Amy Herbert, Arcadia eFuels & Thomas Engelmann, KGAL: Breaking the eSAF deadlock

In this episode, Oscar is joined by two guests at the heart of Europe's eSAF scale-up effort: Amy Herbert, Arcadia eFuels, and Thomas Engelmann, KGAL— both key figures within Project SkyPower, the industry coalition to the European Commission to put in place the conditions needed to bring eSAF projects to final investment decision.

Amy opens with an overview of Arcadia eFuels and its flagship Project Endor in Denmark — one of the most advanced eSAF projects in Europe, with FEED complete, permits secured, and an offtake agreement on the verge of being signed. Thomas explains KGAL's role as an infrastructure equity investor — with a stake in Project Endor — giving him a view of the eSAF financing challenge.

The conversation digs into Project SkyPower's ten-point recommendation letter to the European Commission, with a particular focus on the proposed double-sided auction mechanism and the role of H2 Global as a market-making intermediary. We explore why this instrument is seen as critical to breaking the chicken-and-egg deadlock between offtakers and producers — and why the timeline for getting it in place is a source of real concern, given that the 2030 eSAF mandates are fast approaching and greenfield refineries take years to build.

We also have a frank debate on airline competitiveness and the level playing field argument, whether eSAF is being treated fairly given that new fossil refineries would face comparable economics, why renewable electricity cost — not policy complexity — is a fundamental driver of eSAF pricing, and why the question isn't really whether to be optimistic about 2030, but what Plan B looks like if Europe fails to act.

Transcript

Welcome And What ESAF Needs

SPEAKER_00 0:09

Hello and welcome to another episode of the SAF podcast. And this week I'm really excited because we haven't got one guest, we've got two. We've got Amy Herbert from Arcadia eFuels and Thomas Engelman from Kegel. And we're going to be talking a lot about ESAF and the challenges around scaling ESAF in Europe. And I'm especially appreciative as we are recording this at the end of what's been a crazy week in the SAF industry with events going on across Europe in Amsterdam, in Madrid. And so it's been a long week, so I'm very much appreciative of Amy and Thomas giving me a bit of their time this afternoon. Amy Thomas, how are you?

SPEAKER_02 0:56

Great. Thanks for having us here, Oscar.

SPEAKER_03 0:59

Yeah, also from my side, thanks for having us. Thanks, Oscar. And a very great uh, let's say a very structured uh yeah event this week.

SPEAKER_00 1:08

Very good. Awesome. Great to hear. So, as I mentioned, we're gonna be talking a lot about ESAF, and we're gonna talk a lot about Project Sky Power and the role they have in lobbying for ESAF policy in Europe. But before we get into all that, we're gonna take a step back. And Amy, neither of you guys have been on the podcast before,

Arcadia e-Fuels And Project Endor

SPEAKER_00 1:29

so it's customary that you give our listeners a bit of a background into you and also your company and what you're doing. So, Amy, why don't we kick off with you? Do you want to give everyone a flavor of your background before Arcadia and then also briefly introduce Arcadia and the projects you guys are working on?

SPEAKER_02 1:49

Yeah, absolutely. So, yes, uh Amy Abeer, I'm the CEO of Arcadia e-Fuels. And prior to Arcadia, I was at uh Topso, where I was deputy CEO and Chief Commercial Officer, and that gave me a good chance to view all the different projects going on across the world. No, it gave me an insight into Topso with all the different technologies around ammonia and methanol, methanol to gasoline, um, methanol to JED, and then Fisher tropes went to gasoline, diesel, and uh kerosene. So it's was it was a very interesting way to see the kind of the global landscape. But prior to Topso, I was also at uh Celenese as vice president for Europe, and then previous to that, I was at Albemarle, where I was actually there for 20 years, and uh was ended up as vice president of Catalyst for refining and chemicals. So it's been uh it's been a great career, and now with Arcadia, we're really excited because we're taking kind of all that knowledge that I've had, and also we've had just a super experienced team, and we're looking to commercialize ESAF as rapidly as possible. Uh we wanted to leverage existing technology, so we're actually scaling down the gas to liquids technology, which typically runs, you know, 30,000 plus barrels a day. We're scaling down to about 2,000 barrels a day, which of course in the e-fuels world is extremely large, but we still feel it's a smaller scale. But we'll be able to produce about 80,000 tons per year of e-fuels, mainly SAF, so it's 70,000 tons of ESAF and 10,000 tons of naptha. And you know, we're using about a 280 megawatt electrolyzer to do that, so it does require a lot of power, but we believe that this is really the right approach to getting ESAF to scale as quickly as possible by using proven technology. So, yeah, we've been doing a lot of work, developing projects kind of around the world. Denmark is our flagship project, and we're we've now completed the feed, we've got our permits, we've got almost everything in place, and we're looking to launch our financial close process you know here fairly soon.

