November 20th, 2024
Last week at the ERTC event in Estoril, Portugal, Alder Renewables connected with old friends and partners while meeting some new ones, too. ERTC is the premier annual conference for European refiners, and a great event for learning about energy transition activities and new technologies for decarbonization. Our goal was to better understand the industry's needs for low carbon transport fuels and continue to educate key audiences about our biomass-based pathway to sustainable fuels and biochemicals.
Economic and political changes are positioning the EU to become the world leader in the clean energy transition. While existing regulatory programs are a great start, a strict long-term focus will be required to meet mandates beyond 2030. Unfortunately, project development momentum has slowed and investment decisions are delayed. This is particularly acute in e-fuel projects as long-term competitiveness is brought into question with estimated fuel production costs above €5,000/MT (McKinsey).
Stateside, political turbulence and unpredictability will settle, but for now we await clarity on the path ahead from the incoming administration. While we wait, consistency and clarity are moving the market forward in the EU despite the macro conversation on the bloc's long-term economic resiliency.
With SAF mandates beginning in 2025, refiners seem comfortable that existing plans for dedicated HEFA production and co-processing can meet ReFuelEU SAF targets. However, deployment of next stage technologies to meet steadily increasing production requirements in 2030 and beyond are less clear. During the Biofuels Roundtable at ERTC, refiners, like Repsol, Galp, and Versalis, commented that higher expected fuel costs combined with technology readiness challenges are slowing decision making.
Further clouding the issue is the fact that project development activity and timelines are typically five years minimum. Making large investment decisions is a challenge because policy and regulatory changes can often occur during that timeframe. Refiners seem focused on strategic plans that use existing infrastructure to be in a strong position to win. Sustainable processes that utilize local resources, such as biomass and circular plastics, will have a competitive advantage over companies that import feedstocks.
Even though the US market has strong incentives for SAF delivered through the IRA, a structured mandate program in the EU will likely increase SAF exports from the US to the bloc. To encourage US-produced SAF to be consumed on home soil, only minor changes to policy are necessary.
First, by adding simple language to the IRA regarding repayment of the 45Z Clean Fuels Production Credit for any SAF exported, we can harness the fuel's decarbonization impacts at home. This concept is similar to the obligation for exporters to retire the RIN credit when transporting ethanol or biodiesel outside the country. Second, the structure of the Department of Energy and Department of Agriculture's grant and debt financial support processes can require more than 50% of annual SAF production to be consumed within the US market. These straightforward changes would dramatically accelerate production nationally. We don't suffer from a demand side issue; the investment must be on the supply side.
Overall, EU refiners and regulators are years ahead of the US when it comes to decarbonization. Energy market participants that ignore this dynamic will be at a disadvantage and must flex their muscles to influence policy direction.
At Alder Renewables, we are working closely to ensure the transition to sustainable fuels optimizes existing infrastructure and delivers competitive cost of CO2 abatement to end users. We will continue to make our voice heard to ensure that the race to decarbonize is competitive and viable – on both sides of the Atlantic.
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