Green Finance Institute - The personal trainers for SAF project finance

In this episode, we dive deep into the financing challenges and solutions driving the sustainable aviation fuel (SAF) industry forward with Mahesh Roy, Programme Director, SAF at the Green Finance Institute. 

Mahesh shares his unique journey from accidental banking career in Australia to leading green finance initiatives across the UK and EU. He explains what makes SAF fundamentally different from renewable energy industries and why the financing requirements are so complex.

Key Topics Covered:

✈️ Sustainable Aviation Fuel Project Finance: Understanding venture-scale risk with infrastructure-sized capital requirements, the role of EPC wraps, warranties, and technology licensing challenges

💰 Revenue Certainty Mechanisms (RCM): Why the UK's guaranteed strike price model and EU's double-sided auctions are critical to bankability and market creation

🚀 SAF Accelerators: How project accelerators de-risk first-of-a-kind projects by quantifying residual risks across EPC, feedstock, and offtake categories

🏭 Project Delivery Risk: The need for innovative risk transfer mechanisms including public finance solutions, insurance products, and export credit agency involvement

⚡ Hydrogen and E-SAF Scalability: The importance of joined-up thinking on green electrons, hydrogen production, and feedstock availability

🌍 Policy & Capital Deployment: Why government commitment to mandates and revenue certainty mechanisms is driving institutional investment in SAF projects

Learn why the first wave of projects getting to final investment decision (FID) will be critical to unlocking billions in commercial and institutional capital, and discover which emerging SAF production pathways could transform aviation decarbonization.

If you enjoy the podcast you can also check out our weekly newsletter with in depth interviews with some more of the major players in scaling SAF. Similar to the podcast, but in written form! Sign up to receive it here: https://info.corporatejetinvestor.com/saf-investor-newsletter-sign-up

Transcript

Welcome And Guest Background

SPEAKER_00 0:12

Hello and welcome back to another episode of the Staff Podcast, where this week I'm joined by Mehesh Roy from the Green Finance Institute, where we are going to be talking about all sorts of issues relating to financing, relating to policy, all that normal good stuff you get on these podcasts. So, Mahesh, I'm going to come straight over to you. First off, thanks so much for joining us.

SPEAKER_01 0:42

Great to be here.

SPEAKER_00 0:44

Before we get going, do you just want to we start by everyone giving a sense of their background, their sort of career trajectory up to where they are today? And then maybe after that explain a bit about what the Green Finance Institute is and what it does.

SPEAKER_01 1:02

Sure. Yeah. So starting with myself, I um began my career in banking somewhat accidentally when I was uh sort of in my late teens and studying. Um and sometime in the decade after that realized I I had a career. Um so um I spent most of the time uh in banking in Australia and most of that working for Macquarie, um, leading different verticals from healthcare to financial services uh and a few others. Um and then in around 2019, I took a career break and moved to the UK to study a master's, uh, where I specialized uh in the energy transition. So that was an MBA specializing in energy at Cranfield University, um, where they have uh a very uh good aviation school and an airstrip, even. Um so we did actually study synthetic and sustainable fuels in that. Um at that time I was seconding back into the uh to the green investment group uh at Macquarie in the UK. Um that was about the time uh the the around the time COVID hit. So um at that point in time I was at a bit of a crossroads what to do, whether to go back to Australia, which was quite hard, um, or to remain in the UK and probably work in a job uh that that was sort of at Macquarie that was um probably not where I wanted to go given I was trying to do a sort of a mid mid uh career pivot. Um and then opportunities really started presenting themselves in the not-for-profit space. Um, and I got a lot of advice from people both in finance and and and more broadly in academia, around um, you know, how excellent the sustainable finance not-for-profit space was in the UK. You have government, the city, and academia all sort of coming together in a in a sort of you know tightly knit geographic circle and also a group where they all trust each other and help and advise each other. Um so at that stage I moved to CDP, um, where I was uh the UK director of capital markets, working with banks uh and institutional investors around uh their own climate disclosures. So the the the bank, the CBES bank stress test, climate bank stress test exercise that the Bank of England ran, um developing products like sustainability, link, supply chain, finance, etc. And then after a few years there, I moved to the Institutional Investors Group on Climate Change, where I was the director of investor strategies. Uh, similarly, they're working on solutions for um investing in uh you know climate solutions and also managing climate risk, both um in the transition side and adaptation

Banking Journey And Career Pivot

SPEAKER_01 3:33

and resilience. Uh and I spent about three years there and then uh most recently moved to the Green Finance Institute to work specifically on SAF. Um so I'll pivot to what the Green Finance Institute is and does.

SPEAKER_00 3:48

Before you go to the Green Finance Institute, how do you accidentally end up in banking?