SPEAKER_00 3:49

And what's your can you tell everyone what the name of your project is? Because I think it wins the prize. If I was to give you a prize, it would be the best eSaf project name in the world. So thank you.

SPEAKER_02 4:02

Yeah, we love it. Project Indoor. And so if you if you know that Star Wars movie and the the planet is gorgeous, you know, lots of lush greenery and a wonderful place. So that's what we're looking to do with Project Indoor.

SPEAKER_00 4:15

And presumably everyone that works on the projects are called Ewoks.

SPEAKER_02 4:20

I don't know if we've gone that far, but yeah, I like that. Maybe we should adopt that.

SPEAKER_00 4:26

So that's awesome. And um, very quickly, you're you said you're looking at financial clothes later this year. What about

Offtake Agreements And Financial Close

SPEAKER_00 4:35

um one of the things that lots of people think needs to be in place for financial clothes is offtake? And curious that it's not something you mentioned there. What where are you on that front if if you can do that quickly? Because I know it's an incredibly complex issue.

SPEAKER_02 4:49

Yeah, well, so we're gonna launch the financial close process. Whether we can get there by the end of the year, I don't know, to be determined. I get a lot of feedback saying it's it's quite a long process, but we want to get that started. And you're right, that the key to getting that started is the off-take agreement. And, you know, after many years of negotiation, we are at the final days of getting this signed. I you know, it'd be great to be able to announce it here today that it's signed, but we're just a hopefully a few weeks away. Um we're really excited about this off-take agreement. It's a very robust agreement. It you know it enables us to do non-recourse project financing. It it covers a good portion of our product, you know, of the volume being produced, and it's with a company that is just a bankable customer. So they have a nice balance sheet. It's it's just really a fantastic situation. So we're so thankful to them with all the work they've been putting in with us these last couple of years. But yeah, so that's uh hopefully coming soon. And then we've got a few little things to finalize around that, and then we should be good to go, good to start the process.

SPEAKER_00 5:49

So now we're gonna play a game where I shout airlines and oil and gas off takers and see if your face changes to see if we can guess it.

SPEAKER_01 5:55

Yeah.

SPEAKER_00 5:57

I won't do that. I won't, I won't put you on the spot like that. But look forward to um to seeing that announcement when it comes out. So, Thomas, coming over to you and Kegel.

Kegel’s Investor View On Impact

SPEAKER_00 6:08

Explain a bit about your background and where Kegel's interest in this space is as an asset manager.

SPEAKER_03 6:17

Yeah, thank you. Thank you for having me. Um, thanks to um to your team, and thank you, Oscar, for asking these questions. So, first of all, let's say a little bit to my career. Um, I started with huge power plants all over the world with Siemens. So, project financing was um always a part of the game, but we did always also very much regulate it uh or we touched always regulated um a public customers-related investment.

