The Scene
Sustainable aviation fuel is finally having its moment, a success story that shows the challenges that promising climate technologies have to overcome to scale up enough to make a real dent in emissions.
Pat Gruber learned the hard way how difficult it can be to raise money for novel climate tech. When he went to apply for a US federal loan to build a big new SAF factory, he thought the money would be easy to lock in. It wasn’t. It took three years of planning and negotiations, and more than $200 million, for Gruber to prove that his company, Gevo, was ready to start producing large volumes of advanced corn-based jet fuel, and wouldn’t fumble a high-dollar taxpayer investment. Although most of Gevo’s method is based on well-established chemistry and industrial processes, the particular way they’re put together is new — the sort of innovative, capex-intensive climate tech factory that Wall Street remains largely averse to funding, and that the Department of Energy wanted reams of proof to show it could work.
Getting a federal loan “is not for the faint-hearted,” Gruber told Semafor. But at the same time Gruber and other SAF entrepreneurs have been nailing down their production plans, airlines have become increasingly desperate to get their hands on as much of it as they can, creating a confluence of conditions that has made now a better time than ever to be raising money for SAF.
The US Department of Energy this month conditionally agreed to lend Gevo $1.46 billion for the construction of a South Dakota factory that will be the first of its kind in the US and which will more than double US production of SAF. The announcement was the latest in a recent flurry of SAF fundraising. Montana Renewables, which makes SAF from vegetable oils, locked in a $1.44 billion DOE loan on the same day. Twelve, which makes it from captured CO2, secured $645 million in a round led by private equity firm TPG. And another CO2-based SAF startup, Infinium, raised $1.1 billion from Brookfield.
Aviation accounts for about 3% of global carbon emissions, and for many individuals and companies, flying is one of their most carbon-intensive activities. But airlines have few available options to decarbonize quickly. Most have shunned carbon offsets, and passenger jets are too big to rely entirely on batteries. Their only viable route to net zero lies through SAF, which depending on how it’s made can have a significantly lower carbon footprint than conventional jet fuel. Put the recent flurry of deals together, and it’s clear that SAF is making strides toward large-scale commercialization, offering a possible roadmap for many other corners of cutting-edge climate tech.
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Tim’s view
Between high interest rates, inflation, a turbulent political climate, and nervousness among large Wall Street investors about the risks of nascent climate solutions, it remains hard to get “first of a kind,” full-scale projects built.
In the first half of this year, climate tech investment fell across the board, but dropped more sharply for growth-stage companies compared to earlier stages — indicating that investors are still more willing to make relatively small bets on a wide range of prospective solutions than they are to lay out hundreds of millions of dollars for the leap from lab to factory. But SAF companies look like they may be the first to find a way across the “valley of death.”
What makes SAF uniquely prepared for that journey, investors say, is that the underlying technologies are becoming more mature at the same moment airlines — and their corporate passengers — are clamoring for solutions to aviation emissions. By Brookfield’s estimation, just 14 airlines account for nearly half of all global jet fuel consumption, meaning potential customers are especially concentrated — and increasingly willing to sign long-term, high-volume SAF offtake deals. Infinium has already built its “first of a kind” plant and is moving on to more advanced iterations, and has an offtake deal with American Airlines. Gevo has signed more than 300 million gallons worth of SAF offtake deals with airlines including Delta, American, and Qatar. Twelve has a partnership with Microsoft, which as part of its own decarbonization strategy has pledged to pay a premium for business travel seats on flights using Twelve’s fuel.
“We’re starting to see the convergence of the supply and demand side of the equation,” Jonathan Garfinkel, managing partner at TPG Rise Climate, said in an interview.
That sets this cohort of companies apart from those in areas like green hydrogen production, for example, another potentially promising solution for hard-to-abate emissions but one that has struggled to scale up because of insufficient demand from buyers. Another big help, said Twelve’s commercial vice president Andy Stevenson, is that airline demand is well buttressed by government support, including federal lending and tax credits in the US, and emissions regulations in Europe.
Not all SAF startups will survive. The announcements of the last month are effectively the starting gun in the race to see which approaches, if any, can really survive at scale.
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In Brookfield’s characterization, SAF is “on the cusp” of becoming just another flavor of the conventional infrastructure investments that it favors,the Toronto-based fund’s Chief Investment Officer for renewables Jeh Vevaina said in an interview. And while SAF stands apart for now, “there’s a number of other areas that are getting to that point where they’re becoming infrastructure,” he continued. “To pick an example, green hydrogen is getting to the point where you’re seeing sort of those long term contracts and will present more opportunities in the future.”
Vevaina said crucial to SAF’s development — and that of technologies and sectors that follow — is “corporate pull” rather than “government push,” with the offtake deals signed by airlines and other customers making it easier for funds like Brookfield to finance investments in companies such as Infinium. The same will be necessary for other climate tech sectors seeking to cross the “valley of death.”
“We’re close to a turning point where more and more of the decarbonization sectors are exhibiting those characteristics,” he said.
Room for Disagreement
There’s still nowhere near enough SAF being made; at Semafor’s World Economy Summit last week, United Airlines chief sustainability officer Lauren Riley said the market is at “phase zero,” with SAF amounting to less than 0.1% of global aviation fuel consumption in 2023. The companies pocketing growth finance today face a number of challenges ahead before they actually start making big deliveries. SAF can’t compete profitably with conventional jet fuel without subsidies (although in Gevo’s case at least, close ties to the Republican-favored corn ethanol industry provide some political insurance). Bio-based SAF producers will compete for a limited supply of land and raw materials, while CO2-based SAF will compete for a steady supply of clean electricity for its conversion process. New networks of trucks, ships, and pipelines will be needed to move all this stuff around.
Some climate analysts also see the Biden administration’s SAF strategy as fundamentally flawed. Tax credit rules approved this year allow ethanol-based fuels to qualify as low-carbon, even though some studies show that displacing food crops to grow crops for biofuel can actually drive net global emissions up instead of down.
And either way, a key lesson of recent climate tech history is that crossing the “valley of death” isn’t just about access to money — it’s about having project management skills that are not typically endemic to startups.
Notable
- Overall, the pace of the global transition away from fossil fuels is slowing down, according to a handful of new reports.