Recently, the US Department of Energy approved a $2.9 billion loan to two sustainable aviation fuel (SAF) producers, a welcome sign of support for SAF technology, which is the only realistic solution for rapidly decarbonizing the aviation industry. SAF has been struggling to attract sufficient investment so far, often overshadowed by its by-product, renewable diesel.

The loans provided to Gevo and Montana Renewables not only support the initial investments in the SAF-focused biofuel production sector, but also are expected to double the global biofuel total investment this year compared to 2023. It is still unclear whether this is just a temporary surge in data or will trigger follow-up investments.

Note: *Investment in renewable diesel includes investments in SAF and other products produced simultaneously, such as renewable naphtha, natural gas liquids, and other products. The 2024 investment amount is the initial data.

Gevo's Net-Zero 1 facility in South Dakota aims to produce 60 million gallons of SAF annually, while Montana Renewables plans to expand the capacity of its existing facility (one of the few commercially operational SAF plants) to 0.23 billion gallons per year. The Department of Energy hopes these facilities will help the US meet its 'enormous challenge' of reaching 3 billion gallons per year of domestic SAF production capacity by 2030, accounting for about 10% of the national aviation fuel consumption.

Through these loans, the Department of Energy aims to encourage the production of SAF using raw materials grown in the US. Montana Renewables employs hydrotreating technology, which requires fats, oils, and greases as feedstock. The company relies on raw materials from the US Midwest and Canada, such as canola oil, soybean oil, camellia oil, distilled corn oil (a by-product of ethanol production), and animal fats.

Gevo is one of the few producers using a different technology to convert ethanol into SAF. Its uniqueness lies in the company's partnership with local farmers in the Midwest to grow low-carbon fodder corn for use in its South Dakota facility.

SAF is priced higher than traditional fossil aviation fuels, indicating that the technology requires government policies to incentivize its use. However, due to the lack of clear long-term policy support in the SAF industry, companies struggle to secure sufficient funds to build capital-intensive production facilities.

The Inflation Reduction Act aims to address this issue by providing tax incentives to SAF, but the Ministry of Finance has yet to provide guidance on the eligibility for fuel to enjoy the exemption. The tax exemption will expire in 2027, which also weakens the economic impact on these projects, as the projects will operate for decades. In recent months, many projects in the SAF industry have been cancelled or suspended, including projects by producers such as BP, Shell, Orsted, and Idemitsu, so it is not surprising.