SPEAKER_04 6:47

So, and I think also this market, what we're seeing here, has some attitudes, what we had also in the old IPPs world, what I call 30 years back, and so on. After 13 years, 12 years with Siemens, uh, where I did a lot of um financing for them, a lot of um operational um CFO for and worldwide um industrial power plants. Okay, and an industrial power plant, for example, always added electricity, steam, green um fresh water, and also hydrogen um as into the instrument in order to sell it to a chemical plant, for example. Rabik was an example, what we did in the north in the um in Saudi Arabia. So, from that point of view, I was always in this area, decided then to go more the green way um for certain reasons and uh went to Kegel and invested with Kegel in whole Europe um and invested here for green solar and wind farms. I always say this was the energy revolution 1.0. Um it means you came from fossil fuels, and everybody Oscar told us it makes no sense uh to um shut down a fossil fuel cold-fired plant and go for these stupid um small-sized solar and wind assets. 20 years back, the capacity has completely changed. You will not get a lot of market partners who invest now in a depreciated cold-fired plant anymore, even if from a technology part it makes a lot of sense because it has potentially very nice efficiency rates. But this is not the magic part. Um, I have done also seven years as um infrastructure equity director and head of um infrastructure equity for Alliance Global Investors. Here I completely know what our um institutional investors want to see in projects, and I decided to go back and to Kegel and created the fund where also we invested into Amy Hertz's Endoor project, and I invested not only because of the name, I invested because of the impact instrument, uh, what is there behind? Because, and this is very important, Oscar, to mention what sometimes I think it was missing, I it was forgotten. If capital markets invest only, and Kegel is a capital market partner, we take money from capital markets and give it to the real asset market, take the money someone back and give it back. We are not only an let's call it equity investor, and I use now the word if I can make money out of it and a lot of money, um, you know, then I invest. This is one part of equity, it's a so-called return, risk, and return aspect, but it must be one additional layer, and it's called impact. And this is what Kegel is looking for, and we decided to run the fund, and we know how complicated it is to run a fund which combines renewables, electricity, with the other part. We call it other sectors, and here the other sectors can be done only with molecules. Okay, and uh very often I was also asked about ah, you are one of the guys who are running for green hydrogen projects, and I clearly said no. Green hydrogen is a molecule, what you can use, and very often you will have to use it if you produce fuels, if you produce something green molecules for the refineries. But whenever you have a project, what you can also get the output with electricity, please use electricity. This is the highest value at what you can have, and this is the reason why I'm highly appreciated to met Amy two years back, three years back, I think, where we decided and she said, okay, I need a partner here for the project Endor. And I said, My fund is explicitly um, let's say, looking for projects where we can create impact. Because if we now go into the market side, um normally, if everything would be run very cool, um, shells, PPs, totals of this world should have plenty of development money on their own, that the endors of this world would be one part, but a lot of these projects would come out from the value chain of oil and gas majors. So why is this not happening? And this is the area where we said, okay, what we want to produce is a revenue and an impact on a fund, on a on a project, where not only the IRRs standalone are the focus. For sure, we cannot uh let's say say this is a subsidy fund, definitely not, but definitely it is also important to realize um the regulatory regime, what we have at the moment, this is why we're discussing all this in Europe, um, guides the project somehow into the financial close perspective. And the off-takers, what Amy also said, should accept that it's much better to accept the boundary conditions of the let's say of the market in Europe as to just ignore it. And this is the situation we have because I always said it um on the on the conference. If we would have a situation where the off-takers would be running out of cash, they have no money at all, then it would be very complicated to run that. But this is not the case. So the off-taker market is long in cash, but the developer market is doing something what normally the typical off-takers would do if they would accept that this market comes. And we are now in this dipping point because if the projects like Amy's projects uh are coming to the scenery, I'm pretty sure sometimes there's a tipping point where also the CEOs of the huge oil and gas companies have to rethink it's better to um accept uh the situation and try to either go in as an off-take, develop own plans, or look for um M and A adjustment procedures. That's my story. Thank you.

SPEAKER_00 13:09

Awesome, Amy. Are you have are you ever concerned that with naming your project as you have, you're alienating a whole subsection of sci-fi fans? Is that a concern you have?

SPEAKER_02 13:21

I let's

Why Project SkyPower Pushes Policy

SPEAKER_02 13:22

hope not. No. Come on, this is uh this project is great, and the name is fun. So come on.

SPEAKER_00 13:28

Yeah. Um, so Thomas touched on it there around the regulatory framework that's helping enable this industry, particularly on the ESAF side. And you guys are both very strong proponents within Project Sky Power, which is uh industry association, industry body that is doing a lot of work lobbying European regulators from the European Commission in order to set policies to enable ESAF production specifically. And earlier this year, you guys collectively wrote a 10-point recommendation letter to the Commission, which outlined your recommendations on how particularly part of the ESAF policy that's being outlined under the Sustainable Transport Investment Plan, the double-sided auction takes place. So I realise this is a long document and I realise it's highly complex. But would one of you be able to effectively synthesize the recommendations that Project Sky Power has on that front, just so those that potentially don't know audiences potentially outside Europe would understand what you guys are asking for from the European Commission? Who wants to take that no small challenge?

SPEAKER_02 14:48

Yeah, I can start. I think you know, at a high level, the mission of Sky Power is to bring European ESAF projects to FID. So everything that Sky Power does is within that realm. So, yes, the STIP plan did provide a lot of good support to ESAF and European competitiveness. So we were happy to see that. And I think Sky Power just needed to take it a step further in how some of this money can be be deployed. What are some tangible things that can come out of it? Of course, one of the tangible things is the double-sided auction, which we can we can dig into a little bit. Um but there are other pieces of the plan which you know could provide money. I think the which is so number one is very positive, and what Sky Power has been able to influence is very positive. The only downside is that the timelines in Europe to get these things moving are slow. So, you know, a lot of this money is earmarked for 2027, 2028, and you know, the mandates for ESAF are coming in Europe in 2030. The FIDs need to be taken now, right? If we take them, because the ESAF needs to be done by building a greenfield refinery. Those take years to build. So this is where you know Skypower's really been pushing that time is of the essence, time is of the essence. So I think that that's what the bulk of it. Of course, yes, you're there were 10 action points, and there's a lot of work going on in the background, a lot of details to support all that. But um, you know, keeping the eye on the goal of getting projects to FID, European projects to FID is the name of the game.

