The three main obstacles facing the introduction of sustainable aviation biofuels: price, price and price
BBC's Jeremy Paxman moderated the plenary session at this year's World Biofuels Markets
Mon 2 Apr 2012 - According to Finnair’s VP Sustainable Development, Kati Ihamäki, biofuels are the fastest route to meaningful long-term reductions in aviation greenhouse gas emissions but supply chain problems need to be overcome and the major hurdle remained “price, price and price”. This was a familiar theme at the recent World Biofuels Markets 2012 aviation stream conference in Rotterdam, with commercialisation and production scale-up providing a significant challenge to the development of a sustainable jet biofuels industry. However, there are growing signs that policy-makers at European Commission and US government level are willing to join with industry to find solutions.
Last year, Finnair was among the first to conduct a sustainable fuel commercial flight following ASTM certification but Ihamäki said with jet fuel already making up around 35% of Finnair’s overall costs and low profit margins it was hard to justify the investment in being an early adopter. “The price level will have to come down before it is feasible – you cannot afford to pay three or four times the normal cost for conventional jet fuel,” she said. “However we have to be proactive and show that this is doable so that we can bring other players on board, get the economies of scale in place and help drive down the price.”
Boeing’s Director of Sustainable Aviation Fuels Strategy, Darrin Morgan, said there was a bottle-neck as many airlines wanted the new fuels but came up against suppliers who needed project finance but had to wait until the certification milestone had been passed, which was only nine months ago.
He said there were still only a limited number of suppliers out there and the high cost of the available fuels was down to the expensive cost of sending feedstocks to facilities for conversion to jet fuel.
“There is no rocket science involved in making the fuel, the problem right now is there aren’t any full-scale production facilities,” he said.
“You hear of numbers like $20 per gallon and $5-6 per litre – we know where those costs are coming from. It’s not the fundamental cost of making jet fuel, it’s the fact that you’re having to borrow a facility and pay a lot of money for a very small run.”
However, Morgan sees a ray of sunshine for US airlines looking to use advanced renewable fuels. This is a potential outcome of recent preliminary ruling by the US Environmental Protection Agency (EPA) that allows for certain feedstock pathways to qualify for so-called RFS2 RIN credits. Morgan sees these credits worth up to $2 per gallon.
“There’s work still to be done on the programme but if it comes to pass, it will have a huge impact – it could change everything,” he believes.
One US airline that is certainly looking for alternative sources of jet fuel is United, which last year used in the region of 4 billion gallons of jet fuel at a cost of around $13 billion.
“Given the price volatility, anything we can do to wean ourselves off crude oil onto other feedstocks with more cost stability gives us the ability to run our business a whole lot better,” said Robert Sturtz, United’s Managing Director of Strategic Sourcing – Fuel and also Chairman of the A4A Energy Council.
“We are very concerned about the sustainability issues but we need alternatives. They must have a carbon footprint better than conventional fuels we use today but we are going to need alternative fuel supplies in the very near future. We will need a whole range of solutions.”
To this end, United and other US airlines have collectively negotiated a number of offtake agreements with potential jet biofuel suppliers. Examples include a 14-airline agreement with AltAir for up to 75 million gallons per year of camelina-derived fuel and a 10-airline letter of intent (LOI) with Solena for 14 million gallons per year from 2015. United itself has executed a LOI to pursue the purchase of 20 million gallons of fuel from Solazyme and has signed an MoU with Gevo for future supplies of the company’s as yet uncertified isobutanol-derived jet fuel for United’s Chicago base. Sturtz said the airline was in discussions with a number of other potential suppliers.
“What we are doing is to help these biofuel companies commercialise their technology,” he said, referring to the collective agreements. “The prices may be slightly higher than for conventional fuels but they are being shared by the wider airline industry so that no single airline is put at a competitive disadvantage.”
With cash-strapped airlines looking to drive down the price of these new fuels from a fledgling industry, why should the aviation sector be regarded as an attractive market?
