Adam Forsyth, Longspur Capital: Khaki is the new green

Adam Forsyth, founder of Longspur Capital joins for the latest episode of The SAF Podcast. A leading voice in clean energy investment, we explore how sustainable aviation fuel (SAF) fits into the broader energy transition — and what it will take to unlock the capital needed to scale it.

Adam draws on decades of experience across equity research, corporate finance, and clean energy advisory to unpack the structural financing challenges unique to SAF: the offtake mismatch, the difficulty of securing long-term airline contracts, and why the "alignment problem" is one of the biggest barriers to reaching final investment decision on advanced fuel projects.

We explore how geopolitical shifts — particularly the fracturing of the post-WWII trade consensus — are reshaping energy investment, introducing a "security premium" that may, in some ways, work in SAF's favour. We also discuss the evolving role of carbon dioxide removal credits, the lessons SAF developers can draw from analogous sectors like grid-scale batteries and green hydrogen, and why the UK's Contract for Difference model offers a potentially powerful template for SAF policy support.

From the prospects of HEFA feedstock constraints and eSAF economics, this is a wide-ranging conversation for anyone working at the intersection of clean energy finance and aviation decarbonisation.

Transcript

Welcome And What We’re Exploring

SPEAKER_02 0:11

Hello and welcome to another episode of the Staff Podcast, the only dedicated staff podcast on the internet, probably. So we're still on the lookout for another one. So if anyone does find another one, let us know. I'm delighted this week to be joined by Adam Forsyth from Longsbur Capital, and we're going to be talking about a wide range of things. We're going to talk about where staff fits into the overall energy diversification and sustainability pipeline. And also what capital markets staff can access and how it compares to other industries in this space. Adam, thanks so much for joining us. How are you?

SPEAKER_00 1:02

No, very well. And thank you very much for having me.

Adam’s Path Into Clean Energy

SPEAKER_02 1:05

No, it's an absolute pleasure. Thank you very much for giving up your time. So we like to start by inviting guests to tell everyone about their backgrounds, how they ended up in their current positions in their career, and how basically how they filled their time up till now. So do you want to give everyone a sense of your background?

SPEAKER_00 1:27

Yeah, of course. So I did a degree in civil engineering. I worked for three months on a on a road contract and decided civil engineering wasn't for me, and ended up working for an environmental charity, which was great fun. I was essentially the finance director, and decided I lacked that side of things. So I went off and did an MBA. And then I started what has kind of been my core activity, which is essentially providing what we call investment research, helping investors make their decisions, particularly for public companies. And I started the first big company I wrote on was Scottish Hydroelectric, as it was then. It had recently privatized. Now it's SSE, one of the biggest utilities in the UK, probably one of the biggest utilities in Europe in some ways. I covered those large companies for quite a few years, ended up as joint head of the pan-European team at JP Morgan. And then got an opportunity to go off and do something more entrepreneurial. So I actually ran a small activist fund, and activist funds are where the shareholders get involved in the management of companies. And that was good fun. Then in 2008, I came back onto what we call the sell side, i.e., the side of the market where you're advising investors rather than uh rather than investing yourself, um, and started covering smaller clean tech companies. Um and absolutely fascinating, challenging, and I've been doing that essentially ever since. There was a big change in the in the regulation where it used to be the case that investors paid for research by directing commission uh to stockbrokers. And the regulator said no investors have to pay directly for the research. But that meant only those only those investors got the research. And we've been seeing what's been happening in academic publishing where it's moved not entirely, but is moving towards more open access, where the funder of the research also funds the publication of the research. And we thought, well, there's this rule that allows if companies pay for the research, the research can go to everybody. Uh, and that's a better outcome for the company, certainly, but also we think for the market. So we set a model up doing that and doing it entirely in clean energy. And I've been, I've been, I'd built a profile in clean energy. I we we have um market votes every year. I've been voted top in the clean energy space twice, uh, also got an award for my forecasts, which is amazing because forecasting is very hard in this area. Um, so so I felt there was enough track record to build a business. And I had some friends at what was then Longsborough Capital. Now, Longsborough Capital started off, in fact, you can see behind me what we started off doing. Um we were really a developer of what I call plain vanilla renewables, you know, so wind turbines, solar parks, uh, did some batteries, some biomass, some anaerobic digestion. Um, and I knew people there and they had a regulatory, uh regularly license effectively. And I thought, well, that's quite a good place to do my business rather than trying to do it on my own. So I set up what was then Monksboro Research, and we've built that business into our product for listed companies. Um we write at the moment on 12 companies, um, not just in the UK, we've got two Australians, we've got a couple of two Norwegians as well, actually, uh, European companies, some North American. Um, and and increasingly we've done work in with private companies as well, which has been very interesting. But then when you think why does a company want somebody to create investment research? Well, usually they're going to want to raise some money. So we built a corporate finance business on the back of that, and that has now probably become our biggest business. Started off doing public equity and has increasingly done private equity and then debt, project finance and project MA. Um, and within that, I think you know, of interest, hopefully to people listening in today, um we've worked with on the project finance side, we've um done small pieces of work for Zero Avia in the hydrogen aviation sector. Um, and then I've written I've written on Velocis, which is still going, still really interesting company. A difficult experience in the public market, not really backed by investors, I would say. Um I won't blame investors for that. It's a you know it's a difficult time. Um a difficult time because interest rates have been higher than we used to experience. And that's that's been probably the biggest, biggest challenge. Um uh and also we we worked with Lillian uh as a research client. So Lilium, the e-Vitol um uh uh aircraft from Germany, which sadly failed to failed to secure a grant, uh sorry, a guarantee for a loan um and went into liquidation, which I think has knocked back the e-VTOL space in Europe um uh considerably because it's now more dominated by US companies. Um but we also have worked, we've looked at decarbonisation of shipping, we've worked with a number of advanced fuel companies, so we've seen a lot around um components of the SAT world. We've worked with a number of gasification companies. So if you're going down the gasification um Fisher tropes route into into sustainable aviation fuel, we've we've been through a lot of that experience, which which has has been difficult, it's been challenging. Running a gasification plant is not easy. Um so I was supposed to be telling you how I got in here, and I've ended up telling you what we do. But um, you preempted my next question, so that's fine. You can you can you can you can see where see where it's come come from. And it's fascinating. I mean it's it's you know, this this world is really interesting, it's hugely challenging. Um you know, and it's uh it it's it's hard. I I actually uh I don't know how I found the time, but I've become a chartered environmentalist as well. Uh, did that past two years, which I would recommend to anybody in this space because I think it's very helpful if you're saying, well, why are we bothering? Uh to understand some of the science and some of some of the technology behind by behind why why we're trying to do that and why the policymakers to an extent are are are backing things. Um, because we spend a lot of time looking at policy, of course.