SPEAKER_01 3:53

How do you accidentally end up in banking? Um I think there'd be a lot of um bankers that say that sort of that would say that I've heard a few. Um bit of a long-winded answer, but in in Australia in the in the early 2000s, there was definitely a a bit of a brain drain. Um so all of a lot of the top talent, particularly those that really wanted to work in banking and studied at prestigious universities with good marks, would end up in New York or London. And obviously both of those markets were booming pre-financial crisis. Um as a you know, as a 19-year-old, I got a job in a call center at a bank uh that it's with that was at weird hours, so that sort of suited me and my lifestyle and what I was doing. But then, you know, within months, I was sort of you know promoted to working from, I don't know, basic customer service queries to to online loan services, then to lending applications, and I moved into the back office into credit approvals, and then I moved into um, you know, moving into more broader wholesale finance roles, et cetera, et cetera. So, you know, it just sort of grew from there. Um, and then, you know, like I said, sometime in that decade, I was had my first role at Macquarie as an analyst, um, looking at their wholesale books for uh both mortgage finance and margin lending. Uh, and then um I just before the the financial crisis hit, uh I moved into corporate banking at the Commonwealth Bank of Australia, which is the largest and safest bank in Australia. So it was uh uh a good move. Um not that I I knew that that exactly what would happen, but we knew that something was up in those uh in those mortgage markets at the time. So that was around the time where I sort of realized that I was uh you know a corporate banking relationship manager at the largest bank in Australia, and this is probably the best shot I had at a career at that time. So so I think a lot of people, um yeah, uh whether you know whether or not they it's it's they come out of university and not sure what to do, particularly at that time. It was quite easy to get high-paying jobs in in banking. And if you did well, um, obviously the rewards uh can be quite lucrative, so it has its way of keeping you there as well, I guess is the best way to put it.

SPEAKER_00 5:50

Did you have any other career ambitions aside from banking back then?

SPEAKER_01 5:56

Was there sort of a world in which you become a professional athlete or a policeman or a um yeah, I I think at the at the time um I was I was probably hoping that I would become a musician. I played in some bands and and you know that was that was what I was thinking. As far as you know, yeah, broader careers went, as I started working more and more in finance, I found that industry interesting. But obviously, then on the you know, on the other side of things, I was working a lot with growth companies um as well. So that was uh you know, that was something that was really attractive as well. Um and you you get exposure to to a lot of entrepreneurs and a lot of people that have built um what they you know what they do. So that was also of interest to me as well, and and and um, you know, led to you know thinking about you know innovation, etc. And uh always personally had a, you know, around that time I remember, you know, when um you know there was you know a lot of talk about climate change, not a lot being done, and it was probably the first wave of climate tech coming through, but not but it sort of stuttered a little bit, you know, that I started to become interested in in those things as well. And and as time went on and I realized that I didn't necessarily um want to want to be a banker for the rest of my life. Um, you know, that that's sort of what pushed me to think about pivoting uh into sort of you know more innovative areas and areas that actually made an impact in in the world.

SPEAKER_00 7:19

Fantastic.

What The Green Finance Institute Does

SPEAKER_00 7:20

So now tell us about the the Green Finance Institute, what what it is and what its sort of aims and sort of ambitions are.

SPEAKER_01 7:30

Sure. So uh the Green Finance Institute uh is a not-for-profit, um, and we advise governments, industry, and finance on how to unlock capital at scale for climate and nature solutions. So it uh originally formed out of a UK government task force uh around seven years ago, I believe. Um, and it was decided to set up this institute to help uh act in between all of these um, you know, different actors in the private and public sector to try and align sort of incentives to get this private capital flowing alongside public capital and policy as well. Um and it was initially stood up by the UK government and the City of London, and now we are uh majority philanthropically funded. Um so we we continue to work in those sort of cutting-edge areas where policy support is needed, where public finance support is needed, and where private capital is at scale is needed to actually turn these burgeoning industries into sort of mainstream industries that can hopefully replace um the high carbon intensity industries that are required to sort of meet the government's net zero and and broader sustainability goals as well. Uh, and the way we do that, uh I think is is built around what we call transactions to transition. So I encourage uh anyone listening to to use whatever favorite search engine or or AI robot to look for that and summarize it. But effectively it's it lays out a process from you know the formation of policy through to scaling uh you know global asset classes and all the things that are needed in between, but at all points in time ensuring that policy, public finance support, uh how engagement with public and private finance and policy interacts is uh constructured constructed around the endpoint. How do you get large amounts of capital to flow in at scale? And what are the steps you need to take to get there? And what are the different parts of the of the finance and investing value chain that need to be engaged at the right times to ensure that capital flows in the right way? And and that's uh you know primarily what we're doing in the SAF space at the moment.

SPEAKER_00 9:43

I want to take uh a step back from sort of the work you're doing in SAF to you've got a sort of a long career history in the energy space and in the renewable space. And Green Finance Institute works across multiple different streams. It doesn't just work in SAF.

Why SAF Differs From Other Renewables

SPEAKER_00 10:03

So what makes SAF different from the other renewables industries in their requirements for scaling and reaching commercial sort of market levels?