“Aviation is a ready-made market for biofuels,” said Sturtz. “90% of fuel supplied to airports in the US is transported by a major pipeline system. The top 35 airlines make up 85% of the total US jet fuel market, with only four or five major carriers accounting for 75%. It’s an easy market to address.”
British Airways’ Head of Environment, Jonathon Counsell, pointed out that supplying just 100 airports worldwide with alternative fuels would deliver around 80% of global airline demand.
Counsell sees other unique selling points for aviation as a long-term customer for sustainable biofuels, not least the lack of alternative energy sources that are available to the ground transport sector. “We’ll be using liquid energy for the next 50 years.”
He said governments that are serious in looking to decarbonise industry have started to recognise that they will have to provide policy instruments to provide the right incentives for those sectors with no alternatives. Counsell illustrated the example of the Flightpath 2020 joint initiative launched by the European Commission’s energy directorate that had set out a roadmap for the industry to be using 2 million tonnes of drop-in sustainable jet biofuel by 2020.
He said governments needed to address the uneven playing field in which there were biofuel incentives for the ground transportation sector that were not available to aviation. “We don’t want subsidies, we don’t want loans – we just want a level playing field with biodiesel and eligibility for the same credits.”
Given the life of a typical aircraft was anything between 15 and 25 years, Counsell said fuel and emissions reductions from advances in new aircraft and engine technology took a long time to feed through. “If you have a low-carbon fuel, you can use it tomorrow,” he said.
“That lead-time advantage is one of the reasons why so many of us are excited about the immediate impact biofuels can have.”
Counsell reported construction of the $350 million Solena municipal solid waste to jet biofuel plant in east London will start next year, with fuel production likely to start in 2015. As well as helping with the planning process, BA has signed a letter of intent to purchase all the biofuel, which will fulfil around 2% of the airline’s requirements and is expected to reduce annual carbon emissions by around 145,000 tonnes.
A downside was the high capital cost of the facility but, he said, “the economics are beautiful once you’ve built it.”
The business case was driven by a UK landfill tax and, to a lesser extent, the EU Emissions Trading Scheme, he explained, and the creation of 1,200 jobs was also an important local consideration, particularly at this time.
He said a major attraction of the process was that there were no indirect land use change (ILUC) issues that would bring the airline into conflict with a strong and effective NGO community, “and we didn’t want to spend most of the time defending it.”
Mark Watson, Head of Environmental Affairs at Cathay Pacific, said the carrier had appointed at the beginning of the year a biofuels manager “to deal with this hugely complicated issue and massive challenge we now face in getting these fuels into our aircraft.”
Watson said there was considerable concern within the industry on what he described as “true” sustainability issues, such ILUC. “We must be cognisant of the challenges made by NGOs and anything we do in terms of large-scale investment must not have a negative impact on livelihoods.
“My phone has been ringing off the hook with calls from biofuel providers – there’s plenty of opportunity out there – but trying to find something that ticks all the boxes is proving extremely difficult.”
Policies need to be introduced to help overcome the many hurdles in the biofuels supply chain, said Thijs Kommen, KLM’s Head of Tactical Planning. “If these hurdles are taken away, the business case will become more sound than it is today. The major challenge is the price – it’s way too high. We need innovators with new technology and feedstocks to develop the market, but sustainability is the main precondition.”
Neste Oil used the World Biofuels Markets (WBM) to present findings of the Lufthansa series of flights between Hamburg and Frankfurt that had been recently completed. Kaisa Hietala, VP Market Development, reported that 1,187 flights had taken place overall, using 1,557 tonnes of Neste’s NExBTL renewable aviation fuel blend and had resulted in savings of 1,471 tonnes in CO2 emissions.
She said the aircraft, engines and analysed components involved in the flights had all performed normally and overall fuel consumption was 1% lower due to the higher energy content of the fuel blend. Inspections after the programme had been completed showed the engines’ combustion chamber and turbines in a perfect condition, normal function and tightness of fuel bearing parts and no contamination or corrosion in the fuel tank. She reported there had been no storage issues and the fuel had showed excellent stability.