SPEAKER_02 7:45

Yeah. I've no idea how you found the time to become a chartered environmentalist, but respect amongst all the other things you've got going on.

SPEAKER_00 7:55

No, I I I I've actually I've got two confessions to make. Um uh one is I've I'm based in Edinburgh. Um, I've been here for years. It's for in the clean energy world, but particularly for things like wind, there's lots going on up in Scotland. Um, and it's a good financial, you know, in some ways second financial location in the UK. I traveled to London an awful lot. An awful lot. I get a feeling one year I got my BA gold card on domestic routes. Um however, I've discovered that it's not the travel time, it's the wasted time. So sad to say I'm actually now using the train pretty much all the time because I have to write a lot. And if I can sit for five hours on a train, um I can get a lot of work done. Um whereas on an aircraft, it's it's too short, actually. Ironically, it's too short. But I do I do like flying. Uh, and I actually am the holder of the Pulley's Aviation Long Distance Medal 2023, I think it was. Um,

Building Research Into Corporate Finance

SPEAKER_00 8:55

although I do not fly myself, but I have a friend who's got a little stunt aircraft. Um, it's a vans, can't remember the vans model if aviation enthusiasts are out there. Um, and pulleys, who provide lots of accessories for people in that space, doing annual challenges. What can you do in dawn to dusk? Um, we overflew all 282 of the Scottish Monroe's uh dawn to dusk, um, and we put some SAF in the tank. Now, this was this was Avgas, this is um synthesized sustainable Avgas. When was this? And we didn't uh 2023. 2023, and we got this from um a friend at UCL uh in the lab, made made us some. Now, I have to be honest and say um if you think about the amount of vermouth in a really dry martini, you probably you probably have an understanding of how much we put in the tank. It wasn't an awful lot, but we did want to say we put some in the tank, um, and it was absolutely fine, didn't there's any issues.

SPEAKER_02 9:57

That's awesome. So I I want to step back to towards the beginning of what you were just explaining and ask you about a couple of couple of aspects. But first, you mentioned you started the research, the investment research side, and you are the first investment researcher equity analyst type guest we've had on the podcast. So congratulations for winning that medal. Um, first off. But how are you balancing the the work you're doing with the on the capital markets, the advisory side versus the research side? Because a lot of talking big banks are there's Chinese rules and all these sort of aspects separating the two together. So how are you managing that divide, one of your time and two of actually how does it work within Longspa?