Double-Sided Auctions Explained Simply

SPEAKER_00 16:16

And the fundamental, if if I dwell on the double-sided auction part of it, the big issue that that's trying to solve is the off-take challenge, right? That is allowing the customers who are purchasing the product product to not have to go into these long-term off-take agreements, whilst suppliers can also get the security of long-term supply guarantee through a public intermediary, and that way the projects can get FID and the off-takers in the airlines don't have to be tied into these long-term um uh off-take agreements that potentially don't necessarily work for their balance sheets. So, Thomas, from your perspective as an investor looking at this, how do you look at it in going, this is encouraging investment in the short term to meet mandated demands? Because there's a slight tension there.

SPEAKER_04 17:23

Yeah. Um, I think from an investor's perspective, um, if you have a let's call it, forget at the moment the slowness, forget at the moment a very bureaucratic process. Um, I would love to have it differently, but before um you realize that off-takers are not showing off, okay, even if they are long in cash, even if they are from a governmental perspective, should act now. Okay. Um, and sometimes I'm a little bit wondering because you know, if you um look into the equity markets, very often you have to ask and fulfill the question are you as a CEO of a company a good citizenship? Are you good governance, rule, and procedures? And they say yes. I would directly ask, Oh, by the way, um, you should have a blending mandate of your product fuels, you know, why are you not acting? And then you get the feedback, yeah, there is no business case. And I'm saying, no, it's not correct, because the business case is not the problem. What you do is you try to fool markets because you explain them that the product is eight times higher or seven times higher, whatever it is. And I'm always saying the cheapest way to produce kerosene is dig a hole, pump the oil up, a refinery, and produce it. And very cool, externalize the risks and internalize to your dividend um the gains. And this is a little bit of a bottleneck. And I think H2 Global was more or less because they need a counterparty government, and Germany decided for this market it is of utmost importance for independence, sustainability, and you know, and and for the economic part. Let's say we know it is not the cheapest way to produce. It nobody has said, please produce ESAF because then uh flying gets much cheaper. This was never the game. It was clear that the part goes in order to reduce CO2 based on renewables. And this is why H2 Global could, and I work with the teams from H2 Global in different ways because I'm also heading a fund supporting by the German government, and we always meet with H2 Global outside of Europe. And from that point of view, yes, I in principle, from an investor's perspective, Oscar, I would have wished that the market by itself and the market participants would accept their role as off-takers to fulfill the requirements, at least in Europe, and they would be supported by CBAM anti-tankering. So a lot of additional, let's call it, framework is set in order to um not looking for the global flight market. But if there is no action at all, I think it is worse to use a pilot auction to set the price. Because what we feared always was that according to how the law REFUL EU was written, that at the end nobody shows up on an offtake, then you have no cap, let's say then you have no acceptable market price because you have no project. Without a market price, all lobbyists

H2Global As Market Starter

SPEAKER_04 20:40

could always penetrize the situation, saying without a market price, you cannot calculate your penalty, and we have to wait, and we will click blah blah. So, this is the part where we say the offtake of H2 Global could change completely the situation because then you have a partner who buys in. It is always clear H2 Global is there to get rid of. Okay, so they are only a market starting instrument and nothing else. And then they do a double-sided auction, and it was also very clear that the auction to buy and the auction to sell should have a very short tenor, so it should go really, really not in parallel, but very close to each other, that the fundamentals of 2030 targets should be fulfilled. All of that, with that kind of a partner, it could be a very good puzzle piece to bring the projects to financial close because the market partner who wins this auction will be definitely on the top notch also for the banks who run for these projects. And it's not only the name Endor, it's then also a project who are having the capacity definitely to go into the um yeah, financial close procedure. And if you look to the 10 points, what is what we what uh Skypower in Initiative has written down. It is nothing else as creating the fundary and logical conditions for that auction. Okay. And this is because we are really running out of time in order to fulfill the 2030 targets. And all of these parts are just giving the playground and the boundary conditions. What are this kind of an H2 global or whoever is then the partner, the intermediancy partner is doing? What kind of playground should be fulfilled in order to have a smooth ESAF delivery in Europe for Europe? And as Germany is paying delivered to German port.

SPEAKER_00 22:43

So I'm gonna play the role of the airline slightly and say we're in a challenging spot because we run as an airline, our fuel costs is sort of 20-30% around in that range of our total total costs. ESAF is considerably more expensive than Jesse One. Um so you know I'm gonna have to swallow quite a bit extra of higher costs in order to buy ESAF. Whereas if I'm a European airline, whereas other airlines outside of Europe who I might be competing with on certain routes aren't obligated to do that because there is no mandate. So there's a competitiveness angle here that the airlines are playing with, not just an obligation, they've got to maintain their market, their market share as well as their decarbonisation obligations under the law. So do you sympathize with their position, or do you think, you know, we're in this situation, you've got to, you know, you've got to get onto it. The decarbonisation mandate is by far more important than you losing a slight bit of market share to some airlines outside of Europe.