SPEAKER_01 10:17

Yeah, there's a few aspects that are that are quite different. So some of our other verticals include things like you know, electric vehicle charging infrastructure, property-linked finance, green mortgages, uh you know, building retrofits uh and those sorts of things, heat networks and the like. Um with SAF and and green fuels in general, you're dealing with molecules, not electrons. Um, and so what you're looking to do is actually build large-scale chemical refining plants and generally novel ones. With SAF, you have the uh added layer of complexity that you need to have aviation grade certification. These chemicals need to be put into big metal things flying through the sky with lots of people on them and many of them at once. So that there's an amount of precision in that large-scale chemical refining that needs to be done. So therefore, you have both high capex and high opex, which is different than say renewables, where you might have fairly high capex on things like offshore wind and solar, but then opex is quite low and you know the J curve sort of flattens out over time. And then because of this, you have the producers, um, the project developers, particularly in the ESAF and second generation SAF space, um they have venture-like risk profiles. A lot of them are scale-up startups, but the ticket sizes are those of large infrastructure in the late hundreds of millions of billions, and the returns are probably more like infrastructure as well. So that risk return at this point in time doesn't quite quite match. And then um, you know, especially on the second generation biofuels and and DSAF side, you have novel supply chains, so the feed stocks. So you've got project-on-project risk. If you're if you're looking for hydrogen and and sort of uh captured carbon, etc., there's not an abundance of that. They're going through somewhat the same, the same thing that that SAF as a product has as well. Um so therefore, you know, that that adds some some more um complexity to it. Um and the revenue risk for SAF is is far far higher than, say, the scaling of solar and wind. Um, you know, even when offshore wind was expensive, you know, it was selling into a regulated, established market that could be very variable in the prices and had pretty strong, inelastic demand. Everyone, everyone needed power and was willing to pay sort of levies on their power bill, et cetera, et cetera, for various different things. Um, so for you know, for you know, the more advanced styles of SAF, there it really isn't an organic market. You know, it's been created by the mandates, particularly in the UK uh and in the EU. But then I see, I think on the positive side, um, you know, there is these mandates in place. So there's a really strong demand signal sent by governments to say this is the way we're going. And I think that's because both governments and the industry knows, or most of the industry, maybe not the mandated parties themselves, that this is the only solution that both can allow them to grow as an industry. So increase flights have there be as they've been increasing um over the sort of previous decades, and also have greenhouse gas emissions reductions and broader societal and environmental benefits as well, um, you know, as opposed to say relying on the scale-up of carbon dioxide removal, which is at a lower um TRL level than than where SAF is at the moment. So there is quite a few differences there, but that doesn't mean that the um the interventions and the different ways of thinking about it might not be similar. It's probably the way they're configured and the amount of money that's required in in government support might be a little bit might be a little bit more just due to all of that complexity that I mentioned.

SPEAKER_00 13:58

And one of the ways the Green Finance Institute is helping with this big ticket price, big ticket size, and the venture level risk and the infrastructure, the size of these infrastructure projects is through your the SAF accelerators that you guys are are working on at the moment. Do you just want to you know touch on those a bit, give a bit more sort of put a bit more meat on that bone?

SPEAKER_01 14:24

Yeah, absolutely.

Project Risks: Feedstock, Offtake, Delivery

SPEAKER_01 14:25

So I think across all sort of project finance, you have you know three main areas of risk. So that there's there's plenty more. Um that is that input risk, the feedstock risk. So can you get the materials you need to make what you want to make on an ongoing basis at a relatively stable price? Um, there is the off-take risk, um, which governments uh are looking to sort of backstop by revenue um and uh price certainty mechanisms like the RCM in the UK and the proposed double-sided auctions in the EU. And then you have project delivery risk, um, which is around, you know, these are first of a kind projects in many senses. Um a lot of the components within the plants are aren't brand new. So the reactors and the different parts of it on their own aren't brand new, but the configuration of them and the input materials often are novel. So that they're at a at a you know TRL of seven of eight. So they're novel and first of a kind. And so therefore, the availability of things like um you know guarantees and warranties, warranties from technology licensors, EPC wraps, etc., probably aren't going to be as forthcoming as they might be. And that then leads to issues with project bankability. And so, you know, in in the previous part I mentioned that you know, there is uh you know the venture profile with you know infrastructure ticket sizes and returns, to some extent, to some extent, that doesn't matter so much to commercial lending because they're not looking for upside, they're just looking for surety of repayment. So last year, um via Project Skypower, which is how we operate in the EU with our with um Systemic who we partner in uh in the Secretariat of Sky Power along with the broader industry, um, we released a report on project delivery risk, where we engage with the EIB and other public finance institutions to look at some uh you know products and and uh other sort of risk transfer mechanisms that may work to address this issue on bankability, which is basically who pays, how do we ensure that the bank gets paid if there's delays in construction, if the technology doesn't work as as expected, etc. etc. So you know, how can we how can we backstop that? And in that we that there were solutions across public finance mechanisms uh as well as you know in the insurance market to take some of that risk transfer as well. Uh and so when we when we did that report, it was really well received. Um and then when I joined the the the Green Finance Institute um not long, or around the same time as that report was being received, laying out the strategy for this year, we're asking people, you know, what's next? How do we take this forward? Uh and the response was pretty overwhelmingly from industry, finance, um, and and and and others was, you know, this is great uh in in the abstract, these are good ideas, but we're just not going to know how these things will work until we start looking at transactions. So going back to that transactions to transitions, how do we actually configure these on real life transactions to see what works, to get the uh the finance market, including insurance, public finance institutions, banks, et cetera, comfortable with how these things might be configured. So then the pipeline of projects that's that are coming through, it doesn't need to be a bespoke solution every time, you know, the you know, the the development banks, the export credit agencies, et cetera, sort of you know know what they'll be needing to work on. Um, and so what we decided to do was um put together these project accelerators to actually work on uh defining the residual risk within these projects that is apparent when you have these sort of insufficient or incomplete contracts compared to mainstream project finance. So, you know, no EPC wraps, um, you know, limited guantors and warranties from technology licensors and and other, you know, the the lack of other protections, I guess, that the the project and therefore the bank and its and its lending uh would have in mainstream nth of a kind projects. So actually to try and put a definite figure on those residual risks and what they would be in certain risk scenarios and sensitivity analyses, and then using that those quantified risks to then go to those different players in the market to say, well, how might we cover these, you know, cover these risks, transfer these risks, and configure it in a way that will lead to bankability and get commercial banks comfortable that that they'll be repaid on these risks. So it's a sort of three-phase model where we sort of do the analysis of those contracts and then sort of try to turn them into scenarios. And then once we have those scenarios and can sort of aggregate them, because many will probably lead to the same outcomes or the same um the you know, the same financial risks as far as you know who the who pays liquidated damages, what's the gap

