The SAF Mandate
The UK government introduced a sustainable aviation fuel (SAF) mandate, which came into force on 1 January 2025. It requires suppliers of aviation fuel to supply increasing amounts of SAF within their fuel mix, starting at 2% in 2025 and rising each year to 22% by 2040. See our Insight The flightpath to sustainable aviation for more background. However, SAF production in the UK to date has seen limited investment due to uncertainty around the future revenue of SAF plants. A lot of the technology to make SAF is new and expensive so needs government help. The government therefore ran a consultation in 2024 to test industry response to a proposed revenue certainty mechanism (the Consultation). It has recently published its Response.
Proposed revenue certainty mechanism
The government proposed several mechanisms in the Consultation, including a "Buyer of Last Resort" and other mechanisms that were tied to the issue of SAF Mandate certificates. However it has since been confirmed in the Response that the government will instead implement a "Guaranteed Strike Price" (GSP) on the basis that this option provides the greatest certainty to investors. The GSP will be enacted via a private contract between a UK SAF Producer and a government-backed entity, likely to be the Low Carbon Contracts Company (LCCC) in much the same way as a Contract for Difference - the now well-established support mechanism for large renewable projects in GB. When the market price of SAF is below a fixed, or "strike", price, the SAF producer receives the difference from LCCC, so that it gets a guaranteed price. Conversely, should the market price be above the strike price, the SAF producer must refund the difference. This is an attractive option as it gives a guaranteed revenue stream for a fixed period of years (as yet to be determined)
What types of fuel are supported?
The Consultation considered whether the GSP should be available to "Hydroprocessed Esters and Fatty Acids" (HEFA)-based SAF (i.e. SAF comprising refined vegetable oils and waste oils/fats), given that HEFA is a more mature technology and benefits from greater availability of market prices and production on a commercial scale. The Response confirmed that the first tranche of contracts between SAF producers and the government entity will only relate to those UK SAF projects that use non-HEFA technology and feedstocks (e.g. advanced fuels created from materials such as municipal solid waste), which could have the potential to achieve greater carbon savings.
This approach dovetails with the SAF Mandate's cap on HEFA, which allows space for more advanced fuels to develop. UK jet fuel suppliers can currently use 100% HEFA to meet their SAF target in 2025 and 2026, but this will then decrease to 71% in 2030 and 35% in 2040.
Interaction with other schemes
The government recognises that SAF business plans will be highly dependent on GSP permitting subsidised inputs (e.g. hydrogen, biomethane and captured carbon) and promises further clarity in due course on whether producers will be able to access more than one source of support.
What we still don't know
While the government has conclusively determined the form that the revenue certainty mechanism will take, there's a lot we still don't know. For example, what will form the reference price for GSP? What will the allocation process look like and how many projects will be supported? Would UK SAF production destined for export be eligible? What is the likely term of the proposed contracts and might different technologies attract different terms/levels of support? How open would such contracts be to renegotiation? And crucially, how will the scheme be funded, what budget will be available and for how long? The government has confirmed it will be industry funded. It will consult shortly on how that will work.
The King's Speech of last year introduced plans for the Sustainable Aviation Fuel (Revenue Support Mechanism) Bill, with the government hoping to put primary legislation in place by the end of 2026. SAF producers will need to factor into their planning for any scheme the time it takes for projects to be assessed and funding allocated if they wish to take advantage of this support mechanism.
In the meantime, as SAF producers gear up to develop SAF projects, they will need to closely monitor the evolution of the detailed arrangements for the revenue control mechanism and factor those into their early-stage projects to ensure that they are in as strong a position as possible to secure support come 2027. Hopefully, that important detail will be ironed out sooner rather than later, so as not to slow the current momentum in the market.
