The SAF Podcast
The SAF Podcast is the only podcast on the internet that exclusively covers sustainable aviation fuel (SAF). So if you want to find out the real issues and challenges are for commercialising and scaling SAF production, look no further.
Every week we will be hearing from senior industry leaders who are actively shaping the future of SAF and aviation.
The SAF Podcast
The SAF Podcast: SkyNRG's journey from procurement to production
On this week's episode you get not one, but two Oscars as Oskar Meijerink, SkyNRG to discuss the transition from procurement to production with Oscar on The SAF Podcast.
Oskar has been with SkyNRG since he left university where he wrote a dissertation on project finance for Sustainable Aviation Fuels. He has since been working on the project side, being kept busy with a HEFA project being developed in Delfzijl, Biomass Fischer-Tropsch facility in the Pacific northwest and their eSAF facility under development in Amsterdam.
Oskar shares the progress of each location, why they are working across pathways, the process of choosing where to place SAF refineries and what feedstocks to use. All of these decisions are critical if projects are to get to Final Investment Decision. This is something we explore in detail as we explore the challenges of finding investment and what building blocks need to be put in place to best position projects to receive favourable investment decisions. We also touch on the recent Topco investment by Macquarie Asset Management and how encouraging this is for inevestor sentiment on the companies overall strategy.
We end the episode by reflecting on the demand side of the market and how SkyNRG's history in this with their Fly on SAF solution and how critical a component understanding of market demand is when considering SAF production. Having already helped over 40 airlines reach sustainability goals, as well as corporate customers, travel companies and airline customers decarbonise their air travel, Oskar highlights why the understanding of the demand environment drove them towards getting involved on the supply side.
This is a fantastic episode that gets into the real detail of building SAF projects and the opportunities and challenges that they present.
If you liked this episode, listen to our recent podcast with Mihir Dange, XCF Global Capital and Wray Thorn, Focus Impact Partners, to find out what the investor and producer dynamic is like in the everyday https://www.buzzsprout.com/2202964/14904940
Host and Producer: Oscar Henderson, SAF Investor
Hello and welcome to the latest episode of the SAF podcast. Today we're delighted to be joined by another Oscar, so two for Tuesday. Today it's Oscar Mayerink from Skarno G. Oscar, how are you?
Speaker 2:All good. Thank you for having me.
Speaker 1:No, absolute pleasure. Would you like to start us off just by explaining a bit about your background and then explain a bit about Sky Energy and your role within the company?
Speaker 2:Of course, happy to. So actually, I've been in my professional life only with Sky Energy, so it's relatively easy. I studied energy science at Utrecht University and then, when I had to graduate, I went to Imperial College in London and graduated on the topic of investments in sustainable aviation fuel, actually, and I was already in touch with Sky Energy at the time. I had to do my internship and I got going with Sky Energy in, I think, late 2015, early 2016. In the early days of Sky Energy, when we were still in an attic on one of the canals in Amsterdam and never left. So that's where I still am. And, for the people that don't know us, sky Energy is a company fully focused and committed to sustainable aviation fuel.
Speaker 2:I founded originally in 2009 to understand and see what we could do in terms of sustainability for aviation and quite quickly we figured out that sustainable aviation fuel is the true, let's say, solution. Or actually, if you want to do something in sustainability on aviation, you have to do something on the fuel, because 98% of the emissions in aviation are fuel related. So that's what we started to work on and we started with the initial deliveries first commercial flight with KLM in 2011,. Supplied over 50 airlines on all continents in the world, even the Arctic at some point a few years back. So we did a lot of, let's say, sustainable aviation fuel supply, pioneered a lot of the initial supply chains, so to say, so segregated everything separate from the fossil supply chain all the way to full integration on existing infrastructure and hydrogen systems at airports, and that's something we still do today, and that's something we still do today.
Speaker 2:So today we transitioned more towards what we want to become a soft major, which basically means we're both involved in handling and trading the product, but also producing sustainable aviation fuels ourselves on various technology platforms. So that's, uh, that's our ambition and that's what the, the company, grew towards and we can talk about that, obviously, in a minute and my personal role is the. I'm the head of future fuels and been actually, as I said, for a good eight years now with, with the companies, with the company, and now responsible for, let's say, the early stage development of new projects. So looking at potential new regions where we can develop projects, as well as sort of the new technologies and pathways that are being developed by tech providers and universities and knowledge institutes, and seeing how we can use those in our future projects seeing how we can use those in our future projects.
