Key facts
- Germany plans a €2 billion experiment to scale sustainable aviation fuel (eSAF) production.
- eSAF currently costs approximately €7,520 per tonne, compared to €640 for conventional jet fuel.
- The German auction uses a double-auction model to separate producer financing needs from buyer contract lengths.
- Producers will sign long-term purchase agreements, while distributors will have shorter contracts.
- The government will cover the difference between buying and resale prices for the supported fuel.
- The first €2 billion allocation could purchase around 266,000 tonnes of eSAF at the reference cost.
Germany is initiating a significant experiment with a €2 billion budget to foster the production of sustainable aviation fuel (eSAF), aiming to overcome the substantial cost disparity with conventional jet fuel and create a viable market for nascent technologies. The initiative, designed as a double auction under the H2Global model, seeks to provide producers with long-term revenue certainty needed to finance large-scale facilities, while offering buyers more flexible, shorter-term contracts.
Synthetic aviation fuel currently costs nearly twelve times more than traditional jet fuel, presenting a major hurdle for adoption. Europe has numerous announced eSAF projects, but few are advanced, and none have reached final investment decisions due to the difficulty in securing long-term financing. Producers require decade-long contracts to justify the massive capital investment, but airlines are hesitant to commit to such terms given the uncertainty surrounding future costs, regulations, and competing fuel technologies.
The German auction aims to resolve this deadlock by having producers compete on price to receive long-term purchase agreements, with the government covering the difference between production costs and resale prices. This approach allows for price discovery, helping policymakers understand the support producers require and the value buyers place on the fuel. It is seen as a more intelligent attempt to scale immature technology than a simple mandate, which has already faced challenges from airlines concerned about the lack of existing production capacity.
While the €2 billion will not significantly impact aviation's overall fuel volume in the near term, it is intended as an industrial development tool to move projects from planning to construction. Germany's previous attempt to include eSAF in a 2022 H2Global pilot was unsuccessful, highlighting the importance of carefully matching auction conditions to market maturity. However, the broader H2Global mechanism did facilitate a contract for renewable ammonia, demonstrating the model's potential to make viable supply bankable.
There is a tension in Germany's approach, as qualifying fuel must be ASTM-certified and produced within the European Economic Area, potentially excluding regions with cheaper renewable electricity and resources. The dominant input for eSAF is renewable electricity, and energy losses occur at each conversion step. Therefore, long-term cost competitiveness may favor production in regions with abundant and cheap renewable power, such as North Africa or the Middle East, even as early European production provides valuable operating experience and data.