Accelerators To Improve Bankability

SPEAKER_01 19:21

to meeting debt serviceability, and then we go into modeling them and quantifying them before going, then in the second phase to engaging with the market um along with the project developers and their financial advisors to try and configure these solutions. Then the third phase, um which we would probably sit back on, is where uh the project and their financial advisors, if solutions are found, would then look to move to final investment decision and financial close.

SPEAKER_00 19:46

So you mentioned sort of you're building up this, you're using the accelerators to build up a body of transactions effectively that can come up with a in sort of layman terms, effectively a formula for de-risking projects and adapting to different levels of risk, whether that's on the the EPC side or um or other sort of aspects of risk around around projects. Have you got an idea around sort of uh how much sort of body of intel you need to be able to come up with a this sort of rough formula that then can then be implemented for future projects? Because it seems like each product's being first of a kind by their very nature means they're very different.

SPEAKER_01 20:32

Yeah, so it's more about the process, I think, than a formula. I think that's probably what we would be hoping to share is that you know, this is this is the process others can use to sort of quantify it. And then if the market is comfortable with the outputs of that, then the process should should sort of define um whether or not that's that's sufficient. And I think what we would service in those as well is on say the commercial banking side, is you know, particularly around what are the sensitivity analyses that they would look to run, what are the sort of risks and tail risks they they're looking to ameliorate to get them comfortable with bankability. Now, all that said, they do they don't look at these risks in isolation, they look at them overall. We should get hopefully strong signals that then once again, this helps then the commercial banks think about it to go, oh, okay, when we looked at those first few projects that were coming through the accelerators, you know, these are the these are the sensitivities that worked with uh the credit risk department, and these are the ones that, you know, were absolutely needed to be backstop by a government guarantee, et cetera, et cetera. So again, it's about building that muscle memory throughout the whole value chain. So yeah, I don't think we'll ever come up with a magic number. It's more about what is the process for understanding this? And because of the la the long sort of construction and commissioning time for SAF projects, sort of three to four years, you know, these risks won't really, you know, completely be removed from the market until there's a number of them actually up and operating in the in the later part of this decade, and then they become truly enthusiastic. Because there's confidence in the market that, you know, these configurations, these feedstocks, et cetera, et cetera, can actually yield SAF at the scales they say they can, and therefore, you know, it meets bankability criteria. And so there is, you know, there is still a lot of work to do. You know, we want to act as a neutral broker to run around and do this work now, which there's probably no real entity out there that's that that has the mandate all the time to do it. But we do hope after we've we've done a few of these project accelerators, the learnings from that should be apparent enough within the market that people can use those for the next few years whilst these risks risks continue to persist.

SPEAKER_00 22:38

So you're more like a maths teacher making sure everyone shows all their working before they come to a final solution. You want every single step in a in a process all mapped out. So you're effectively the maths teachers of sustainable aviation fuel.

SPEAKER_01 22:54

Maybe, yeah, maybe. I would I'd say some of the people in the team would would be happy with that. I'd say my previous maths teachers, if they were randomly listening to a SAF investor podcast, would be quite disturbed at me being described as a maths teacher. I would say it's almost like a personal trainer for the finance industry, uh, both public and private, and the and the SAF developers, um, you know, training for uh training for a race. We're not quite sure what it looks like yet. But then once we sort of know what the race looks like, there'll be a training regime out there for everyone. That might be a better one. The the maths on the on the back end, um, yeah, certainly to your point, I think that there'll there'll be no magic formula. You know, looking at a few of them already, it might there's there might be sort of a 10% variance of this project delivery risk. So um, you know, on a 2 billion euro project, it might be 200 million euros, but you know, that's a small sample size, so you wouldn't apply that to everyone. You'd you know, I think all of particularly the public financial institutions and indeed the banks who are who are going to be putting a lot of money towards these would prefer for a robust process to come up with that residual those residual risk numbers to really be able to hang their hat on them and put these large amounts of money out the door.

SPEAKER_00 24:04

Your personal trainer analogy is far better than my maths teacher one, so let's run with that. Um so you mentioned at the beginning the sort of policy that is put in place to help in various aspects, and particularly the revenue certainty mechanism in the UK to help with the demand side of the equation and give that certainty to

Process Over Formula For De-Risking

SPEAKER_00 24:29

projects. We've mentioned we've discussed it before on the on the podcast, but admittedly not for a while. And it's been sort of ongoing. There's been a lot of sort of work behind the scenes, and the government sort of get it through different commenting processes and taking it out to industry, bringing it back for um debate in the various houses of government. So give everyone sort of a quick update, sort of where we are with that, the revenue certainty mechanism, and effectively why it's being so well received by industry as a piece of policy.