SPEAKER_00 10:49

Yeah, I suppose the second one, the well, the first one's maybe easiest to ask in that we work as a team. So so I will tend not to do corporate finance, except I will support it. So, particularly for some of the private work we've done, I will have done things that are getting in getting towards due diligence work. So, so particularly vendor DD type work. Um, we've done market sizing exercises and we've done valuations. Um and and of course, a lot of what we do is explaining to investors and and even for private equity, you know, private equity wants to get in, wants to dig in, wants to really understand. Because if they make a mistake, they can't just sell the shares. So they will spend a lot longer doing doing their due diligence, of course. Um but but uh but the actual corporate finance activities will be done by corporate financiers. Um, I I I actually have uh one of my many regulatory exams. I I've got you know I can tick the box and doing that, but like like all companies, we we separate it. And then in terms of how it's structured, you you know, it is very important. You talk about Chinese walls, the FCA uh has told us to call them information barriers these days in case we offend any anyone. I don't think it does, but um, you never know. I think it's well well-known enough jargon by now that I think and I think I think if you if you assume that they work, and I I think on the whole that they do, it's uh hopefully it's flattering to the people who've made the walls. Um but um the yeah, we have I think anybody working in our world of of particularly particularly people who deal with listed companies are very mindful of conflict management. So we have conflict management processes. Um I quite often get embargoed information the night before something's going to go out. We call that wall crossing. Um, but I have to fill out you know several forms and make sure people know that this is the case and make sure it's documented when I become what's called claims. That is the information that's then public, and I'm I'm okay to talk about it. Yeah. Um, so yeah, but but one of the things we try and do, I think some of some of the very big banks, it's very easy if you're a compliance officer just to say no to anything. Um, nobody gets in trouble for that. But the really good people running that sort of activity don't just say no, they say, well, they assume that people are generally people working in in the markets are generally trying to do good things, trying to raise money for companies and make sure investors get a good deal. And it's balancing those two that's almost the issue. Um and and so I think a good compliance officer will say, well, what are you actually trying to do? What was the good thing you were trying to do? And here's the reasons you shouldn't have done it, but here's something else you might like to think about that that may get us there. And we try and make sure that we can actually exchange some of the information, none of the proprietary information, none of the inside information. But if if somebody in the team has been and seen a project and has learned something that may not be that widely known but but is really interesting, just you know, trying to think what we had recently. Um, we've been working on a project in Spain which is um it's e-methanol. So it's its intention is to go to shipping, not for aviation, but of similar processes. And um, as part of that discussion, someone had done some work looking at the cost of Chinese biomethanol, and we were getting some good market information on that. So that gets shared, which it wouldn't otherwise, if we had been working in that project, we wouldn't have had the same access to you know, we can go and get information from Platz and whoever the market providers out there, but getting it actually on the day from people can be very helpful. So we try we try and work that, and that's the beauty I think about being you know a small firm. Um and and yeah, it it it it generally works. And I and and if we if we close a deal, we get we do an internal presentation on it. And when I initiate on a new company, I will do a presentation within the company so that people are up to date. Um it's just it's just good communication, really.

SPEAKER_02 14:45

Yeah. You've mentioned a numerous different industries that you're active in. You mentioned marine just then. You started off by I like um vanilla renewables as a phrase, that might be one that I'm feeling. So um, so looking at sort of wind and and solar and things like that. Obviously, this podcast is predominantly about staff. So where does staff fit in for long spur for you guys? How much of your time is related to renewables that go to aviation versus other industries?

SPEAKER_00 15:20

Yeah, so right now right now, not very much because we don't have a particular client or project right now. We've recently had a project, we yeah, within the past year we've had a project, and therefore it becomes very important. And similarly, if I if one of my companies was a like like we had with Velocis, well, I'd say Velocis was our second client, um, signed up very early because I'd known them in in a previous role. Um known them even back into the days when the rocks are catalysts. Um and um uh so so then we will rebalance, but we never lose sight because we've I mean we have the the the we'd say we we sometimes we say we specialize in clean energy. Now that's not a clearly not a specialization, it's a wide area, but there's an awful lot of overlap between the different areas. So so you know, if you're doing yeah, if you if you're doing if you're doing pure pure e-fuel with with hydrogen, you really need to understand the pricing structure of electricity in the market you're operating in, because you're gonna your purchase of electricity is gonna be a key component of the cost of that hydrogen. Um and so you're already into looking at how much renewables are in the system, how are they priced, uh how what you know, what what's the intermittency? Is there hydro in the system which will change the balance of the market? Um, and then you're yeah, you're then thinking about downstream, is there an option? You know, you're gonna make hydrogen, are you gonna just put it through through a fisher tropes process, or or are you going to have options and what are you going to do with the bioproducts? Are you going to take biochar out of out of the bottom of it and put that into agriculture? So we end up having to know about agriculture as well. And it's quite important to stay on top of all these things because although different bits will become important, that will change, that will always change. Um, and and you have to consider all all the competing, well, the competing inputs, all the competing outputs. Um that's when the SAF just remains important. We're not going to lose sight of it. Um few years ago, we actually created our clean energy index of

Flying, SAF, And Market Reality

SPEAKER_00 17:20

all the major listed companies, and we we had to develop a methodology and decide what we meant by clean energy. Um to a large extent, we've used the EU's taxonomy, published the taxonomy in what's considered to be to be green. Um we've added to that some of the upstream, you know, particularly in the battery space, so battery minerals, battery chemicals. Um but um but but but and and so yeah, so so it actually ends up being a wide understanding, but because it's all linked. And even then, we still have to think about um fossil fuel as well. You know, the you know, what's the what's the alternative? What's the pricing of that? Will that affect things? Um on top of that, I think a lot of the I've been talking quite a bit about, and this brings us directly into SAF. So the issue of you know, an airline when it purchases fuel, it purchases fuel, is looking at best to merchants maybe three years out, probably a lot shorter. I mean, I bet right now they wish they were purchasing more for longer, but yeah um that may be, you know, uh hindsight's a wonderful thing. Um but but but if you want to fund a project with a a new or new ish technology and ideally want to get it to what we call nth of the kind when debt finance can come in and make it make it cheap, um people are looking for 15-year offtake. I mean, off take is critical. Offtake is economic demand. You know, is the real economic demand for what you're doing? So off take is very important, and the banker, if you're putting debt in, the banker wants to see that, but he wants to see it for 15 years, and um and you have that mismatch. Now, I think the mismatch is very alive in SAF. We have had a couple of deals where it have been longer with maybe different types of counterparty, but it's interesting that that's emerging. What I'm seeing is interesting is in the battery world, so so grid-connected batteries, BES as we call them, battery energy storage systems, those are those are assets that supply power, and they they really don't know what price they'll get for that power for the next 15 minutes, let alone the next 15 years, because they're they're trading assets, they're designed to work off the fluctuations in the market. And what's emerged in that world is are what are known as tolling agreements. So someone comes in and rents the battery, and that provides a return for that nice 15-year period that's nice, steady. It's what the bankers want. It's not as good a return as the battery can get necessarily totally, because you're taking the you're taking the exciting bit away by doing that. But the person who then takes this exciting bit is somebody with a big balance sheet, like a big utility. And that's I think is the type of solution we might start to see in SAF and other areas as well where you have similar issues. Um we're also seeing, I mean, I mean, I'm I'm seeing people looking at these these financing issues. Um, the a similar sort of potential solution, but I don't think it's gaining as much traction at the moment is our guarantees. Um, so guarantee-type products. We also have support from governments, so we have um uh things like the National Wealth Fund looking to support in some of these areas, and that's helpful as well. But that's where I'm I I can see the problem almost most acutely in SAF, but I'm taking that as a kind of here's a problem, here's a way, here, here's part of the clean energy world where we can really point to the problem and say this is what it is, but then we can take that problem and say, even if it's from for other areas as well, where are the finance solutions to go and help get around that and and and and get get to final investment decisions on projects?