SPEAKER_03 23:59

Yeah.

SPEAKER_00 23:59

Amy, you've just gone through an off-take, you're going through an off-take uh process. So how do you look at that, the competitiveness side of the side of the argument?

SPEAKER_02 24:08

Yeah, so a couple points here. I think number one is you're right, level playing field is the biggest concern of airlines, right? So this this current issue with the Strait of Hormuz, kind of globally, kerosene price has gone up. And look, airlines are all on the same level playing field with it, so it was fine, right? They they were able to absorb this 100% price increase on fossil kerosene, and they did it because it was a level playing field. I do under, you know, the mandates though apply to all flights taking off from Europe. So it's not necessarily just affecting the European airlines, it's all flights taking off for Europe. And the bulk of these non-European airlines, you know, their hubs are in other countries, typically. So they probably also have these long-haul flights to deal with. I think the biggest concern I've heard from airlines is really around the hubs like in Istanbul or Dubai, because they can stop, you know, that's a shorter distance than going straight to, you know, Asia or, you know, further away. But look, that's a small portion, you know. So I think we're we're talking about a very small amount of money per ticket price when you look at it that way. So I understand it's a concern and it is a real concern for them, but there's got to be a way to solve this. I I can't imagine that the entire ESAF mandate and the benefits that ESAF brings, not only to carbon emissions, but energy security, contrail reduction, et cetera, et cetera. I mean, we've got to find a way around this.

SPEAKER_00 25:30

Do you think they're slightly overplaying their hand in in that argument in terms of using it too much and potentially it coming across as maybe an excuse for not being as active as potentially they could be? Some some maybe more or less than others. I'm not saying all airlines are the same. Um, but do you think there's an element that that could be the case? Or look, I mean, it's like I don't know.

SPEAKER_02 25:54

I mean, they raised it as a concern. So I think they've done a good job about that. Now it's a concern. Now we now we need to solve the problem, right? This this whole energy transition is all about solving

Airline Competitiveness And ETS Credits

SPEAKER_02 26:03

problems. So let's bring up the issues and let's solve the problem. So I I'm I'm not close enough to know how real of an impact it is for certain particular airlines and what they else they can do on their flight paths. You know, I don't have those kind of details, but I'm sure there's a solution.

SPEAKER_04 26:17

Yeah. Thomas? And and don't forget, um, European Commission, and I think there's a paper now out from the European Commission, um, and please double check also this part. In order to reduce the so-called um costs for the airlines, at least for the moment, um, we speak about the ETS system. It's like an allowance, so they get certificates which have a certain value. And now, if you look to the value, what uh was let's say organized, or at least the values came from Iata. Um, here ESAF, I think, was quoted at 8,200 or something um euros minus the already existing price of um Jet A fuel of in the range of thousands. So they would get, um, if they're gonna be in line with the law, an allowance which they can claim for the certificate for this difference. They are not doing it, and there is a reason why I'm saying um actually, um, are they against the market? And I'm pretty sure, and this is let's say also very clear, um, Kegel is also financing aircraft. So we're doing aircraft leasing as well. That means we are not only looking for the infrastructure side, so then also for our clients, our partners, these are the airlines, and this is a fundamental part where we say airlines need new new plants, uh, aircraft, airlines need um areas and space um on the um on airports. So all of this is done by air, but in in in the process of buying in kerosene, um everything is always too expensive, and you know, um, and if you now look into the fundamentals of finance, you know, 30 percent is somehow the price of kerosene. Um the add-on of 1.2 percent ESAF and 3.0 um SAF is ending up in Europe in an area of 30 to 40 euros. So we have to be clear, this will not kill normal airlines. Okay, so um the Straits of Hormuz stopping, okay. As Amy correctly said, all the airlines um were under pressure, and to be honest, the airlines from the MINA region were much more under pressure than the airlines on the European region. So, you know, you will you will always have certain crises all over the world where sometimes one area is a little bit more under pressure, sometimes not. But the fundamental that let's say bring green molecules into a kerosene fossil reduced product makes a lot of sense. And as you see, also um capital markets understand that very well. Because if you would quote now for an equity analyst for airlines, and you know, I'm being very clear, um, if you realize that airlines having a market set up with only very low, low, low, low ticket prices. This is my this is my sentimental of my whole business, then for sure, yeah, you have to be against to everything. So if the airport is charging you too much, um you go to another airport. If the country where your land is, then you go to another country. So, yes, this is the fundamental of this business case, then, but it is not a a reason why not to follow the RE fuel EU rules.