SPEAKER_01 25:08

Yeah, so I guess firstly, there's a there's a quick update would be that um at the end of last year there was uh a consultation from the Department for Transport in the UK on uh on a SAF levy, um, which is intended to fund uh the revenue certainty mechanism. Uh and then uh at the start of this year in January they released um the indicative heads of terms consultation for the first uh round of the proposed revenue certainty mechanisms allocation. Um so that's that's great progress. Um it shows that you know we're getting to the point where this thing is is being constructed. Um it is really important, and and you know, not just the RCM in the UK, but also you know, the proposed double-sided auctions in the EU are extremely important, as I mentioned before, to manage that that offtake risk. Now, neither is a panacea, neither structure is a panacea, whether it's a guaranteed strike price CFD or a double-sided auction. Um, and the volumes being covered won't be sufficient to get all the projects in the pipeline over the line. But what it does help is helps create a market. It helps um you know solve this bankability gap for these first few projects. Airlines, as many listeners would know, generally don't sign long-term off-take agreements. And if they were going to do it, it wouldn't be at five or six times the price of fossil jet as they currently pay. So there's there is a gap there that needs to be, that needs to be bridged. These projects, because they're first of a kind as well, they're going to be the most expensive they've ever been, or they ever are. Let's hope so. And the cost curve will come down later. So there needs to be someone meeting them in the middle. So these mechanisms are are really helpful in bringing this across, but also in stimulating the broader market activity through price discovery and the actual creation of a market. Um, so you know, the mandates, as I mentioned before, have created these markets. If there's no mandates, there would probably be no market, particularly for second and third generation SAF, where the price is probably well beyond the sustainability aspirations of um, you know, the airlines and the fuel suppliers. Um, but then if there's no revenue certainty, there's not going to be any product. And so therefore, there'd be a failed market. So this is an essential sort of backup to the mandate. You can't have the mandate create an artificial market without then um underpinning revenue certainty. Um and the RCM, um, yeah, it's been received fairly well, um, you know, generally well. I'd say there'd be some in the industry that say that it could maybe um be delivered quicker, but that's I guess always the case. And obviously working through government and spending um you know government revenues um needs to be done in a in a in a really you know deliberated way, particularly for something as complex as SAF and for a market as nascent as SAF. So I think the fact that the government in the UK, and this can be said the same for the EU, they set these mandates, they said they were going to come through with sort of right revenue and price certainty mechanisms to help uh accelerate the market and get projects through the final investment decision, and now they're doing them. And I think that's that's one of the biggest things is that policy policy certainty and delivering on what they said they would do. Um so that that's I think

Policy Update: UK RCM And EU Auctions

SPEAKER_01 28:19

why they're being really well received and why people are uh uh you know hopefully maintaining the confidence that they have had that the SAF mandates will work. Now, you know, as as as everyone knows, there is you know murmurs and slight pushbacks around, you know, will it work? Is it going to work? Will we ever see the revenue certainty mechanism? Will we ever see the double-sided auctions? I think the reality is that you know, by the middle half of next year, there'll be at least one sub double-sided auction round in the EU and the revenue certainty mechanism's first allocation round as well that will support hopefully a number of projects getting to FID. Um, the the reality of those happening is is very, very real. The processes are underway. So I think that's a another reason for positivity here. Um and you know, we we, the GFI, um like it um a lot as well because it was a it was a recommendation that that we gave to the UK government as well in setting up the mandate. We work with industry and finance to recommend in the UK the guaranteed strike price, and we work via Skypower to look at double-sided auctions because there was sort of different needs in different markets as well. And so I think the the positive thing is that uh you know, on both sides of the channel, the you know, governments have listened to what industry and finance are saying and developed the solutions that that they wanted. Now, different people have different views on what the best mechanism is or how quickly they should be rolled out. Um, but once again, like I said, neither's a panacea. These are hard things to do. The devil's in the detail. Um, and so far, engagement with um whether it's DG Move or in the EU or the Department for Transport, with you know, with ourselves, our partners in Sky Power and industry, you know, they do listen and they are looking to try their best to configure it. So again, I think it's just really positive that in a time where there's a lot of backsliding and backtracking on various climate pledges and in and industry backing for you know the the the energy transition, um, so far, you know, SAF has delivered. Um, governments have delivered on SAF what they said they would and look to continue to deliver it, uh, and that's better than a lot of other industries can say. So I think that's really positive and probably why uh it's being broadly positively received by uh by industry.

SPEAKER_00 30:35

I'm gonna play devil's advocate slightly uh here. Is the RCM being received so positively, primarily due to the non-recourse nature of financing, the fact that there is so much put on the demand side of the equation? If we eventually scale, get to nth of a kind sort of projects where you can potentially look at financing more off balance sheet, that the RCM potentially isn't required as much. You could potentially phase it out. It just isn't a requirement for projects to get financed and to actually get to commercial scale production, or is that unfair?

