The pace of sustainable aviation (SAF) deals has slowed down this year due to feedstock concerns, S&P Global wrote.

The introduction of new legislation aimed at boosting SAF production in the European Union (EU) and USA prompted numerous production deals in 2021/22, according to a survey of SAF offtake deals by S&P Global Commodity Insights.

However, the number of SAF deals made in the first seven months of this year stood at 46% of 2022 levels, the 31 August report said.

After months of deliberations, the EU passed the ReFuelEU aviation initiative in April, which requires fuel suppliers to blend SAF in increasing amounts, from 2% of overall fuel supplied by 2025 up to 70% by 2050.

“There was a rush to secure SAF deals in 2021/22 ahead of the introduction of the Refuel EU Aviation package as airline companies did not want to be left out of the race,” Akman Ozel, biofuels analyst at S&P Global Commodity Insights, said.

Countries including France, Norway, Sweden and the UK introduced SAF blending targets between 2019/2022, leading to a boom. However, that slowed in 2023 and the EU blending target for 2030 was “only” 6%, Ozel said.

In the USA, the Inflation Reduction Act (IRA) was passed as part of President Joe Biden’s bid to attract investment in clean energy projects through tax credits and to implement his pledges to fight climate change, the report said.

The passage of the IRA led to a lot of SAF deals – including investment decisions, offtake agreement and memorandums of understanding – being signed, S&P biofuels analyst Jamie Dorner said.

“Recently though, it has become clearer that at that rate offtake agreements were beginning to outpace supply,” Dorner added.

Companies could also be waiting for the US Treasury to further clarify the new legislation, the report said.

Global SAF consumption was expected to reach 2.1M b/d (barrels/day) by 2050, replacing almost 24% of worldwide jet fuel demand, analysts at S&P Global said in a SAF Market Outlook published in August.

Europe will be the main driver of SAF consumption growth reaching almost 700,000 b/d by 2050, over 45% of total share of aviation fuels, according to the report.

North America and Asia were expected to increase to 644,000 b/d and 623,000 b/d, respectively, the analysts said.

Feedstock challenges also play a role in concerns over project timelines, according to the report.

SAF trades at a pronounced premium to conventional jet, mainly due to feedstock costs, S&P Global wrote.

According to data published in June by the International Air Transport Association (IATA), more than 130 relevant renewable fuel projects had been announced by more than 85 producers in 30 countries.

Each project had either announced the intent or commitment to produce SAF from a wider range of renewable fuels, the report said.

Typically, there is a 3-5 year lag between a project announcement and its commercialisation date, according to the report.

IATA expects 85% of future SAF volume over the next five years to be derived from just one of nine certified pathways - hydrotreated esters and fatty acids - which is dependent on limited availability of feedstock such as waste fat, oil and grease feedstocks (FOGs, recognised by industry as second-generation feedstock).

To diversify avenues to SAF production, the industry needed to scale up certified pathways, such as alcohol-to-jet and Fischer-Tropsch; accelerate research and development for existing SAF production paths; and scale up feedstock conversion technology, IATA said.

Another factor holding back SAF deals related to securing finance, S&P Global wrote.

“SAF investments involve heavy equipment, chemical processes and large capex,” Sarah Wilkin, founder and CEO of consultancy Fly Green Alliance, told S&P Global.