Speaker 1:I still find it. I find it amazing you did investments in saff at university. Yeah, cool, right.
Speaker 2:And the result was basically there's not enough and there's nothing yet. So it was. Data collection was a bit hard at the time, but that's the shortest dissertation ever yeah, it was. It was relatively uh. I had to find a proxy industry quite quickly to to say anything meaningful, um, but it was uh. It was an exciting start in the industry.
Speaker 1:Yeah, I can imagine. So I mean you touched on it there about sort of scar energy starting out as sort of in procurement and in sort of blending south and in the sort of infrastructure getting it to airports, and you're now looking towards the production side of things as well. What sort of prompted that transition? Because there are loads of companies in the world that are just looking at sort of that procurement and blending side of things. Why? Why go into production?
Speaker 2:it's a good question. I think it came in sort of the 2017-18 era where we said we realized that there was quite a bit of movement on the renewable diesel side. A lot of the facilities that were using sort of used cooking oil and other waste oils focused on renewable diesel because that was the industry where incentives started to arise. Focused on renewable diesel because that was the industry where incentives started to arise. Initial policy was being developed. The Renewable Energy Directive 1 in Europe was actually just started and created to drive renewable fuel uptake on the road and rail transport sectors.
Speaker 2:So all the projects, the initial facilities that were being built, were focused on renewable diesel and we realized that there was not a lot of interest on the sustainable aviation side.
Speaker 2:The volumes that we were doing were obviously still small, sometimes marketing driven to showcase that something was possible, but also to showcase to policymakers that this was also a solution, and we were very much pushing for a level playing field between that road transport sector as well as the aviation industry. But that was somewhat slow at that time. So we realized OK, if we want to create more supply, we probably have to do it ourselves, or at least start developing that ourselves to have access to those molecules and drive that industry forward so fast forward to today. Obviously there's a lot more interest in sustainable aviation fuel, which is great and a very good thing for the industry. But also with an increasing competitive industry, we will also need a certain access to molecules. So it's also a way of staying relevant in the industry, understanding the pathways and making sure we have access to our own molecules besides, let's say, supporting others on the commercial side.
Speaker 1:So you've got three projects that are currently under development. So you've got three projects that are currently under development. Do you just want to take us through? You know where they are, what pathways they're using, what stages of production they are at, sort of what the timelines are. Maybe just take them sort of one by one, because I realize that's a massive question.
Speaker 2:Yes, and to the previous answer, it's also obviously too and that's just a bridge towards this question is by doing it ourselves. We also keep full, let's say, track of the sustainability profile and we are fully in control of feedstock sourcing if needed. All the sustainability dynamics around your facility are obviously easier to control if it's your own project and even though also with our third-party projects, by the means of RSB and other certification criteria, we can keep track of that. But that's a reason also to be involved to make sure that we create projects to produce fuel at the highest sustainability standards. So when looking at our projects, the first one is in the north of the netherlands. That's a project we we announced quite a while back, currently in sort of the final feed engineering phase, as we call it, so engineering stage permitting phase, as we call it so engineering stage permitting, working towards final investment decision somewhere beginning of next year and that should be operational by 2027.
Speaker 2:And that's a HEPA project so aiming to convert waste oils through hydrogenation technology where we use topsoil technology that's in the public domain to convert those waste oils into mainly SAF and some byproducts like NEPTA and lighter ends like LPG. And it is approximately 100,000 tons sustainable aviation fuel output, so relatively small but in our opinion again the right size to stay in control of that feedstock supply chain and making sure we can do that on a fully sustainable basis. So that's our furthest advanced project. So that also shows we don't have any operational capacity to date. So that will be our first project.
Speaker 2:And behind that there's basically two projects in the pipeline, where one is in the Pacific Northwest area in the United States based on renewable natural gas as an input, also approximately there we talk about gallons because it's the US so about 30 million gallons, that's about 90,000 tons give or take. And there we are in sort of the concept study. So that means late, 28, 29-ish operational. That obviously depends on how fast things go, but that's the approximate timeline in that project. And then we have a third sort of project is more our ESAF project and that's a project in the Netherlands where we're also in that concept study phase looking at the potential of using CO2 and renewable hydrogen, so that's more. So we basically have projects in all areas, being oils and fats, more bio-based feedstock sources, and then ESF as well.