SPEAKER_02 21:01

Yeah. And would you say because SAP has this off-take-related problem that hasn't necessarily been solved yet, it's losing out on investment opportunities against other renewable spaces or not necessarily it's slightly more complicated, I'm oversimplifying things.

SPEAKER_00 21:23

I'm I'm I'm all the same, I mean, I think I think it is it is losing out. If it could solve the problem, it would get investment, I think. Um I it it it's an oversimplification, but I I I think it is worth saying that if the if the promised return is good enough for the perceived risk, finance will beat a path to your door. Now, that is an oversimplification. If it was that easy, we'd all be doing it, as it were. But um, but those are the bits you need. Now, in that, it's the perceived risk and how you pro how how much perceived risk you know, people, banks. Do not want to take risk for thro beyond three years. They want 15 years of not risk. So I think I think the funding is there if the building blocks and the projects can be designed and supported in the right way. The underlying problem you have for a lot of things in the clean energy space is you're trying to sell a product where the underlying price is above the market price or the incumbents price.

Research Versus Advisory Information Barriers

SPEAKER_00 22:30

Not true everywhere. We're seeing things being broken down, the price of batteries is falling, the price of solar panels is falling. Wind turbines, the wind turbines actually weren't getting cheaper, they were technically getting bigger, but that made them cheaper per unit. But haven't really necessarily got there. And you need to also consider it at the system level. But in other areas, clearly SAF, you know, the cost is very high relative to the cost of the fossil fuel alternative. And that means you need some kind of policy support at the end of the day. Which, of course, with the mandates we're getting. That's why SAF is interesting right now, because we we have the mandates. And I think to an extent, more so perhaps than in shipping, investors are trusting the mandates. We still need other bits to fall into place, like that issue over the time frame. But I actually think I actually think there's what we're what we're seeing in the decarbonisation of shipping. I think it got a big knock from the International Maritime Organization, which was going to globalize our decarbonization solution for shipping. And then that got um well officially delayed by the Saudis, but I think Saudis in conjunction with the Americans. And it feels very uncertain right now. Now we still have shipping decarbonization policies in Europe and the UK. Um, but I think SAF is probably seen to be a little bit I I think because the attitude of airlines actually is a little bit more positive. And I think investors recognize that. Yeah, it's not, I mean, these are universal things. It's not universal, and it's not universal to say that every shipping company is not doing anything, um, because some of the things are MERSC, for example. But it's interesting. I think the closer companies are to final consumers, the more switched on they are to thinking we need to do something because it does it is part of the marketing mix, and for a lot of consumers it becomes important. Now, how important it's it's clearly not stopping people flying, um, but it is making people think um and requests, you know, in their what in in the ideal world they would like to fly and have have it have the feeling that they're not damaging the planet. Um but but it's also true that they would like to buy their next set of trainers and feel they're not damaging the planet, and that's that's actually what's putting pressure on the shipping companies, of on certain shipping companies. So, yeah, Mersk and Costco, for example, what do Mersk and Costco do? They ship big boxes of trainers and other things, of course.

SPEAKER_02 25:11

Yeah. You meant you were talking about price, effectively the green premium, it's a terrible term. Lots of people have now decided it is. Um but equally in the short term, in the recent short term, we've seen oil prices and staff prices get a lot closer, and in some certain situations, staff prices dip below the price of Jesse One in certain locations because of the overarching geopolitical issues. So, how how's what happened effectively since February 28th and the issues we've had in uh in the Middle East with Iran affected your outlook on the renewables of space because there's a lot more conversation around uh energy security? And um I saw an interesting piece that Longspur were involved with around

Where SAF Fits In Clean Energy

SPEAKER_02 26:05

um oh, it was you were basically talking about how the system changes as the great split of the great split, yeah, the great split and how that's actually affecting big and having massive energy consequences. So how this big, which seems like something that's happened in the short term, but it is actually here to stay affecting your outlook.

SPEAKER_00 26:32

I th I think we probably well, we probably started looking at this at the time of the US election for I think perhaps obvious reasons. Now it's not it's I wouldn't say that that has been a drive. We've we've seen poor performance in share prices across the clean energy space, which started with interest rates rising.

unknown 26:50

Right.