SPEAKER_01 31:14

Um, I don't know if that's a uh a bug or a feature. Um I think that's always the intention um that these sort of revenue certainty mechanisms or the CFDs are there to support the scale up of industry and then would be taken away. We we're talking about a sort of, as I mentioned before, these are sort of artificial markets created by um, in this case, the SAF mandate, or, you know, a transition, so you know, whatever you want to call it, technological disruption, but this is sort of a structured government-mandated one. So therefore, you know, you need to bring in these support mechanisms because it's not happening organically. We know why it's happening. There's a reason why it needs to happen as as quickly as possible. And so therefore these things need to come into play. Um, but then also on that premise as well, there are a number of projects out there who have direct off-take agreements, um, particularly some of the ones we're working in, this accelerator program, um, where you know they might they may not need the RCM or the double-sided auctions to get to final investment decision. So it isn't like it it sort of completely crowds out that aspect. And we would hope it wouldn't as well. And that's some of the feedback we've given is is as these things are being developed, be very clear with the market what the volumes that they're going to cover are over now and into the future, how many contracts will be allocated. Because I think at the moment there is probably a little bit of standoffishness in both signing direct off-take agreements in investment in these projects, because people are saying, well, listen, if there's a whole bunch of government subsidy there hanging, let's wait for that, because that's going to be a lot cheaper. But then I think when the reality hits that when you look at the kilotons of SATH uh in the pipeline, ready to get to final investment decision over the next 12, 18, 24, 36 months, there's not going to be enough to cover all of those. So there needs to be that organic market as well. Um so I don't think it's one or the other. Uh and I think the, you know, where these have worked well, and they they haven't worked well all the time, but where they've worked well offshore wind in the UK, where there was support from the Green Investment Bank, and then the CFD rounds that went through, you saw the cost curves come down dramatically in time. You saw private finance sort of crowd in much quicker than anyone thought, to the extent that, you know, debt syndication and even to some extent project equity was so abundant in the in the private finance market that the government didn't have much more to do but have these CFD mechanisms uh overall. And over time, you know, they've been more in the money than out of the money. Um so you know, the the cost to um the government or the or the ratepayer, as it were, um is reducing over time. So yeah, I think these things are the these these mechanisms are uh are complementary. And probably the last point I'll make is you know, revenue risk isn't the only risk, feedstock risk is massive, um, which is um you know potentially a bottleneck for ESATH. Uh it has been so far for in in the UK and could be for EU in scale up as far as you know the availability of hydrogen and and on the back of that uh abundant

Will Support Mechanisms Phase Out

SPEAKER_01 34:18

um you know green electrons. Um and then you know you also have this project um delivery risk that we mentioned as well, which is a which is the real sort of hump at the moment that if if we don't find solutions to how to do this on these multi-billion pound or euro projects, then then we're not going to get to final investment decisions. So it's a it's a mix, it's sort of a grab bag of things that make these happen. Um and uh but the revenue certainty mechanisms, double-sided auctions of the world really do help underpin um one of the one of the largest risks.

SPEAKER_00 34:50

Do you think there's enough early stage growth stage capital ready to be deployed into SAF at the moment? Or and it's purely just sort of sitting there waiting for these sort of risks to be to be sort of spread appropriately across projects, and or is there actually not enough of that capital? Because a lot of projects currently are sitting at the growth stage, a little bit stuck and can't actually kick on and get through past demonstration plant up to FID in that scaling journey.

SPEAKER_01 35:24

Yeah, I think at this point in time that is that is definitely an issue. I think there was a fair bit of activity when the mandates started. Um, and so there was you know those early stage investments, particularly from strategic investors like OEMs, airlines, others with sort of interest in the growth of the SAF sector, going back to before, you know, the SAF is the is the main solution that will allow growth in aviation as it is now, using planes that burn hydrocarbons and uh and the volumes of passengers, et cetera. So, you know, people realize that and then sort of started to come in. Now that's that's somewhat dried up. I would say that that valley of death you mentioned is is is unfortunately relatively well populated. Um, you know, I'm I'm guessing because I haven't talked to everyone, but and and it's anecdotal feedback, but I think some of the uncertainty around the implementation of, say, things like the revenue certainty mechanisms, whether this project delivery risk uh issue that we're working on through the projects accelerators can indeed be ameliorated, to sort of see, like, you know, will this happen? And maybe looking for the first one or two final investment decisions within Europe and the UK to come through before they jump. And and and I I do I personally think that that uncertainty that I talked about before and the clarity that governments in rolling out um the RCM and the double-sided auction should help, should help sort of reinvigorate that. Um but all that being said, there is actually there has been some around. And whilst a lot of people say, you know, it's years before we see institutional capital flowing in, at large, absolutely, um, into you know, SAF only, you know, eSAf only funds, et cetera, et cetera. It's the proof it isn't there yet. However, you know, a number of institutional investors have taken large bets in some leading producers and and sort of you know allowed them to move through that feed process and dev DevEx process and get to the point of raising capital um for projects specifically. So there is some of that around and and and they do continue to sort of look around the edges. So while it's not um, you know, you know, billions or trillions of institutional capital coming in, it's hundreds of millions, and maybe it would probably total a billion now that has come in. But that early stage in growth strategic equity has started to dry dry up from strategic players. So, you know, that's a challenge that needs to be solved in in in the short term. Um, you know, there is always a valley of death in these sort of scale-up industries, and unfortunately there will be attrition in in the project pipeline. But you know, for the volumes of SAF needed, the you know, if that can be minimized as best as possible, um uh you know, it it would it would lead to better outcomes. And hopefully, um, yeah, some of the confidence can be given to the market through the work we're doing, the revenue certainty mechanism, and some of these projects getting to final investment decision in the short term, because then those other ones that are coming just behind them, if you're able to get top coequity at this early stage, but then you know, this um this playing field has been let out in front of you, actually know how these projects are going to get to FID, you can probably pick up some bargains where you've then got these projects that are gonna go on to get public finance institution support, may participate in these revenue certainty mechanisms or double-sided auctions and get big subsidies, is actually coming. So there might be a lot of competition. We can only hope. But um, yeah, that is probably a big concern at this very point in time.

