The EU may need to rethink its regulatory approach towards production of synthetic aviation fuels (e-SAF) and subsidy mechanisms aimed at promoting industry development, judging by a pilot round of the H2Global competition.
The H2Global scheme is a German-funded initiative to purchase renewable hydrogen derivatives from outside the EU through tenders, with a view to selling them on to offtakers at a later stage to close the gap between production costs and the price that buyers are willing to pay.
Last week, the non-profit agency managing the programme, Hintco, revealed that an auction round intended to procure e-SAF was cancelled because there were no final bids. According to Hintco, uncertain rules on accounting for the greenhouse gas (GHG) emissions of the by-products of e-SAF production dissuaded interested developers from bidding for contracts.
Hintco also blamed a "relatively small contract value and duration" that developers found incompatible with setting up a new e-SAF plant.
Three bidders demonstrated eligibility but two of them decided not to proceed, Hintco said. It received only one indicative bid but the bidder refrained from filing a final bid because rules under the EU's Renewable Energy Directive (RED II) would have made the e-SAF project economically unviable, it said.
The current interpretation of the RED II rules call for a "proportional allocation" of GHG savings to all end-products of the Fischer Tropsch reaction, which is the favoured method for making e-SAF and results in a range of products such as e-diesel and e-naphtha.
The GHG savings from using renewable hydrogen for e-SAF would have effectively been diluted across all the by-products, "for which no subsidy nor market currently exist", Hintco said. To make e-SAF projects viable, the EU needs to allow renewable hydrogen to be used solely for e-SAF production at the plant or provide a subsidy framework that also rewards putting renewable hydrogen into the by-products, it added.
The H2Global e-SAF tender had been expected to draw fewer bids than its sister tender for renewable ammonia, as the market for E-SAF is "in a very early stage of development", Hintco said. The ammonia tender drew 22 bids.
H2Global has transferred its €300mn e-SAF funds to an ongoing e-methanol auction round, Hintco said. E-methanol is made via a different reaction with a more pure output, so the tender is less likely to fail on the GHG accounting issue.
Industry participants have also raised concerns about regulatory uncertainty. "High requirements coupled with gaps in the legislation make it difficult to ramp up the market," potentially even preventing projects from being realised altogether, European industry group eFuel Alliance said in response to the news. The group called on the European Commission to "review and simplify the Delegated Acts".
Around 55 e-SAF projects are planned globally, around 45 of them in Europe and around 10 in the rest of the world, according to Argus data. Fewer than five are commercial-scale plants of the kind envisaged by H2Global.