SPEAKER_00 27:00

So it's money tomorrow, not money today. And if your if your discount rate goes up, the value of future money is is less than money today. Uh and that's even true for SAP because the project's not going to start today, it's going to be, you know, three, four, five years, maybe down the line until you you complete a project and you're getting the cash in. So and they're capital-intense projects generally across across most clean energy solutions are expensive. Um although I always point out a lot of that spend is generally replacement capital. You know, we were going to build one thing to fuel an airplane, now we're building another one when the last one falls to bits. So it's it's it's not necessarily it's not it's not necessarily more cash, but it's still a lot of cash. Um but yes, we we took the view when global politics changed um that one China China would would I think push its clean energy credentials more, partly to push a soft power mandate, um, particularly in the developing world. Um and of course, having then been restricted on one of the countries they can export to, yeah, they're they're pushing out more material everywhere else. So that's why again batteries and solar panels have have continued to get cheap. But then I think I think particularly brought home by by the events in Iran recently has been the um we in the Great Split. No, this is this is a piece we did with Sibylin, who are our um global um uh kind of geopolitical intelligence consultancy. Yeah, um we looked um uh we spent a bit of time thinking about um the what's called the trilemma. And the trilemma is the fact that you would like in an ideal world your energy would be low cost, low carbon, and secure. And and traditionally, if you want it low cost, it's not it's gonna be high carbon and insecure. And if you want it low carbon, it's gonna be, you know, it's like it's a trilemma. All three fight against each other. Now, actually, we've made a lot of gains on the cost side of and clean side, but what's risen is the security angle. And there's this dreadful phrase going around, which I keep repeating because it's quite helpful. Khaki is the new green. In other words, things that are military are becoming a driver of a lot of these solutions. So we're all wondering where we're going to get our jet kerosene from. Well, if we can get it from a waste of energy project down the road rather than from the Gulf, if there was enough of it and if it was available today, we would feel a little bit more secure. Um and so that has become um a big driver of things. The other thing, because of that, we're we're seeing is a split to more distributed production of energy. Rather than big centralized, you know, it all comes out of the Gulf, goes to big refineries and big places, and then comes then's distributed out. Whereas a lot of people are thinking, firstly, nation states are thinking security, but also companies are thinking security. And the key group of companies that are thinking security are data centers, quite simply, because they can't get enough grid access. So they're now doing what they call BYOP, which is bring your own power, i.e., build a power station on the site. Now they've been doing backup power for ages, but they're extending the scale of that. Um, so that has become uh a big driver. And it's and it's not just gas turbines, because gas turbines and gas engines, the uh uh or lead times have gone out to up to eight years. Um, but people are looking at at um looking at solar and batteries, uh, they are looking at biogas, which starts to impinge on you know, biogas can be a route into SATH. Um so it again, again, there are linkages going on there. Um but yes, if you could make enough SAF locally, you wouldn't be worried about where your where your aviation field came from.

SPEAKER_02 30:56

How much time do you spend thinking about these global macro level events and scenarios playing out versus looking at the micro details of independent individual companies and how they're structured and what their actual plans are in terms of developing projects because one surely influences the other, but say it on one over the other.

SPEAKER_00 31:24

Yes, and and it and of course it fluctuates. You know, you know, I might spend a whole week looking at geopolitics and then a whole week looking at the the nitty-gritty of the company. Right now I'm on nitty gritty of companies, um, because we we've taken on a couple of new clients. Um and but yes, it but even when you look at the nitty-gritty of the company, you're thinking how is it influenced by these purple things? Um so it's it's yeah, it's difficult to put a number on on bits. But but I think it is important that having said that, of course, there is a drive to do things locally in that kind of decentralized energy world, it means the local becomes quite important. So actually, whilst the geopolitics is important and is driving a lot of this, it then makes the local almost even more important. And uh sometimes we we think a lot of the time we're or at least I think people assume that a lot of the time we're talking and explaining technology. So, you know, I can talk you through how fissure trope schwerks, I can talk through alcohol to jet, I've got we can we can look at all the different battery types you might want to put in an aircraft. But just as important are what's the competition doing, what's the competitive structure of the market, and that can end up being quite local. And then the big one is policy. You know, what is your policy solution in the country where you are, or even in the region where you are, and even within regions, you know, if you're doing something again, if you're making an e-fuel from hydrogen with electricity, what do the bridge charges and what are we doing? And that's really in the UK, you know, we're we're looking at all kinds of things around. We have this uh strategic special energy plan, which we were waiting to hear, which could change the way electricity gets

Offtake Timelines And Bankable Revenue

SPEAKER_00 32:55

priced in different locations, uh, you know, which will then have an impact. Um, so there's yeah, I it's there's almost almost too much to look at, and they could run away crying sometimes, but um but but it's it's uh it is fascinating, and there are there's a lot to go and and kind of learn from. And of course, what happens with one policy in one place then can start to influence other policies. So I actually think the UK's model of having a contract for difference, which came originally from it was actually when Chris Hume was energy minister years ago in the um in the the conservative liberal um coalition. Um the the the beauty of that was what it was saying is we don't we don't want the government to pay for your pro your green premium. Yeah. Um we want to guarantee it. And so we'll let the market set a price, but we will guarantee a price. And if you go over the price, you pay us back, and if you go under, we pay you. Um and that price stability mechanism, I think, has been very very good for funders, is what funders want. So we'll see we're seeing it in hydrogen with the the har rounds, um, uh hydrogen allocation rounds. Um, and we're seeing Europe begin to look at adopting it and China adopting similar similar processes. So um, you know, it's it is quite helpful.