SPEAKER_00 38:51

Alongside alongside that concern, and as you said, there are a lot of people in that boat. Sort of on the sort of the other side of that coin, a a big part of the reason people are stuck there is there's a lot of this project execution risk, the work that you're doing with your accelerators. There's a lot of conversations around EPC reps, the inability to get

Capital Gaps And The Valley Of Death

SPEAKER_00 39:12

full reps on projects, licenses are being very engaged with producers want to be very involved across the the whole um production um sort of pathway, whatever it is. And then there's the insurance conversation on these projects that's sort of building and maturing as well. So is that can you take that as a sign of actually the industry's maturing? It's realizing what the problems are, it's actively trying to solve them through building out sort of larger ecosystems in order to attract that capital that has potentially over the last years sort of potentially dried up a bit.

SPEAKER_01 39:53

Yeah, absolutely. I don't think you know we wouldn't be at the stage where you know we're confident of um getting projects to final investment decision via our accelerators, or indeed the government's rolling out these these mechanisms uh and public finance institutions thinking about the different configurations of of um risk transfer if we weren't at the point where we were digging into these issues. So that shows that you've got projects that have completed feed or are are near done and are sort of looking to move there. So that that shows that there is a there is a there's a healthy maturity in the section in the sector. Uh it is still immature though, these these problems won't be solved by um you know commercial contractual agreements alone. Not to say that there, you know, that there might be some out there and I've I've heard of a few and you might see some E PC wraps on some projects, particularly if there's you know a tech company as the as the sponsor or or one of the investors as well. But I'd say it's not something that's going to be happening across the board in the short term because you've just got we've got we've still got years to really know how these if and how these things will work. Now, technically they should, and most people think they should, and that's why you know the insurance market can step in with some risk and governments can get their their um finance agencies to to do the same. Um but yeah, it's it's maturing, but there is the maturity will only really happen when you have megatons of SAF being produced uh through by these pathways in you know four or five years' time.

SPEAKER_00 41:20

Where's the bigger gap? Private capital or public capital? Where do you where do you see there being a bigger a more need for sort of people to step up at this point?

SPEAKER_01 41:33

I will tell you in probably six to nine months when we get to that phase with the accelerators, both both sides are making both sides are making the the right noises, which is really positive. Um, I can think of over a dozen banks I've spoken to who are really keen to look at these projects early. Uh, and indeed the public finance institutions we've engaged with, some of them are already sort of strategizing what sort of products they might be able to put in place, some extra credit agencies we've been talking to, um, and then obviously the larger um you know development banks uh that cover the regions are looking at it as well. So that the right noises are being made, but um let's you know let's not be shy about the fact that you know if one project is probably averaging somewhere between one and two billion pounds or euros and there is five or ten of them coming through, these are no small amounts of money. It's it's it's a lot of money and the ticket sizes do matter, balance sheets do matter. Um so yeah, we'll it remain to be seen. The the optimal uh outcome is that they're working together to help each other step up and configuring the right products. If if we need more commercial finance, higher leverage into these projects, then what are the guarantees that can be put in place underneath them? Um if there is equity needed, um particularly on the project side, who can can public uh you know finance bring that in and think of innovative ways, like they like say with offshore wind, like the Green Investment Bank in the UK did, to you know, to build those into funds and then sell those funds out once these projects are starting to be um starting to produce SAF, sell those out to capital markets, make a profit for the for the taxpayer, but also be able to catalyze the industry as well. So that remains to be seen and we'll have a better answer uh in a few months' time. But certainly um the positive aspect is that the right noises are being made and and um on both sides of the public-private ledger, the right uh institutions are engaged and ready to have a go.

SPEAKER_00 43:28

I think one of the big sort of news stories over the past few weeks or a few months has been the financing that SkyNergy did in their Netherlands facility, and there was a whole host of banks involved at that. I can't list them or remember them all off the top of my head. There were so many of them, but that's a good indicator of there's there's a really healthy appetite to get involved if you can structure a project in a way that actually sort of mitigates and sort of balances. The risks. There is appetite in the right circumstance, particularly on the on the private side, which is encouraging.

SPEAKER_01 44:08

Absolutely. And you know, if you look at the opportunity, like I said before, the the uh the infrastructure returns on uh you know venture style risk isn't so much of an issue for banks. What they want to know is that they can be repaid. Uh and the opportunity ahead of them is that the you know the positive side of there being huge capex is if this starts to work, um then you know being a a banker myself on the on the

Signs Of Maturation: EPC And Insurance

SPEAKER_01 44:34

front lines before with with sort of sales targets, etc., this is a this is a you know a great new hunting ground. These are multi-billion pound and euro projects. And then if this starts to become mainstream and their credit risk departments become comfortable with them, uh then then you're smashing your targets for the next few years and getting well next you know, foreseeable future and getting paid very well. So there is a huge opportunity for them uh as well. So you know that that can't be understated um along with not understating the risks to getting to that point as well. So you know there is incentives there. This is uh a potential huge scale-up industry for both of the regions, which appeals to finance, but it you know can appeal to to both um you know governments uh and uh you know regions and and and societies at large, because you know, industrial projects are probably on the on the down uh in Europe and the UK, whereas you know, if if if SAF rolls out and green fuels more broadly and the whole value chain rolls out, um being locally produced as people hope it will, um, then that can lead to you know greater economic benefits for everyone.