Speaker 1:I mean it's interesting you say that at the end, because that brings me nicely onto my next question. You see a lot of producers focusing on one pathway and trying to get that project done and then at that point, when you've got a first of a kind, then it becomes easier to build other projects further down the line. You've got three projects with three different technologies doing three different feedstocks. Why not just stick to heifer or go all in on esaf or bio? Why do one of each?
Speaker 2:it's a good question, um, and it's. I think it needs a few explanations. One is the party that we are is we're coming from the market side, right, so we understand the market very well and we see what we can buy and sell, and that means that we have a very good understanding of the potential in that market and that means we see that there is potential for HEPA-based fuels. It's the most advanced technology, it's proven. There's licensors that you can license from and it's relatively low risk's licensers that you can license from and it's relatively low risk. But the biggest downside that everyone can see is that the feedstock is obviously limited in availability. So, give or take, studies show that you could potentially do about 10% of the entire market based on that pathway.
Speaker 2:But beyond that, we need alternatives, and that's also seen in, for example, the european legislation which is focused on just to explain it on advanced biofuels and power to liquids, or esf, with starting with two percent in 2025, building towards 70 percent mandate in 2050, of which, at that moment in time, half should should be ESAF and the other half should be advanced bio-based. And to reach those targets, we quite quickly need a variety of pathways and it's not that there's going to be one winner. We believe that HEPA will remain to exist, also beyond a certain timeline when there's other technologies out there. But we also see that just half-life is not enough and we need these alternative pathways as well. So that's why we already today develop alternative projects, so to say, that can compete in the market going forward. And so that's one from a market angle and then two, I think, from a company angle. We are a market player and a project developer that does not own technology ourselves, right? So we in the end can start with a blank sheet of paper where we basically say what is the best location and what is then the best feedstock technology combination that works at that location? And that means that every time we start looking at potential projects, we we start with the feedstock assessment and see, okay, what is regionally available, are there potential off-take partners regionally interested in this product, and then what setup works best for that project.
Speaker 2:And then typically you come to different combinations of feedstocks and technologies that that can convert that product, while the the other competitors, let's say, in the market are either oil and gas, with, with certain assets, slash, stranded assets that they want to revamp into a facility, and therefore they are bound to that location. That's an upside because they potentially have things that they can reuse. Otherwise, it's also a downside because they're not freely able to pick the right, potential best location. And then the third, let's say, group of players in the markets are more tech providers that that just need to prove that their technology works, and therefore they need to.
Speaker 2:Let's take lanza jet as an example. They have a alcohol to jet technology, or an ethanol to jet to be specific, so they will not develop other technologies, obviously, than than ethanol to jet, so their their projects are focused on that pathway. And so that's what you typically see either tech providers developing their own technologies in certain areas, or oil majors around the locations that they already have, and then more, let's say, let's call it independent developers or project developers, of which we are also one, that have a bit more freedom to choose. And then you end up with various concepts that you want to use. At the same time, you also want, at some point, obviously, sort of learning and scaling benefits. So you will start looking at potential opportunities that you can either replicate or scale up based on the systems and the things that you've learned over time.
Speaker 1:You mentioned you. You go, you look at a new location and it's you're looking at sort of feedstock viability studies to begin with, and off potential off takers and things like that. When do you get the technology providers involved? Do they? Do you go to them once you've done the feedstock analysis and go okay, we think this works. What do you reckon and can you, you know, can we work together on this? Is that typically, when they get involved, yeah, it can be.
Speaker 2:We. We are obviously and that's sort of the future fuels team that that I'm heading is constantly looking at technologies and pathways right, so we have quite a lot of relationships with with all the major tech providers anyway, and you meet each other at events, but also you try to be involved in in research activities and sort of r&d like projects where you assess potential future pathways. So in principle, these relationships already exist and then, indeed, if there's a potential project or location and you have identified, okay, this is a place where it could work, let's get the tech provider involved and get some initial data on how they could convert that product at a certain scale. And then you slowly start moving into the engineering phases that everyone knows in project development, like a feasibility study or concept study, feed study, et cetera.
Speaker 1:So when you're looking at a new location, is it more? Are you looking more at feedstocks? Because you said you come from the market side, you've got very good market understanding. Are you more driven by you know where there's going to be market demand for production or are you driven more by where there's suitable feedstocks? Or is it about 50 50? What's the sort of weighting on those decisions? How do you go?