SPEAKER_02 34:18

Um and there's a similar model in the LCM in the in the UK as well that's coming in. So that's exactly where it's modeled off.

SPEAKER_00 34:27

So exactly, yes, and it's and it it's good. I think it's it's a very good approach. I was I was gonna mention, yes, you just you talked about bream premium actually, it was quite it's quite interesting. So I was talking to people last week about wondering if we if we've gone from sustainability as a driver to security as a driver, what is the security premium? And one of one of the things I looked at and thinking about that, so in the UK, we don't make our own wind turbines. You know, the wind turbines are made in Denmark and elsewhere. Um, and the UK has recently turned down the opportunity to manufacture Mingyang wind turbines, which are Chinese wind turbines. Now, we believe they're 30% cheaper than Western turbines. So I'm wondering, is 30%? It's not 30%, it's why it's that's not the way the maths work, but it's it's it's a bigger number, 30%. Um is does that tell us how much we are prepared to pay for security?

SPEAKER_01 35:26

Yeah.

SPEAKER_00 35:26

Um, you know, there's a read-through from that, and how much would we prepared to pay uh as a premium for aviation fuel that we'd we're not worried on it being cut off? Um so I think that I think if there I think green premium shrunk because green stuff has got cheaper, but the security premium is now coming into people's minds.

SPEAKER_02 35:47

Um do you think people would be prepared to pay more as a security premium as opposed to a green premium because there's you could effectively build a better marketing case that people could have more could understand better and appreciate more with security as a premium rather than green as a premium.

SPEAKER_00 36:07

I at the moment I think that's the feel for the the the way the the the zeitgeist is thinking about it. I think I think. I think green can come back. You know, I I think if we it's quite interesting when you looked at the political response in Spain to the flooding, uh there's an awful lot of kickback on that. Um, but I I'm not sure if people have really recognized that. So you know, I I think I mean climate science is is very hard sometimes to get your head around. A lot of people oversimplify it, and but it is it is generally around risk. If a lot of these risks actually materialize, you might see suddenly people saying, You we you know we're very happy to pay the green premium. They were happier, it's but it's become since we've lost the cross-party consensus on decarbonisation, which we have in the UK, yeah, um, and we have in America, um, I think that that that's kind of leading you to a place where um where the green premium is less, but it doesn't need to be much more because actually green things have got cheaper. Yeah, um, but the security premium is there, and there probably I think I think there is cross-party agreement on the a degree of security premium to be paid. I think um you can even argue that you know, tariffs, what are tariffs, but that's paying paying more than you need to. Yeah, um, you know, if you if you if you believe in the basic economicardo, then we shouldn't have tariffs at all. We should be trading with everybody. And and yeah, well, we'd love to love to think we could be trained with everyone befriended with everyone, but um meanwhile, back in the real world.

SPEAKER_02 37:33

Yeah, exactly. Do you lots of people talk about it in terms of uh there's a security premium and a green premium, but it's rarely you don't synergize the two and go actually we're communicating actually you're killing two birds with one stone's do you think that needs to be worked on?

SPEAKER_00 37:51

I think I think that does need to be worked on, but I I think I think it's not true for everything, but for a lot of it is. I I think I mean bear in mind with a lot of the the with the plain vanilla renewables, if they're made in China, you know, people want to think, is there a kill switch? Uh I think there isn't. Um or if there is, you can take it out very quickly. It's not it's not like a it's not like a whichever jet we were all worried about, uh, or perhaps even the drive-a missile system. But um I I I think I think we can we can handle that quite well. And the different big difference is, of course, that it's not nobody then switches you off like that. You know, there's no sudden closure of the gulf. So it only then becomes do you have enough spare parts and do you need to do more? Whereas with with um with with oil and gas, the risk is it could suddenly stop overnight. Um, unless you've got a decent stockpile, it's really painful. Um so so I think that's that's more factored in now. Um and I think yeah, and I I I but I think people tend politicians like to do simple messages, and and which is sensible for them is they have to communicate widely, and and I think it's easy easier for them to focus on one or the other. But they it should be into a win-win space, I think. Um, and uh and and and with the fact that actually the premium itself may become quite low in time, yeah, uh to the extent that it isn't already. But but this is the problem with SAF, particularly, that the view of the long-term oil price is that SAF is still going to be still going to have its premium.

SPEAKER_02 39:23

Yeah. Particularly as you're looking at you'll get one pathway Heifer, which will come down presumably slightly quicker because it's more commercialized, but then you've got other more advanced pathways that would still be scaling at that point. So there will always be a form of staff with a higher premium. It's not as simple as going there is a staff price that's coming down.

SPEAKER_00 39:44

Yes, that that that that's right. And and Heifer, I mean, I don't know if you've heard the story that um uh there are fish and chip shops now in the north of Scotland and the high islands where people are stealing the recycling bins out of the back of the chip shops.

SPEAKER_01 39:59

Yeah.

SPEAKER_02 40:02

It's not they're going to someone someone's collection facilities. It's funny you you say that because my my dad's a barrister and he worked, he did a case based entirely on that in Essex without stealing chip shop and this was what years ago. This was 10 or 10 plus years ago. So it's been happening for a while.