SPEAKER_00 45:38

Where we've talked about a lot of challenges the SAF industry faces and projects face in terms of getting financing and also in terms of government putting the right support in place to to encourage and build the SAF market. Where would you say the biggest area that you think there needs to be work done to help accelerate the capital deployment in Saaf projects?

SPEAKER_01 46:02

Um, I would say one area is probably in that in the feedstock realm, and that's probably more not only but more prevalent for ESAF, which is there needs to be joined up thinking on hydrogen and SAF. If you want ESAF to scale, you need hydrogen to scale, and then that leads to those abundant green electrons, uh, right? And so there needs to be joined up thinking around that. There's not much ESAF uh on the table to be produced in the UK. And some would say because energy costs are too high, there's additionality required for the uh, you know, the green electrons being used to produce the hydrogen, to produce the SAF, which is a little bit different than the hydrogen business plan. Yet there are you know megatons, uh, sorry, megatons, confusing my molecules and electrons, um, there are megawatts, if not gigawatts, of of energy being curtailed in Scotland right now from from wind. So, you know, if there is joined up thinking there, then you can you can scale ESAF. It's you know, SAF is uh particularly ESAF, but also um uh second generation bio uh BioSAF where it's truly sustainable and and um circular, is can be should be location-based, right? Because if there's abundant wind or sun resources, then that's where, or or indeed um hydro resources, then that gives you the ability to produce more uh on site, particularly as far as hydrogen goes. So yeah, the the green fuels value chain needs to be thought of as a as one sort of big entity, particularly if you want industry in the UK and the EU. I say this all the time. People are worried about the 525 kilotons being met by 2030. There's already, you know, 125 kilotons planned or under construction in the US. E-methanol is getting cheaper and cheaper in in China to be shipped and electrolyzers getting cheaper. There, I think there will be the SAF. It's do you want it produced in the UK and the EU? And so that's where I think government could pull more levers on locally produced SAF is to really have that joined up thinking across the whole value chain to get rid of that project-on-project risk and making sure that the the novel feed stocks for these novel fuels are actually available.

SPEAKER_00 48:11

And finally, what production bought sort of next generation production pathway particularly excites you as one that's got a really novel technology proposition and one that's uh got the ability to scale at a commensurate rate to make a real difference in the sort of short-term, short to medium term?

SPEAKER_01 48:33

Um I um probably am just going to reference the one uh that's most recent in my mind, but it I think it is uh quite novel to the extent that it hasn't been explored as much as is um the biosolids to liquid pathway. Um so uh Firefly Green Fuels, um, they are a uh a producer in the UK that we are looking to run a project accelerator with. Um, you know, they've developed technology that can turn effectively sewage uh into fuel. Um it's also being produced at lab scale. They'll hopefully be moving to demo and then commercial very quickly, uh, and as I understand it, have um, you know, are looking at agreements with you know water treatment um uh companies, water infrastructure companies, and their water treatment plants and developing on-site um spokes to sort of start refining um the the biosolids into SATH. Um, you know,

Public–Private Finance Coordination

SPEAKER_01 49:33

the broader benefits of that as well is that as we know now within within sewage, there is PFAS, there is you know hormones, there is the the medication we're taking as well, but sort of currently that those uh I think it's called cake. I'm not a sewage expert, um, thankfully, but I think you know most of that is just given to to farmers to spread on their land. And historically that's been a good thing, but with all of these nasties in in that cake, it it actually gets into the land, gets into the water tables, uh, and obviously is terrible for for human health. So, you know, I think those broader circular benefits of of say this pathway is is something that's really um you know worth looking at. It solves a big problem that we have in in the waste that we create as humans, uh, and then and then looks to change that into something that also can can take, can destroy those sort of forever chemicals, et cetera, which is a real problem, and turn it into um you know SAF and at a scale, right? Like again, I haven't done the math, but I would say that the what I said before about place-based, you know, um 2G and 3G SAF, that probably doesn't, you know, probably doesn't come into play here. You know, it's probably just a a function of the population and how much of this they produce as to how much you can scale this. Um so I think that's a really exciting pathway. And I think, you know, that that adds another layer to that second generation, truly sustainable um uh you know biofuels side and and and other pathways, which means that you know, ESAF may be the cleanest, and I think a lot of people agree on that. But then there is that also that trade-off with what do you use green electrons for now when it can decarbonize other things versus this. And in the meantime, if we can solve broader problems across um, you know, climate and nature and you know waste in general, um, I think that's that's that's really encouraging. So uh yeah, I'm not an expert on that pathway, but I I find it uh fascinating that um you know that pathway exists and that we can solve some of some other societal problems whilst also looking at decarbonising aviation.

SPEAKER_00 51:37

Fantastic. Mahaj, that's been it's been awesome to have you on. Thanks so much for joining us.

SPEAKER_01 51:43

Thanks, Gat.