Speaker 2:about that? Yeah, it's a good question, I guess it's it's it's equally important, obviously. I think in principle, feedstock access is essential and everyone knows that sustainable aviation fuel is more expensive than fossil jet fuel, meaning that the, let's say, incremental cost for transport are a little bit less than what you see in the fossil jet market or any fossil oil industry, where the margins are small but volumes are very big and they're shipping a product from X to Y can be either a huge opportunity because the cost, the price, is higher somewhere else, but can also be big risk because the cost of transport is also relatively high. With a more expensive premium product because of the sustainability, the transport element becomes somewhat less important, so you can bring in fuel to other regions where potentially the price may be higher. At the same time, there's not a commodity market right, so that is still not something that happens today all the time. So I would say that you start with the feedstock and the location needs to be logical. But at the same time, you have seen that most of the projects are currently being developed in Europe and the US and now, actually this year, there's also quite a bit of movement in other places like India, japan, australia is picking up.
Speaker 2:Brazil is an interesting region where then you see, by policy interest or certain governmental interest, there's also a spike in development interest.
Speaker 2:So it goes hand in hand a little bit, also because these phases prior to execution can be quite expensive. So any government support to support these initial phases or study phases can be quite successful in attracting new projects to a region. And then I think the third element is, especially with first-of-its-kind facilities, you see that companies take locations that are relatively close to what they understand right. So the first HEPA project that Shell is building is in Pernis, in Rotterdam, where they have a lot of refinery experience. Our first project is also in the north of the Netherlands because we are based in Amsterdam. So it's logical that we pick a location that we know, let's say we speak the language, we know how policies work, we know how our business works, and that takes away an execution risk. So with these initial projects there's often a selection to a site that is close in proximity because, yeah, there will be a lot of learnings and potential issues to solve in these first projects.
Speaker 1:So my next question is which you've teamed up very nicely about where you look to produce. Obviously, you do it in Amsterdam and you do it in the Netherlands and you do it in the US. What are the major differences between making a project in the EU, in the Netherlands, and doing it in the US? Obviously, everyone's very aware of the policy differences, but what are the actual sort of you know, tangible differences that you can see when you're sort of looking at all these studies and getting these projects off the ground?
Speaker 2:Yeah, it's a very good question. I think, to be honest, the the projects don't really change per se, right? So there's a lot of differences in permitting, even in the us, state by state. Permitting and and um site selection is is very can be very different from permitting in texas, can be very different than permitting in california, just to take an example. So even within countries it can be quite different compared to, and the port of Rotterdam is a very different port authority than the port of Delft-Sel where we are located with our project, just to name an example.
Speaker 2:But the essence of these projects, feedstock technology technology companies are all worldwide operating. Technology companies are all worldwide operating. So if we do a HEPA project, let's say, in the Netherlands, compared to a HEPA project in the US, would, in terms of technology and setup, not be very different because the technologies are just worldwide competing tech providers that provide these technology solutions and similar to the EPC companies, whether it's a technique like organization or or flu, or worldly or other EPC companies, they all operate on a worldwide level with often even specific teams dedicated to specific technologies. And so it's the technological setup of a project does not differ per region, but it does differ in terms of, as you mentioned, policy and also fundraising can be quite different in these regions, but especially policy in Europe is more of a mandated approach, so you just have to and otherwise there are penalties, while in the US there's more visionary targets maybe, where then incentives need to make sure that people get to that target, and I think there's a combination of both is probably best, but it does create different circumstances in how you develop projects or how you see spikes in interest in certain technologies or projects, with the IRA coming in, for example, and suddenly all the carbon capture technologies, for example, start projects in the US direct air capture projects, because there's a big fund to support that, direct air capture projects, because there's a big fund to support that, and that may go down a little bit again in the coming years, and new interest spikes in other technologies and in Europe it may be a little bit more.
Speaker 2:Yeah, maybe I could say stable in the sense that it goes a bit slower, I guess, but there's a bit more. Let's say forward-looking, constant systems, but there's a bit more let's say, forward-looking, constant systems.