SPEAKER_00 40:20

Right.

unknown 40:21

Right.

SPEAKER_00 40:22

Yeah. Um it's yeah, so so the market, market's finding price, I suppose. But um, yeah, and and and of course, you know, the issue, the issue the issue with with Hefe is that that there's only so much you can do because it has more limited feedstock than than I mean uh our our view is that biogenic solutions, the there is a lot of the sustainable biomass in the world. It's quite interesting. We we talk, we we don't work directly with as a client, but we we've done work with future biogas who are are biogas, biomethane producer in the UK. And of course, the concern there is you start to use agricultural land for the biomass. Now, they've pointed out that pretty much every modern farmer uses propertation. So you can have an energy crop on the field if it's one of your cover crops. And the Italians actually have done this. They they've got, I think, 10,000 farms in a trial in in the Po Valley. Um, and it's phenomenally successful. You're getting you're getting the benefit of improving soil with with the prop rotation. You're not taking away from food supply, and you're creating supply of of biomass, which can go for a variety of solutions, including SAF.

SPEAKER_02 41:33

Yeah. I'm I

Energy Security And The Great Split

SPEAKER_02 41:35

mean, you just have to watch, I can't remember which series, but a series of Clarkson's farm where he's talking about laying cover crops and the fact that it's actually more profitable for the farm to grow those to rejuvenate the soil as mandated by government rather than growing crops. So that's sort of that thought in mass media as well. So it's it's obviously a conversation, it's not as easy as saying you can't grow crops or biomass in the crops growing area because it's much more complicated than that.

SPEAKER_00 42:06

It's I we we we we find that a lot of this is is complex, and and sometimes it is a challenge getting that complexity it through to the policymakers.

SPEAKER_01 42:16

Yeah.

SPEAKER_00 42:16

Um the policymakers will often understand it, but they still then have to sell it as a policy, and that can be challenging. And there's there's I mean, we we've done work with Witty Biomass for incineration and then carbon capture, watching bioenergy and carbon capture, which can be one of the in fact, that's almost what the philosophers was doing, and resulting in a in a SATH with a massively negative carbon intensity. Um, because essentially they were taking two trees, one tree went to the SATH, and one tree went to material that would just be buried and permanently sequester the the woody biomass. But people said, but hang on, you're cutting down trees. But actually, what they were doing is like everybody in the forestry industry, the the tree, half the tree is going to construction timber where it becomes a house. And and in America, 90% of new built homes are still timber framed. And as long as the house doesn't burn down, which you know may be a risk in certain places, but if the house is there for a hundred years, you've sequestered that that carbon in that half the tree for 100 years, and then if you can do something sensible with the rest, you can actually end up with quite a good result. Now, the trouble is, of course, people break the rules and people overexpand and cut down the wrong sorts of trees in the wrong places, all that. But there's a perception that people are just blanket blanket cutting trees. Now, in most parts of the world, when you cut down a tree, you need to do it with a management plan in place to replant. Even in Canada, actually, the management plans now, if you take trees down commercially, uh when you replant, you're planting with different species that are reflecting the fact that in the next hundred years it's going to be warmer with more fire risk. So you're you're almost trying to get ahead of potential climate change impacts. Um, so it's yeah, you know, that's the people are thinking at that kind of level of detail. um in the forestry world um and should be and it and it's it's it's it's good to see it but I think there's not a lot of understanding of that.

SPEAKER_02 44:07

No. You mentioned the emissions reduction rates. And I wanted to ask you about obviously eSAF has the highest potential for emissions reductions. It's also very expensive. So I wanted to get your thoughts on the potential for financing mechanisms to operate with in a world where the emissions reductions that a staff facility can provide can be incorporated into the financing framework so that they can be rewarded for that. And the challenges around that are sort of obvious in terms of managing and tracking that. But do you see that as being something that hasn't necessarily been looked at for previously or something that can be looked at to help certainly scale in second third generation investment in South Project I think I think that there's things out there that can help.

SPEAKER_00 45:03

I think I think some of the best things that can help are valuing if if if if a project can be made to be negative emission, I think carbon dioxide removal credits will gain in traction. Now I'm saying that at a very difficult time um because these carbon dioxide removal credits have generally to date been sold into voluntary markets and being purchased by people who want to offset emissions elsewhere. And the biggest of those buyers has been Microsoft who've actually accounted for I think it's about 74% of the market to date. And just back in April rumors came out that Microsoft's were not buying anymore that those rumors were overdoing it because Microsoft has spoken Swift to SP and made a statement saying that they were looking at the pace of work but they weren't taking away anything that was in place already. But I think the fact it was all focused on one company is is a bit it's it it just reflects the very early stage of things. Because I think that Microsoft are not the biggest buyer by number of projects. They might be the biggest buyer by tonnage of CO2 removed. But the biggest buyer of projects is a company called Frontier who are an aggregator. And that's what you would expect when you expect aggregators to emerge buy the credits from multiple projects because a lot of projects are quite small and distributed centralize them and then send them out to multiple buyers and I think that's how the market will evolve. It's that's closer to the oil and gas world where you have those types of buyers so I think that that probably helps both and that's not just ESAF but also certain types of BioSAF and we actually see a lot of we we almost see it a false distinction between the two because there's quite a lot of solutions where particularly with with hydrogen you can add hydrogen into a biogenic process to improve it and you can actually optimize between the two as well as some sometimes giving you optionality because if you if if the SAF market is terrible you can just sell the hydrogen if the if the hydrogen market happens to be better or you can even sell the if you're making the green electricity is going into it you can then make the green electricity and I know Norwegian hydrogen for example are working on several projects in in Denmark um where they have that optionality and it's the optionality that's attractive to them. I think a lot of that will will in time disappear because the markets will become bigger and you don't need the optionality but at the moment it's a great thing to have when you don't know where policy is finally settled and where demand is finally settled.