SPEAKER_00 29:45

Yeah. Coming back to the double-sided auction, the

Will Airlines Actually Bid

SPEAKER_00 29:52

how do you guarantee airlines of bidding? How how do you is there's penalties related to not using enough ESAF? But if there's not enough engagement in the buy side of this auction, the whole idea kind of crumbles beneath itself if they're not actually purchasing the fuel on the on the end because there's just this fuel sitting in an intermediary. Is there any worries about that? Do you think there's gonna be that everyone's gonna buy in? How and how do you know and how are you confident that that will be the case?

SPEAKER_02 30:25

Yeah, I don't think there's no reason for them not to bid into auction because they can bid a very low price. I mean, they could bid zero if they wanted to. They may not get accepted at that, right? But I mean, so there's no reason not for the airlines to make a bid. My biggest concern is the price the airlines will bid, right? Because, like Thomas said, if the the asset pricing is something around 8,000, you know, I would expect it would be ideal if airlines would bid around that price, right? But I don't think that will happen. That's the biggest concern because then the money stretches a lot further. So that the 2 billion euros that Germany is put up, and I think other countries are putting in some money as well, that will go a lot further, and there'll be a lot more airlines that could win, a lot more producers that could win the auction and really spur the industry. But if airlines come in with a super low price, then you know you're you're limited on the volume you can put forth in the auction.

SPEAKER_00 31:16

And by the nature of auctions, the more players you've got, the more chances you've got of having a good price, the more motivated the buyers are. So there's the the art to getting a good price is also getting motivated buyers. True. So, Thomas, do you have any thoughts on motivation? Seeing as you are, you know, you've got a leasing side of your your business as well. And you're so you're seeing this kind of from two perspectives as a on on the lending side and the investment side.

unknown 31:48

Yeah.

SPEAKER_00 31:48

Do you think that's to make it competitive?

SPEAKER_04 31:52

Let's say I'm I'm not supposed to speak now on the on the on the leasing side, so my colleagues can do that. I I would say I would rather look at the instrument of H2 Global of the intermediary coming in. Here, Oscar, I'm I'm very clear, even if it's a very, let's call it bureaucratic, uh, not the fastest way, Amy. I know, I know, I know. But on the other hand side, um, I think um if everybody realizes there's a stimulus in Europe, that this H2 Global comes in. Because I think last year the depression in this market was much higher than this year. If you look into our event now, the last days, um, a lot of market partners came in where we're never there the year before. And I think that uh this kind of stimuli actions coming also from the from the politics, um, the geopolitical stress, what we see, you know, um gives us also a certain kind of an opportunity um to bring this is the momentum the next year to bring these projects now um to a higher value means to financial close. And to be honest, um if I would be on the oil and gas side and I have to decide should I go with my competitors to an auction on the sell side, okay, or is it then potentially not better to go together with Amy on a uh negotiating the deal with me and I take two or three of them in order to reduce my purchase risk? I would say uh with I believe that potentially the better procurement uh pressure I could give um if I directly go to the eSAf producers. Um so and and now just make this kind of a game story one step further. What I can do is I my hope is that nobody is showing up um on the Esauf producers. And secondly, H2 Global will never come. But now German government decided H2 Global will come. So my whole game theory has to be changed because now what I have to do is I cannot go back by 2029 to Europe anymore, to EU, and say, Ah, I would love to buy it now, but unfortunately, there is no eSuff available. So please delay the process and by the way, better stop it. Okay, it's not possible because the product is available, a market price is set by an let's call it international European-wide competitive approach. Um, so and this will change then a little bit the attitude, how to act on this market. And as an example, Oscar, in Germany, we all have we all know gasoline E10. We all accepted that this kind of a part is a greenish biomass-based uh uh blending product. Nobody said, okay, the shell's not, the BP's not, aral, whatever they have it. They all accepted it. Okay, and here they just said, oh, potentially this is not the way because it's so so so expensive. But in terms of the price per ticket, it is affordable. It is not that somebody that the whole of the society cannot fly in Europe anymore, and we have to take coaches. Okay, this is not true, and this is the facts where I'm saying H2 Global can give us a so-called stimulating point to bring other off-takers again into the position to say it's better to act in parallel to H2 Global and not wait until they are going. This is a hope that we can have, and even if everybody is on a waiting position, Oscar, if you have the H2 Global imposition, H2 Global will make the market and will sell. Okay, they have to sell, and this is why the airlines are saying, okay, I can wait and I can see who is now making the show. But to be honest, if you are an airline who wants to be green, I would say, as a client, at least in Europe, I would ask why have you not uh made your homework and I should pay now a higher ticket price because you pay a penalty? This is not fair for me.

SPEAKER_00 36:03

Yeah, we've spoken a lot about the off-take side. I want to go

Minimum Scale And Proven Technology

SPEAKER_00 36:08

to the production and the supply side of the equation. In the recommendations, you set a rough an estimate of a project needs to produce 25 kilotons of stuff per annum, I think. I think from the top of my head, I think that's where the recommendation is. So yeah, at least that level. So can you tell us why how you ended up setting the level there and then what that leaves in terms of potential projects in Europe that meet that criteria if you have a sort of a number of projects that could potentially could fit in to that level, Amy?