Speaker 1:One of the things we sort of focus on is the finance aspects, the requirement of capital, how capital-intensive these projects are. And I know last year you got a big investment from Macquarie for your Amsterdam refinery 175 million euros, I believe. Please correct me if that's not quite right, but how is the? How are you finding the process of finding finance? You know you've got that Macquarie one in for Amsterdam. Boeing are quite, have been, quite active in your Pacific Northwest project. How's, how's that sort of process been for you?
Speaker 2:Yeah, so that's a good point and, yeah, we're very happy, obviously, with the Macquarie investment. I have to make a small correction in the sense that the investment was on Sky Energy top-co level, so not per se on the project level. So they invest in the growth of Sky Energy as a company and support our growth in becoming a sub-major. Obviously, with their background as an asset manager and an asset investor, they are potentially interested in also project level. But because these projects have not reached FID yet, that's not an element today, but there's potential interest. Whereas Boeing is invested in the Pacific Northwest project with basically a forward purchase on the sustainable aviation, so they're very much interested in the offtake of that project and that's where they're very complementary, right.
Speaker 2:So there's always, let's say, risk on the development side, because then a project has not been realized but that funding is definitely needed to get a project to FID or towards FID and at FID there's other players that potentially are interested in doing the actual capital or the CapEx investment on the asset level and then at that moment in time there's people that want the fuel and the combination of those is the thing that you want, because then there's, let's say, aligned interest on realizing facilities, but also aligned interest in how to raise that capital and use that capital for certain elements.
Speaker 2:And if everyone wants the same thing, then it's a bit harder to make it work.
Speaker 2:So the combination, I think, is key and very important to realize and in that sense that is not very different from region to region. So it's always about risk and reward and in the end it's players like Boeing, but also KLM obviously that is connected to our, to our the Netherlands project, our HEFA project is interested in the few and they will make an assessment in terms of projects they participate in or sign off takes with. That is in line with their strategy and and that is always a probably with for the major airlines, a combination of long-term commitments and short-term purchase to get access to molecules and just like hatching what they currently do on the fossil market, but potentially a little bit of long-term commitments and short-term purchase to get access to molecules and just like hatching what they currently do on the fossil market, but potentially a little bit more long-term. And obviously there's a lot more variety in projects which makes it potentially confusing or a bit more challenging for them to choose. But that's something you need to help and support them on.
Speaker 1:You quite rightly corrected me on the Macquarie investment being top co as opposed to in an individual project. How do? And then you mentioned Boeing and KLM being interested in the development of molecules specifically. Yeah, is that a major point of difference in conversation when you're talking to an asset manager like Macquarie versus an airline or an OEM like Boeing, in terms of actually the requirements of the molecule itself and the actual conversations around risk and all those other aspects that come into it? Are they pretty much the same, apart from that, between the two?
Speaker 2:I think so. Yeah, they both. They're obviously aligned in sustainability and decarbonization and targets for to achieve that, so there's a lot of alignment as well. It's just a very different investment profile, right. The one is very much for fuel and off-takes and the other one is potentially for, um, for equity or something else. Uh, and and, and the first is actually just on sky energy as a company, so that that is also obviously a different, different discussion that you then have so if you had to pick, you know your heifer, your bio or your esaf which one's the hardest to get funding for?
Speaker 1:Oh, that's a good question. You can't say they're all as hard as each other, because I believe you.
Speaker 2:It depends. It's maybe a good answer. It there are. It's. It's definitely the let's say half as the I wouldn't say easiest, but it's it's the least risky one at the moment, if you ask me, just because the technology is first advanced. It's a technology that is proven, has shown its, its operability. So from a project development point of view it's a very logical technology at this moment in time. If you can secure feedstock and showcase that your offtake is solid, then that is a project that should be investable, let's say.
Speaker 2:At the same time, I think bio is very challenging at the moment from a technology point of view because there's a lot of technologies that could potentially do it, but they're all in sort of first of its kind, late demonstration phase. So you see quite some interesting and exciting projects, like Food Groom in the US, which is sort of waste-based gasification, to FT, and Fisher Drops has been a technology that has been around for a very long time but has been challenged, or it has been challenging to really be successful with that technology. So the entire industry is looking at that project and hoping that it succeeds right Because it unlocks a new pathway, so to say, and creates a lot of confidence in the market that it can be done, whereas if those projects, those first of its kind projects, don't succeed, the investors will also be more skeptical in looking at that pathway, saying, look, we've looked at five projects, they've all not succeeded. Why would your project suddenly be successful while you're doing the approximate same thing? So it's definitely not good for the industry if other projects, and especially technology proof points, don't succeed, and that's why I think that, let's say, advanced biopathways is currently a challenging one to finance, mostly from a technology point of view. But that could very quickly change if you see a couple of these proof points successful right, similar with the Lonzo Jet technology, with Freedom Binds, if that project operates for a few years, you see a lot more confidence around that technology as well, and that holds for any technology and any pathway actually. So I see some risks there, but at the same time it's at the verge or at the cross point, so to say, where it could suddenly become a lot more investable. And this all speaking from a project developer point of view, right, where you need project finance to enable these projects. It's obviously very different if you're a developer or an oil major doing it from their own books or from a different finance tool or from a tech provider themselves, but from a project development point of view, I think this is sort of the case we're in.
