The greening of flights

More airlines are embracing SAF, which has triggered a spurt in production, but its high cost remains a challenge

One way for airlines to be cleaner is to use green jet fuel — also known as sustainable aviation fuel, or SAF. Though it is priced two to three times higher than conventional fuel, airlines are securing increasing volumes.

More than 40 carriers have set some form of SAF adoption target. Most aim for the fuel to account for 10 per cent of their consumption by 2030. Latam Airlines and Singapore Airlines have a target of 5 per cent by 2030, and freight carriers DHL and FedEx aim for 30 per cent by the same year. United Airlines has emerged as the top buyer of the clean fuel, having secured 2.9 billion gallons of SAF through offtake agreements and investments. This volume is to be delivered over varying timelines.

The jump in demand has triggered a spurt in production. “Global SAF production capacity is expected to increase 10-fold by the end of the decade, provided projects materialise on schedule and producers lock-in sufficient feedstock volumes,” said Jade Patterson, BloombergNEF’s renewable fuels analyst. That would meet over 5 per cent of jet fuel demand by 2030.

New developers and existing refiners, such as Neste, Phillips 66 and Shell, are constructing a slew of projects set to come online in the next few years.

“Airlines really want SAF. It is a question of how you make it so they can afford it,” said Chris Ryan, chief operating officer of Gevo, a US-based company that is building a greenfield plant to produce SAF. Dubbed Net-Zero 1, the facility is likely to be ready by 2026.

The International Air Transport Association (IATA), which represents over 300 airlines accounting for 83 per cent of global air traffic, is committed to net-zero carbon dioxide (CO2) emissions by 2050. One pathway to net zero relies on SAF enabling about two-thirds of the emissions cuts needed, with the rest being managed via carbon capture, offsets, new technologies such as electric or hydrogen and operational efficiencies.

Despite SAF’s momentum, however, feedstock constraints and high costs remain a challenge. Companies are working to develop new feedstocks or alternative production pathways.

Oil, gas companies and transition

Energy transition investment by oil and gas companies had been on an upswing over the last few years. The direction has reversed. After five years of rapid growth, energy transition spending slowed down for the first time last year. The oil and gas sector invested about $27 billion in low-carbon assets in 2023 — 17 per cent less than in 2022.

BNEF analysed 41 companies across the sector. Their energy transition spending accounted for 6.5 per cent of the sector’s total capital expenditure, the lowest since 2020. Over half reduced low-carbon investments as a share of capex in 2023.

The biggest chunk of investment went to renewable energy, at $10 billion, with solar power at the helm. Carbon capture and storage, or CCS, investment jumped to $7.4 billion in 2023, making up over a quarter of last year’s total energy transition investment. Renewable fuel, advanced materials, advanced transport and hydrogen were the other main areas of investment.

India solar

Solar activity in India continues to surprise on the upside. Over 16 gigawatts of standalone solar capacity was auctioned last year, which was more than the combined total of the previous two years. State-owned firms have been stepping up their participation in these auctions. “Companies owned by federal or regional governments accounted for 31 per cent of the total bids in auctions for new solar capacity last year, up from 10 per cent in 2019,” said Rohit Gadre, BNEF’s solar analyst.

There has also been an increase in the volume of “complex” projects, where solar is combined with wind and/or storage.

India has overtaken Japan to become the world’s third-largest solar market by cumulative capacity, with only the US and China ahead of it. The top three are unlikely to see their ranking change until the end of the decade, according to BNEF.

The world’s most populous country is entering a period of robust growth in solar installations. BNEF expects a record 13 gigawatts of new solar capacity to come online this year despite the policy activity pause that will be necessitated by the federal elections set to begin next month. This includes a record volume of small-scale solar plants. Annual installations are seen ratcheting up over the next few years.

The government’s target of 500 gigawatts of installed electricity capacity from non-fossil sources by 2030 — and of bidding out 50 gigawatts per annum of renewable energy capacity — would require a further scaling up of activity. At least 10 gigawatts of this annual bidding is to be for wind power.

India’s wind power installations are also entering an upcycle this year, with new installations reaching close to 4 gigawatts. Annual installations will rise to over 5 gigawatts in 2027.

The writer is a New York-based senior editor – global policy for BloombergNEF, vgombar@bloomberg.net