SPEAKER_02 36:50

I think the majority of the projects are there. Anything below that is really a demonstration of new technology, right? So there's a lot of people doing some fantastic work about new syngas reactor or new electrolyzer that can do this or that and new fissure tropes. And so they obviously need to be proven out at a smaller scale. Uh so I think the idea on some kind of minimum threshold of production was all around, you know, being able to use you know proven technology. So there's assurance that the project will be up and running and be built and operate effectively.

SPEAKER_00 37:21

Yeah. And there's there's a lot of conversation around certainly where I was this week in in Madrid, around policies being in place versus to support an industry versus just uh the simple maths of unit economics. The way that ESAF projects making the unit economics effectively make the math math

What Really Drives ESAF Costs

SPEAKER_00 37:47

is something that is potentially being disguised as a policy problem when actually fundamentally, if ESAF was cheaper than jet fuel, people would buy ESAF. Like that's fundamentally the issue we're we're trying to solve here. So how do you look at encouraging newer technologies that could actually you know solve that unit economic issue versus using more established technologies that don't necessarily have that good unit economics, but don't necessarily aren't competitive with jet fuel yet on that price? How are you looking at that equation?

SPEAKER_02 38:23

Well, I think yeah, first of all, ESAF is while it can be used the same way as jet fuel, it is not jet fuel. It's a better product, it has better properties, it has better value to consumers. So, you know, this whole idea of com my of comparing with fossil fuel is really not helpful. And I think you're looking at refineries that are fully depreciated. I mean, these refineries were built 50 years ago, right? They're completely depreciated assets. If if someone wanted to build a brand new refinery in Europe today to process crude oil, their economics would not be anywhere near current fossil jet prices. So I think this is the thing we're trying to say. We don't necessarily need a lot of complicated policy and all this stuff. What we're trying to say is you're when you build a new product that has to be fully, you know, full log capital, project finance, lots of bank fees, lots of, you know, all this stuff. It's expensive at the beginning. Now, once the plants are fully depreciated 30 years from now, it's a different story, right? When you've paid off all your debt and all this stuff. But that so you know, this is what we're saying is how can Europe help support this? There's there are a lot of ideas around creative finance financial games around depreciation and how you accelerate that. You can also do capital support to reduce debt fees to banks. That's the kind of support I think we need. We're not, and again, we don't compare the same products, but new technologies can incrementally help and support, but the main driver is renewable electricity. Renewable electricity costs make up around 70% of the overall ESAF price. So as Europe continues to build out renewable electricity, and as that technology matures, and as the grids in Europe become more renewable, that whole thing smooths itself out. So it's really all about electricity, driving prices of electricity down, not just for ESAF, but for other consumers, for electric cars, for electric appliances, for everything, right? So that should be Europe's goal. And then it inadvertently supports ESAF.

SPEAKER_00 40:21

I think it seems to me that there's a trend, particularly in ESAF, around not going to the grid, but getting electricity off the grid, generating it on site, going through that that as a model and trying to build it out that way. But just because the capacity of the grid is certainly in the UK very challenged. It takes forever to get on the grid in the first place, let alone actually work anything out practical with it. So in terms of that and helping develop ESAF projects in terms of getting it electricity on site, controlling the feedstock effectively, managing the inputs, because that's a big cost driver as well for ESAP production is actually getting hydrogen electricity, all those key components as well, not just the finance, financial related costs.

SPEAKER_02 41:19

Sorry, Thomas, I'm gonna keep talking here, but um so one of the things I just really want to point out is that ESAF is driving almost every aspect of the energy transition. And why, you know, I I really want governments to recognize that the burden is now being put on ESAF developers who are typically startup companies, and it's not that's the problem, right? So the the there's two raw materials. One is electricity, and like rightfully so, there's so many challenges with the grids all across Europe, across the world for that matter. But so now ESAF players have the burden of solving these grid challenges, outdated infrastructure systems around electricity transformation. Why should ESAF have to pay that price, right? But that's what's happening. And then you have the whole other piece, which is CO2. Governments are now paying companies to sequester the CO2, which is all that has done is raise the price of CO2 for ESAF players, right? So it's just if you want to reduce the cost of ESAF, we need to find a way to solve grid and renewable electricity challenges, and we need to have CO2 either sequestered or utilized have the same benefits. Yeah. And then then all of a sudden, ESAF costs can go down quite significantly.

SPEAKER_00 42:29

Thomas, how bullish are you on the degree to which ESAF prices can decrease and the rate at which they can decrease? Presumably you're quite bullish if you're willing to commit

Can ESAF Prices Fall Fast

SPEAKER_00 42:39

capital in this space.