Speaker 2:And then the third is ESEF, which is actually an interesting one because it's expensive, especially renewable hydrogen is obviously expensive and potentially more expensive than people anticipated or hoped that it would be. At the same time, it could be very predictable. Whereas in the feedstock markets it's quite volatile and there has been obviously a big increase in UCO prices over the past 10, 20 years, um, it's quite predictable what the price of a renewable energy asset will. Be right, if you're building a pv farm and and a couple of wind turbines, let's say, um, you can already say that your opex on those assets are relatively small and it's just a very and I say just in between brackets it's a very big capital investment. But then it's quite predictable how your operating costs are going to be.
Speaker 2:So even though it's a high price, it could very well be a very investable price if the contract structures can become in place, let's say, or you can get them in place. So there are maybe a little bit more bullish on the potential of investing, just because it's a little bit more predictable. At the same time, there are the challenges. Obviously, the absolute price is quite high, so you need to have strong commitments like Refuel EU, with a mandate, where fuel suppliers and airlines eventually have to use those fuels and therefore there will be a market for ESF almost regardless of price, which is never fully the case, but that will, let's say, leverage that ability to pay that significant premium that is needed for that type of fuel.
Speaker 1:I thought you made a really interesting point about the crossroads in terms of illustrating technology's work at scale, particularly in the bio and the fissure drops pathways, and it sort of poses a bit of an issue if you doesn't, if you don't start seeing that over the next couple of years. Because you mentioned earlier that HEFA is not included in the 2050 EU mandate fuels like approved fuels list it becomes more and more marginalised as time goes on other pathways. To get it to the level of risk tolerance for investment that heifer is, there could be a challenge in actually sort of getting SAF production in the other pathways at a quick enough pace to get the projects developed in time to actually meet the targets. So it is. There is sort of an element of jeopardy and sort of this sort of needs to start happening over the next couple of years, don't you think?
Speaker 2:yeah, that's true and and again, right, I do think there's a sort of a merit curve in these projects and hefa will remain to exist, also going forward. Um, but indeed you need to scale, especially, let's say, from 2035 to 2045, that then we need to see a very rapid increase in new capacity coming online, and that is both. And then everything needs to be in place, right, all the projects, all the developers, but also all the capabilities. From a human resource point of view, there's a lot of technical personnel needed, especially because we typically see that these facilities are a little bit smaller than what we have seen in oil and gas. So for every, let's say, 5 million ton oil refinery, which is a small oil refinery, a year, you need potentially 20 or so SEF projects, right, and those are all refineries that need operating personnel, maintenance crews, etc. So there is also a huge challenge on that side in terms of bringing up all that technical personnel and making them ready and educating them on this topic.
Speaker 2:And that's SAF is not alone, obviously, in that that holds for many other industries in the energy transition. Obviously that holds for many other industries in the energy transition, but that's a big element as well where we see potential, let's say risks, but at the same time also a lot of opportunity for growth obviously. So we are quite optimistic that we can eventually find these technologies and with HEPA becoming more, let's say, restricted, we'll also see or the feedstock for that. We also see some of these other pathways that are potentially expensive today become more attractive at that moment in time, right, and then you'll see that these development curves are also sped up and could be potentially implemented earlier or quicker than we see today potentially implemented earlier or quicker than we see today.
Speaker 1:Would you like to see investors looking at SAF in general as more of an opportunity, because the sort of dialogue and vocabulary used are very much framed in terms of risk? Would you like to see it turned around and to look at the opportunity here and the size of this market in sort of the sense that it's the only commodity really that's guaranteed for the next 30 years? There's not going to be a guaranteed of electric flight or hydrogen flight, so in terms of aviation it really is the solution. Would you like to see that sort of narrative slightly flipped and investors look at it that way?
