financial Modelling.
Feedstock Cost and Availability Risk¶
Many SAF pathways depend on feedstocks, used cooking oil, agricultural residue, or synthetic pathways requiring green hydrogen and captured carbon, whose supply is constrained or competes with other uses. Feedstock cost and availability should be modelled with explicit supply chain risk rather than assumed freely available at a stable cost.
Blending Mandate Versus Voluntary Offtake¶
A blending mandate, a regulatory requirement that airlines or fuel suppliers use a minimum SAF percentage, is an increasingly common demand driver and should be modelled as a distinct mechanism from voluntary corporate offtake commitments, since mandate-driven demand carries different durability and price dynamics than voluntary commitments dependent on individual buyer discretion.
The Cost Premium Over Conventional Jet Fuel¶
SAF remains materially more expensive to produce than conventional jet fuel in most current pathways, and project viability frequently depends on this premium being covered by mandate compliance value, production incentives, or voluntary offtake premium pricing. This premium and its coverage mechanism should be modelled explicitly and tracked over time rather than assumed to close on its own.
Incentive Dependency¶
Many current SAF projects depend materially on production incentives to close the cost premium gap, and this should be modelled as an explicit, separately identified component distinct from base project economics, consistent with the incentive dependency treatment described in Renewable Incentive Models.
Common Construction Pitfalls¶
Feedstock supply assumed freely available at a stable cost. Overlooks genuine supply chain constraint and competing-use risk in most SAF feedstock pathways.
Mandate-driven and voluntary offtake demand blended together. Obscures the different durability and price dynamics each demand mechanism carries.
Cost premium coverage assumed to close without explicit mechanism. Overstates project viability where the premium in fact depends on mandate, incentive, or voluntary premium pricing continuing.
Recommended Practices¶
- Model feedstock cost and availability with explicit supply chain risk.
- Model blending mandate and voluntary offtake demand as distinct mechanisms.
- Track the cost premium over conventional jet fuel explicitly and identify its coverage mechanism.
- Model incentive dependency as an explicit, separately identified component distinct from base project economics.
Continue Reading¶
Related Pillars¶
Related Technical Guides¶
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Frequently Asked Questions
What are the main drivers of SAF project economics?
Feedstock cost and availability risk, a blending mandate or offtake structure determining demand, and the cost premium over conventional jet fuel that current production economics have not yet closed, each requiring explicit modelling treatment rather than a generic biofuel project assumption.
Why does feedstock supply carry explicit risk in a SAF model?
Because many SAF pathways depend on feedstocks, used cooking oil, agricultural residue, or synthetic pathways requiring green hydrogen and captured carbon, whose supply is constrained or competes with other uses, and feedstock cost and availability should be modelled with explicit supply chain risk rather than assumed freely available at a stable cost.
What is a blending mandate, and how does it affect demand modelling?
A regulatory requirement that airlines or fuel suppliers use a minimum percentage of SAF in their total fuel mix, an increasingly common demand driver that should be modelled as a distinct mechanism from voluntary corporate offtake commitments, since mandate-driven demand carries different durability and price dynamics than voluntary commitments.
Why does the cost premium over conventional jet fuel matter to project viability?
Because SAF remains materially more expensive to produce than conventional jet fuel in most current pathways, and project viability frequently depends on this premium being covered by mandate compliance value, production incentives, or voluntary offtake premium pricing, a dependency that should be modelled explicitly rather than assumed to close on its own over time.
How should incentive dependency be modelled for a SAF project?
As an explicit, separately identified component distinct from base project economics, so a reader can assess how dependent the project's viability actually is on the incentive continuing, consistent with the incentive dependency treatment applied elsewhere in this Knowledge Centre's renewable energy content.
References
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