Hietala said Neste had started an extensive research programme on future biofuels to identify the most suitable algae species to produce fatty acids and the optimum production conditions, with a view to commercially producing fuels after 2018. In the shorter term, the company is investing in Europe’s first pilot plant based in Finland that will use agriculture or paper industry residues to produce renewable aviation fuel as early as 2015.
“We really need to find the raw materials to boost the development of aviation biofuels,” she said. “We hope algae and microbial oil from residue streams will provide some of the answers in the future.
“There is clearly work to be done around feedstocks, and stakeholders must all work together. Otherwise, I don’t know if this industry will take off.”
Jim Woodger, Sales Manager of Honeywell’s UOP, said there was a strong demand from European airlines for the company’s Green Jet Fuel as a result of the EU Emissions Trading Scheme. He pointed out that the capital costs of producing its jet fuel were around 25% higher than for its renewable diesel product. “A question for aviation is how do we incentivise pre-investment such that we have a production unit that has the flexibility to make jet fuel as well as diesel.”
He said the challenge was to produce so-called HEFA-SPK biofuels that were no more expensive than the price of fossil jet fuel plus the cost of carbon.
The HEFA-SPK biofuels themselves are not expensive, he said, it was the feedstocks. The processing costs were the same for both jet kerosene and HEFA fuels but the problem was current feedstock was significantly more to start with compared to a barrel of crude oil.
“If we can get more supplies of other new feedstocks, such as algal oils, camelina and pennycress, along with the other mechanisms to get this market going, then this would help the industry move forward,” he said.
Loan guarantees for producers, such as those to be provided under the $100 million US government programme, were also essential if the jet biofuels industry was to get off its feet, said Alejandro Rios, Director of Fuel Services at Mexico’s ASA. However, he warned that mandates, fiscal incentives, subsidies and a lack of local pipeline and refining infrastructure were causing significant market distortions and problems for developing countries such as Mexico.
“We’re going to struggle to become competitive because of the extra capacity that exists elsewhere, for example in the United States. We don’t have any capacity to transform vegetable oils or other types of feedstock into a renewable jet fuel in Mexico.”
Thomas Rötger of IATA said the different sustainability criteria under the US Renewable Fuel Standard (RFS) compared with the EU’s Renewable Energy Directive (RED) was another problem for producers looking to export into different markets.
“For example, if you have certification from the US to qualify under RFS, you cannot easily transform this to also get recognition in the EU under RED and you have to redo the certification,” he explained. “This is a tedious process that creates administrative and cost burdens to the producer.”
For this reason, he said, airlines and IATA itself was calling for a global agreement amongst states in order to either harmonise sustainability standards or at least have a system of mutual recognition.
Claire Curry, an analyst with Bloomberg New Energy Finance, said that in order reach an industry take-up of 6% of sustainable jet biofuel by 2020, representing some 17 billion litres of fuel, as predicted by the International Energy Agency, would require an investment of some $18.6 billion.
According to Curry, some jet biofuel pathways are likely make better economic sense than others. Fuels from non-edible crops such as jatropha and from cellulosic pyrolysis, for example, could become cost-competitive with conventional jet kerosene if grown at commercial scale. Other pathways requiring, for instance, a gasification process are unlikely to produce jet fuels at a competitive price, whereas algal-based fuels may not prove themselves until the mid-2020s to 2030.
Identifying the ‘winners and losers’ in the technology race towards commercialisation and the raising of funds is seen as a major component of the strategy being adopted by the European Commission and industry Flightpath 2020 initiative.
Dr Kyriakos Maniatis from the Commission’s energy directorate told WBM delegates a benchmarking process had been set up that would adopt key performance indicators to provide independent and transparent evaluation of the various value chains in progress, so as to inform stakeholders of their reliability. He said 19 value chains had been submitted to the Commission for evaluation so far and these would be monitored on an annual basis.
“It is clear the biofuel industry is engaged and eager to prove the reliability of their technologies,” he said.