Speaker 2:I think that's smart, from from my point of view, right, but it's it's a little bit uh. Let's say, butcher judging its own meat. I would say I'm not sure whether that's a saying in english, but it's yeah, I mean it works, we'll go with it it's uh, it's definitely in dutch, but it's.
Speaker 2:It's. Basically, if I would say, let's say that that this is the best market, everyone would think, yeah, of course it is because you're in it, so that doesn't maybe work that well, but I do obviously believe, and I totally agree with you, that it's clear that, also with the mandates, this market is going to be there right and there will be a large undersupply in this market, especially in that scale-up period from 2030 to 2040 and beyond. So there is a huge opportunity and that can cause, and there can be a bit of a paralysis almost when you're not certain to choose. Because there's so many options, it's also a little bit scared to scary to choose one right or to choose one technology, and that's why I also believe in our, let's say, strategy of diversifying in projects and or pathways and keep an eye on all the pathways out there to make sure that we're constantly up to date of what works, what doesn't work, what could potentially work, uh, and and there will be a combination and patchwork of all these technologies and pathways as well in different regions, because what works in in southern america might not work in europe and vice versa, and I think that that is something people will.
Speaker 2:Still that is quite complicated, right. So also investors need to understand that. See the examples, get confidence and then they will get more interest and at the same time, with things like ESG and sort of finance being attracted to those renewable decarbonization industries, there will be a lot of interest in good projects, I believe, and then it becomes more and more interesting. But then again, indeed, there is only a certain appetite for risk from certain investors and you need to balance that and that's also part of the deal and part of project development to make sure that your project fits those criteria.
Speaker 1:So I want to flip slightly onto the offtake side and the customer side, because as we mentioned at the beginning, you guys have been involved in the market and on the customer side longer than you've been on the production side, so I just wanted to know how that expertise of you know working on book and claim or airlines getting access to staff helps you in terms of you know arranging offtake agreements or working on book and claim systems or those sort of things that come alongside developing a project that are integral to the indication of the long-term demand yeah, and there I think you also see similar from from a project.
Speaker 2:Some, some project developers just look at okay, someone needs to buy this product out of the gate and do what hit what you want with it and and I don't care, as long as it's it covers and pays the bills for the project, right, we obviously come from that project side and we try to enable projects and innovative new projects with certain offtake structures and there there's obviously a lot of movement and a lot of interest and it's good to understand that the history of this market has always been a voluntary market, so the mandate only kicks in in a few European countries, has been already there for a few years, but officially the European mandate kicks in in 2025.
Speaker 2:Next year moment there is a more structured, let's say, mandated market that just forces mainly fuel suppliers to to use that fuel in their systems and airlines to purchase that fuel from the fuel suppliers and with that the dynamics of part of that market will obviously also shift, because then there's suddenly a fourth marketplace where people need that product.
Speaker 2:At the same time, you see a lot of interest from sort of the corporate markets.
Speaker 2:For example, we just announced our involvement in the Saba deal.
Speaker 2:So that's sort of large, let's say, corporate clients that want to reduce their scope three emissions purchasing as a group with a number of fuel suppliers, amongst which Sky Energy, and we are quite proud of that, also just because it showcases the ability of some of these other industry players, like scope three corporates, and their ability to play a role in that industry and enable potential new supply chains and enable new projects coming online.
Speaker 2:And that is very helpful because in the end there is and that's not a secret at all there is a premium for sustainable aviation fuel to be paid, and if you can do a combination of airlines as well as corporate clients that are flying, that can help these projects and can help especially also the innovative, newer projects to come online quicker and stimulate that industry development. And then I think it's very good to see that that's being done in sort of groups and collectives to make sure that there's more substantial demand. And that's actually the business model Sky Energy always had from the start, that we aggregated demand and therewith made sort of initial supply chains possible. And that's something that is still relevant today, even with the markets developing towards more policy driven or incentive driven industries.
Speaker 1:I mean you hit the nail on the head there with Saba and I'm glad you brought it up because it's still fresh news. But it's the diversity of the people involved in Saba. I mean there's so many different companies like BCG JP Morgan. There's so many different companies like BCG JP Morgan I mean the diversity in there that are actually sort of showing this desire and demand to actually be involved in SAF and want to look after their scope. Three emissions is something that is really encouraging. It's one of the more encouraging things in the industry at the moment. Projects maybe aren't necessarily being developed as quickly as you know people might hoped over the last few years.
