Funding aviation’s e-fuel future requires new collaboration


Bringing together equity investors from across aviation is key to raising the billions of dollars required

By Laurent Floquet, Head of Aviation Finance for EMEA and Laurent Bouchilloux, Co-Head of Infrastructure Finance at Societe Generale

When Nordic Electrofuel opens its first sustainable aviation fuel (SAF) plant at Herøya Industrial Park, Norway, it will be a trail blazer. Scheduled for 2026, the pilot facility will be one of the world’s first industrial production plants for synthetic sustainable aviation fuels, which aviation needs alongside other sustainable fuels made from biomass if it is to achieve net zero air travel.

Taking advantage of Norway’s abundance in clean hydro power, and the enormous potential of wind power, Nordic Electrofuel will use power-to-liquid technology to produce up to 10 million litres of synthetic sustainable aviation fuels, also known as e-fuels, each year from this initial facility. This will result in a reduction of aviation’s CO2 footprint by 25,000 tonnes annually.

Yet it’s not just the fuel technology that’s new – behind the project is a collaborative equity financing that would have been highly unusual a short time ago. Advised by Societe Generale, Nordic Electrofuel is looking to raise capital from not only financial investors but also companies across aviation – including airlines, aircraft manufacturers, aircraft leasing companies, commodity traders and airports. All of them have a vested interest in helping take synthetic fuel technology from the lab to pilot production, and ultimately to commercial scale. The EU Innovation Fund recently (July 2023) also granted 40 million euros to this project.

With aviation responsible for around 2.5% of global CO2 emissions and growing, the International Air Transport Association is committed to reaching net zero emissions by 2050. Additionally, a growing number of airlines are making individual commitments and setting nearer-term targets, such as for 2030, getting validation from the Science Based Targets Initiative that these goals are aligned with the Paris Agreement’s aim of keeping climate change to well below 2°C. Although airline manufacturers are developing hydrogen fuelled and electric planes, SAF could contribute around 65% of the reduction in emissions, according to the International Air Transport Association.

A huge industrial challenge

But this will take a massive increase in SAF production in the 2030s and 2040s, as today it comprises less than 0.1% of all jet fuel. Both the European Union and United States are acting to accelerate SAF adoption. The European Commission has mandated that aircraft taking off from European Union countries must have a minimum blend of 2% SAF from 2025, steadily increasing to 70% by 2050. The United States plans to increase production to at least 3 billion gallons a year by 2030 through the Inflation Reduction Act’s grants and tax credit incentives.   

The step-up in production requires a huge leap in funding. An estimated US $175 billion a year is needed to get global aviation to net zero by 2050 with 83% of that for SAF production and upstream assets, according to the Mission Possible Partnership’s calculations. Reflecting the trajectory of production, US $40 billion to US $50 billion a year is needed this decade, before increasing sharply in the 2030s.

Currently airlines are burning SAF made from biomass feedstock such as used cooking oil, although these fuels remain three to seven times more expensive than conventional jet kerosene. Cooking oil and animal fat derived Hydroprocessed Esters and Fatty Acids (HEFA) fuel is the only type of SAF available at scale and is one of nine technology pathways that have so far achieved certification of compliance with international standards organisation ASTM. 

Last month, On November 28, 2023, Flight 100 – a Virgin Atlantic Boeing 787-9 powered by Rolls Royce Trent 1000 engines – tested this technology and became the world’s first transatlantic flight to successfully use 100% SAF, departing from London Heathrow to New York. Part-funded by the UK Department for Transport, with input from partners such as Sheffield University, Imperial College London, Boeing, Rolls-Royce and BP, the flight used a SAF made up of 88% HEFA and 12% SAK (Synthetic Aromatic Kerosene, made from plant sugars) and proved that sustainable fuels could be used as a safe drop-in replacement for fossil derived jet fuel and the only mid-term viable solution for decarbonising long-haul aviation. However, fuel standards currently only allow for a 50 per cent maximum SAF blend for commercial jet engines.

The limited availability of biomass feedstocks means that aviation depends on synthetic fuels, or e-fuels, to reach the scale of production it needs. Oil and gas majors such as TotalEnergies are retrofitting refineries to make HEFA fuels, which can also be used in diesel engines. Additionally, Neste, a Finnish company, is the world leader in making HEFA aviation fuels. With no technology risk, these HEFA plants can already raise debt finance to scale up.

Collaborative equity finance

Yet it is the synthetic start-up SAF companies like Nordic Electrofuel that are attracting equity funding interest from across the industry’s value chain, whereas a few years ago only venture capital or private equity funds would have been interested. Although e-fuels will not play a major part in fuelling planes until the late 2030s, many types of companies are interested in collaborating to secure their place in aviation’s future. As the decarbonisation of the sector touches every player in the value chain, traditional barriers are fading and e-fuel projects are attracting strong interest from airlines, airport operations, aircraft manufacturers, infrastructure funds and the wider community of financial investors.

As Societe Generale raises equity for Nordic Electrofuel, for instance, there is interest for a variety of reasons. Airlines want to guarantee future fuel supplies; aircraft manufacturers and leasing companies want to protect the value of existing aircraft, which can burn sustainable fuel blends; airports have an incentive to invest to reduce Scope 3 carbon emissions. Focusing specifically on airports, they are generally regarded as already having the infrastructure needed to begin using SAF, but this might change when volumes increase, if airlines require differentiated fuel blends or if specific transport and storage facilities give a competitive advantage.

Banks can help to facilitate the development of synthetic SAF by bringing projects together with these equity investors, as well as linking projects with airlines that want to secure e-fuel offtake agreements. After e-fuel technology has been proven in a pilot, the next step is to build an industrial plant, which can be backed by project finance debt. To help connect the aviation value chain, Societe Generale has recently engineered its own ‘shift’ internally – it is bringing together its world-leading franchises in aviation, infrastructure and energy finance to offer an integrated one-stop-shop service. In addition to Nordic Electrofuel, the bank’s integrated team is also advising HIF Global, a US e-fuels start-up. 

While there is no silver bullet to solve the problem of how to decarbonise aviation, better days are coming. Developing the range of SAF needed is a challenge that depends on new technologies, an upsurge in fuel production and many billions of dollars in funding. But bringing together likeminded equity investors from across aviation is key to proving e-fuel technologies at scale, after which they can move to industrial production.

Laurent Bouchilloux Co-Head of Infrastructure Finance Societe Generale