SPEAKER_02 47:36

Yeah.

SPEAKER_00 47:38

Final thing I want to we've moved from macro and I want to touch on the micro now so when you're looking at companies developing looking at developing technologies projects whether it's marine or aviation or you know heavy tracking and things like that what are you looking for for a company that go that's got the right ingredients in order to be successful versus those companies that potentially over reliant on favorable policy that's has potential to change and is vulnerable to unmitigated risk that can't be controlled by other with aspects within the project um I think we don't so much if the if the policy is is good enough we don't mind over reliance on policy as long as the policy feels good and that's why you know we like things like the the the whole CF the other good as well as sort of giving a price guarantee is it's set up with an independent third party um buyer uh which gives a degree of political safety.

Feedstocks, Forestry, And Carbon Removal

SPEAKER_00 48:55

I think advanced fuel projects is something we call the alignment problem. Now if I'm if I'm doing you know this a single stick wind turbine um I I the things I need to get right I need offtake I need the land contract you know with with the farmer I need a grid connection and what else I need finance an ONN it's it's quite straightforward. Whereas you think of all the things going into an ESAF project um you need CO2 you need hydrogen you need you need a whole lot of things that are hard to align and I think those those companies that can work that well are those that are going to succeed. We've seen one of the most interesting things in the hydrogen space now it wasn't going to ESAF it was going to fertilizer. So a company called the Tome who are appliant of ours have recently reached financial close on a what is effectively an unsubsidized hydrogen project. So there is there is no government um feed-in tariff there's you know there's there's nothing um it's unusual because it's in Paraguay and in Paraguay there's no gas no natural gas there's a massive agricultural sector that wants fertilizer uh and there's the Itai Boudan which is the world's second largest power station and Paraguay it's a joint venture between Paraguay and Brazil sits on the river between the two um Paraguay only needs 30% of the power from it at the moment and anything that gets above that up to its 50% it has to sell to Brazil for the knockdown price. So if we can do more power in country it gets a benefit and a balance of trade benefit. So you've got this nice Venn diagram of three wonderful things you know demand for fertilizer no cheap way to make fertilizer because they have no gas they've got to import it and very cheap power. And that allows you to get to a situation now even that that alignment thing what was really quite simple has been a lot of work you know it's taken I think about four years to get to financial close but it's got it's got over 60% hearing so it's got it's got proper debt finance um uh and it's a it's a great model for what might happen in the future I think and it's relying on very cheap power at the moment but if if costs can come down the number of places which fit that model will grow um and and that could be going to fertilizer but it could be going to aviation fuel.

SPEAKER_02 51:17

Yeah that's that's fascinating and how how do you think examples like that can transition practically and be used as examples for full SAF. Is there a total crossover? Obviously there's elements of difference you're looking at different industries different markets etc but there presumably are a lot of whole really strong practical things that can be transitioned.

SPEAKER_00 51:42

Yes yes I I think that's right I think I think what's going to happen is they now need to do the next project we we you we talk about first of kind and nth of kind and um I would like to say that the n and nth of a kind is two but it's not you know it's we we you know everything's I've i've I've got answers between four and and bigger numbers but um and it depends on what it is depends how playing vanilla is it could be a tiny it could be two actually to be honest in some in some areas and if the policy is supportive enough um and I I think I think that comes back to that it it it it's the policy that supports offtake because off take is real demand um I think that's that's what that's what gets to be the most important thing. So if the policy is there if the company is good to to solve these alignment issues and deliver

The Alignment Problem And Winning Projects

SPEAKER_00 52:35

a project but the alignment issues sort themselves with time because it's experience. It's about people realizing that if we need a if we need a an electrolyzer of this size if we need uh uh whatever the process is it's Haber Bosch this chemical processor fertilizer if it's Fisher troops we need this one with these catalysts and this model and there's people that enter really fascinating technologies around that that world um and of course technologies require time to prove themselves but once you get these things working together and everybody knows if I'm doing if I'm doing this project with one of these I need to buy one of those from over there and we've done it 10 times before we know what sizes fit and we're good to go. It's that sort of experience and that sort of learning be I think there is some there are elements of government supporting that sort of thing and policy supporting but that's that's maybe the other thing other than guaranteed prices. I think guaranteed prices should be a given one way or another because it's about offtake but if you can then help help all these other bits come together um I think we'll we'll see see a lot of progress.

SPEAKER_02 53:36

And on that very systematic note I will wrap it up here. Adam thanks so much for your time we covered a lot of ground in that chat and it was it was very enlightening there there is a lot to cover. Yeah we covered lots of ground but it was it was fascinating stuff and yeah we really appreciate you you coming on and giving your thoughts

Key Takeaways And Wrap Up

SPEAKER_02 54:00

really really really good to take that