Speaker 1:Um, certainly, the demand side is only getting stronger, and that's a really encouraging thing, and it's getting more and more diverse as time goes on. There's more and more people being involved in things like sabra as time goes on, for For sure. So onto offtakes if you, if Sky Energy, was to sort of design an offtake, an ideal offtake, for one of its projects, what would it look like in terms of longevity, or you know the amount, or you know even the price? Because lots of investors say offtake agreements aren't for a long enough period, they aren't offtakes for 10, 15 years' time, long enough for them to set up a financial model in order to look at the returns on an investment in a project.
Speaker 1:But from your point of view, what does the ideal offtake agreement look like?
Speaker 2:Yeah, it's probably too easy to say as long as possible, as high as possible, right, that is probably a very easy answer, but that's all it sounds a bit like your university dissertation, not very much, but coming soon. But yeah, with distinction you get it.
Speaker 1:That's a great answer but yeah, with distinction you get it. That's great answer no no, it's, it is.
Speaker 2:I think it again it's. It's a very much a balance between risk and reward. I would say right. So if you and and depends on what you believe as a company and what your sort of ability to take on those risks are, so if you believe, as a company, and what your sort of ability to take on those risks are, so if you believe as a company and your investors believe as well, that the market is going towards a, let's say, mature industry where prices remain high because of shortage of supply, then you could argue that a relatively short offtake could be enough to bridge that initial time into a more mature market where you can then just trade in sort of a commodity market. If there are still doubts about that, or if you still believe that you need to bridge a longer period, you need to move into sort of the 10, 15 years timeframe where you can even pay off all, maybe, or a large portion of your facility with certain guaranteed offtake structures, and that will enable you then to finance that project but also provides potential interesting access to the molecules at the potential favorable price for those airlines. But that also means that if you take a long-term commitment from an airline, then they will want something from that in return and that's typically a low price or a cost price estimate rather than a very high potential market price. So with creating security in your project by signing long term deals, you also potentially reduce your risk and therefore you need to give away some potential upside, if you will believe that upside. So that is always the balance.
Speaker 2:And then it depends on the project that is there and the risk in that project in terms of market as well as technology and as well as execution potential, whether that is actually a feasible solution. That is actually a feasible solution and that is, I think, in the end that holds for any project finance right. That's the same for wind, that's the same for any renewable project. And then it depends on the soft project which contract structure works best. Because, as I said, coming back to ESA, for example, might can be potentially a fixed price for a long, long period of time, while with very volatile feedstocks like biomass or potentially oils or waste oils, you want something that potentially moves with that price, because otherwise there's a lot of risk you being out of the market or very profitable if it moves in the right direction for you.
Speaker 2:But there is a lot more uncertainty they're looking for, while, as I said, with ESAF there is a potential to understand the future price a lot better because you have control over the entire space being CO2 and hydrogen being CO2 and hydrogen. So that creates optionality in different off-take structures and therefore also abilities for airlines to diversify between projects, and I think that that's very logical for an airline to potentially sign long-term off-takes with a few projects for part of their fuel but also remain open on the spot market to potentially play along in the market dynamics that are there at that moment in time. Similar for corporate clients right? They want to reduce their scope three emissions. They can do that by committing long-term or sort of shorter term on what is currently available.
Speaker 1:So you mentioned at the beginning that your Delft Zil project is coming up for final investment decision next year. How important do you think offtake agreements and signing airline partnerships, how important are they to actually getting to FID and getting to that project construction phase?
Speaker 2:Very important, I think. So it's a combination of the feedstock strategy in these type of projects and then the execution of, obviously, ability with your tech setup, and then someone that's willing to pay a certain price for your product and that guarantees an investment profile that investors can then invest against, and so, without that, there needs someone else that backs that, and that's either a very big balance sheet or or something else, but that typically doesn't exist for project developers. So then it indeed relies on on well-structured contracts on both in and outputs.
Speaker 1:Oscar, thank you so much. This has been fascinating and a great insight to what Sky Energy's got going on, and wish you all the best with everything that's coming up in the over the next year.
Speaker 2:Thank you very much and thanks for having me. It was a very interesting talk.