The global market for SAF is in a nascent yet rapidly developing stage, driven by the urgent need to reduce carbon emissions in the aviation sector. There has been significant progress in SAF production, adoption, and regulatory support over the past few years. While challenges related to cost and scalability remain, the concerted efforts of governments, industry players, and technological innovators provide a promising outlook for the future of SAFs. The next few years will be pivotal in determining the extent to which SAF can transform the aviation industry and help achieve a more sustainable future for air travel. This chapter sets out a high-level view of the current state of the SAF industry, its key stakeholders and the economic forces at play.
The annual production capacity for SAF is still relatively limited compared to the total jet fuel demand. Estimates suggest that SAF production in 2023 was around 0.1% of the total aviation fuel consumption, though this number is expected to increase significantly in the coming years. The International Air Transport Association (IATA) estimates indicate that during 2024, even after anticipated increases in supply, the share of SAF may reach 0.5% of total aviation fuel consumption (IATA, 2023). These small percentages contrast starkly versus projections indicating that SAF could constitute up to 10% of global jet fuel demand by 2030, contingent on continued investment and supportive policies.
Decarbonization targets set by governments and associated policies that necessitate the aviation industry to move to greener fuels give guidance to future demand trajectories. Several countries have introduced blending mandates requiring airlines to use a certain percentage of SAF, these are crucial for driving demand and encouraging investment in SAF infrastructure. For example, the European Union’s ReFuelEU Aviation initiative aims for a 2% SAF blend by 2025, increasing to 63% by 2050.
To complement policy driven requirements, and to support commitment to state level targets, governments in the United States, European Union, and other regions have implemented subsidies, tax credits, and grant incentives to promote SAF production and use. The U.S. Inflation Reduction Act (IRA), for instance, provides significant financial incentives for SAF production
Figure 1: SAF Blending Commitments by Airline Carrier
Voluntary commitments to SAF by airlines are bolstering demand projections. Instead of relying solely on conventional carbon offset routes, airlines are increasingly adopting SAF offtake agreements to reduce their carbon footprints. As of December 2023, more than 43 airlines have made voluntary commitments to blend SAF into their fuel supply (HCS Group, 2023). In alignment with these commitments, the IATA, the trade association for the world’s airlines, comprising 330 members, has committed to reach net zero CO2 emissions by 2050 (IATA, 2023).
Whilst voluntary commitments are not legally binding, and policy makers can change course, the unified signaling from industry participants provides a clear direction for the SAF industry as a whole. Forecasts done by Dutch fuel supplier SkyNRG show an increase in SAF production capacity to 17.3 million tonnes by 2030, up significantly from 4 million tonnes in 2023. Similarly, to reach its decarbonization targets, the IATA estimates global demand will be in the region of 360 million tonnes by 2050, representing a 99.9% increase from current levels. Landmark legislation on SAF in the EU, the US, and the UK will act as the primary demand driver. SkyNRG estimates that Europe and the US could have around 120 million tonnes of SAF capacity installed by 2050 (SkyNRG, 2024).
Figure 2 – 2030 Projected Global Capacity by Region, Based on SAF Announcements and SAF Policies Implemented and Announced
The current global supply of SAF falls significantly short of the estimated requirement needed to meet decarbonization goals. The World Economic Forum (WEF) has estimated that between 40 to 50 million tonnes of SAF will be necessary to achieve these targets (WEF, 2024). However, existing offtake contracts account for only a small fraction of this requirement, with the IATA estimating around 13 million tonnes (IATA, 2023). This presents a compelling case for the SAF business case and growth opportunity whereby announced SAF production capacities cover only 30% to 40% of the projected SAF demand by 2030.
The supply gap essentially represents a lack of confidence from industry participants in committing to the future SAF economics and adoption. Several factors contribute to this uncertainty, including technology risks, financing dynamics, policy risks and country-specific challenges.
Figure 3: Projected Demand-supply Gap in Million Tonnes
Source: WEF, 2024
SAF’s share in total aviation fuel consumption (currently less than 1%) is typically exchanged at prices more than twice as expensive as conventional fuel. The SAF market, being relatively nascent with limited volumes, also suffers from opaque pricing based on private negotiations rather than market forces. The total cost for purchasing SAF, produced using the currently most commercially viable ‘Hydrotreated Esters and Fatty Acids’ (HEFA) method, is estimated to be 2.0 to 2.5 times higher than that of conventional fuel (WEF, 2023). For airlines, this translates to an estimated 300% increase in fuel costs, which significantly hinders large-scale adoption and commercial scalability.
Figure 5: Price Premium of SAF over Conventional Jet Fuel
Source: WEF, 2024
Figure 6: Projected Average Cost Rise Relative to the Fossil-based Jet Fuel Cost as of 2022
Source: WEF, 2024
Source: WEF, 2024
Battery supply chain is central to the electric vehicle manufacturers and investors’ strategy. The access to resources and technical know-how is the crucial factor driving current investment plans in adding capacity. The Chinese predominance is a given, with three-quarters of global battery cell manufacturing and 90% of anode and electrolyte production. Efforts are underway to moderate the Chinese concentration. The US and European investments are in this direction.
BNEF’s annual Lithium-Ion battery supply chain ranking had China at the top spot. Canada however rose to the second spot this time around, resulting not only from endowed resources but other supporting factors including infrastructure, environmental-social-governance factors and innovations. Interestingly, the US dropped to third spot in the ranking despite the strong policy basis arising from its Inflation Reduction Act.
Relative Share of Coal and Renewable in Global Power Generation
Note: Data refers to share of energy units generated by renewable and coal-based sources.
However, battery prices vary widely across regions due to local market dynamics. China boasts lower average battery pack prices compared to the US and Europe, attributed to intense price competition and rapid manufacturing capacity expansion. Geopolitical factors, such as new US regulations targeting Chinese-origin battery components, introduce additional price distortions CNN, 2023).. Whilst the average battery pack price in China, as of 2023, was reported at $126/kWh, elsewhere in the US and European markets prices were 11% and 20% higher respectively.
Despite these challenges, battery storage units are increasingly competitive in the grid power mix, particularly in hybrid renewables plus storage projects Lazard, 2023). Many of these projects are now competitive against gas-based peaking power units, driven by revenue stacking opportunities from grid services and wholesale power market transactions.
Comparative view of Unsubsidised Levellised Costs across Fuel Mix vis-à-vis Batteries
Note: Above data is illustrative, as of April 2023, and refers to the US market
Source: Lazard
The downward pressure on battery metal prices is anticipated to continue through 2024 and 2025 before any signs of recovery in the price trend emerge. Both demand and supply factors contribute to this outlook. On the demand side, a weaker electric vehicle market, driven by a slower Chinese economy, sluggish US market sales, and high interest rates, has dampened demand. This is significant as over 90% of battery demand comes from electric vehicles. Concurrently, miners have expanded the supply of critical minerals in anticipation of future demand. This expansion includes major battery metals such as Lithium, Cobalt, and Nickel. The pricing pressure is expected to persist due to the influx of additional supplies into the market as leading producers have expanded capacities in anticipation of future demand, despite the long lead times involved.
Lithium Supply and Price Outlook
Note: Data for 2023 is as of November 2023
Source: BNEF Annual Battery Price Survey of 2023