SPEAKER_03 42:40

Yeah.

SPEAKER_04 42:41

So I think the easiest way would be definitely you would have feed-in tariffs, something like that, what let's say kick-started uh the renewables part. Um for us, let's say one fundamental clear clearness to be very clear, and um sometimes I hear if you just invest enough in in new refineries, um the reduction is the same, like in solar and uh wind farms. This is definitely not the case. So there is a reason why we clearly said it is always a blending mandate, and I think even in by 2050 in in Europe, we will not, let's say, completely run only with SAF. There is a reason behind. So, what is the right price? As Amy said, the more green electrons we have around in Europe, and we can use it in a very intelligent way, the better. Okay, so um that we come into an area, let's say, in 2000, 3,000 euros for an ESAF plant in the next 10 years. To be honest, uh, I would love to hear it, uh, you know, because this would be, but I doubt. I really doubt. I give you the fundamentals. Amy always not say, so I let's let's say this is not the case. If you have a very good and excellent Site selected. And I just speak about Europe because you cannot compare a product in Europe compared with a MENA region. Okay. And you start the calculation. We all dancing around a price of electricity. If you go into Spain, then you have a lot of solar, but you want to run your production facility 24 hours. So you need something for backing that up. And this is an area where we said very clear find countries where you can use the grid or at least have PPAs in place where you can use it. But even with that, the price, what we see, I would say the next 10 years, and important, Oscar, without subsidies. Okay, if you compare a project with a huge subsidy compared to a project without any subsidies, this is not what we are looking for. Just the fundamentals. Then you will realize what Amy said 70% of the price of a full load capacity comes from renewables. Then you have the CapEx, and then you must really see that you have the load factor that say that this stuff already runs 8,000, 7,000 hours in that range. If you come into an area, what you gonna said now, it is better to do everything alone on an island mode. Okay. I have never seen a plant in Europe where you can run an island mode plant above 5,000 euro hours, full load hours. For that, you will kick down because then your CapEx kicked in and you have a lot of costs without less um hours per year to produce. And this is the reason why very clearly said you see a little bit the fundamentals for the next four to five years. Nobody will kick in and say, and I found the holy grail, my ESAF product is 50 and lower percent cheaper. I think it's an argument for the off-takers why they want to wait, but is from a rational perspective not clear and even not for and even not for capital markets. The rational behind is if you have a lot of short-term contracts, off take three, four years, and after that the price goes down, you get bust. And this is the reason why H2 Global has a 10 years off-take contract, because you need for these kinds of new refineries an offtake which to a high extent can reduce your depreciation of the plant. And this is why we are looking for 10 years and not only a two years contract. And for the pricing, I cannot see technologies, or at least if you produce in Europe, okay, which goes significantly lower.

SPEAKER_00 46:44

Okay.

SPEAKER_04 46:45

Yeah.

SPEAKER_00 46:46

We we've had a very wide-ranging and detailed discussion around European ESAF policy. I want to, I'm gonna hopefully we're gonna end this episode with on this question, and we're gonna end it on a nice positive note. How optimistic are you guys that we will have ESAF projects through FID in time

2030 Confidence And Final Takeaways

SPEAKER_00 47:08

for 2030 sub-mandates kicking in? Are you guys optimistic we will Europe will meet that that timeline?

SPEAKER_04 47:18

I would say from a capital markets perspective, uh, it's not a part of optimistic. Because what's the plan B, Oscar? Is the plan B to set to to postpone uh the mandates? Because if we start with that, Oscar, then I'm saying, oh, if we can compare that after a while you will realize, and I'm now very ugly with you, why have we ever built solar and wind farms, you know? Because solar and wind farms alone can make the electricity market green, but cannot fulfill our main problem to bring CO2 down. Okay, so you need the other sectors anyhow. So I would rather say yes, I'm optimistic because if we don't do it, okay, we have other problems and they are much, much bigger than what we discuss here. Yeah.

SPEAKER_00 48:04

Yeah. Amy? Amy, you're on mute.

SPEAKER_02 48:11

Yeah, I'm also optimistic. I I certainly hope that the production for the mandates can be done in Europe. Um, I'm pretty confident that other regions of the world will be able to do it much faster than Europe can and supply the mandated volumes, but then you're looking at, you know, using European tax dollars to support production in other countries. So, yes, I'm confident it can be done by 2030. I just hope that it's European production, or at least it has a majority of the supplying the mandates.

SPEAKER_00 48:37

Awesome. I think we could keep going on for hours, but it's already been a long week. So we will I will we'll leave it there. Amy Thomas, thanks so much for joining us and for explaining in such great detail all the work you guys are both doing.

SPEAKER_01 48:54

Thank you so much, Oscar. Yeah, great to meet you.