Flight plan: 14 practical steps towards commercial aviation biofuels now

June 28, 2013 |

FINANCING PRIORITIES

7. Balance risk and reward for early adopters of technology. Aviation biofuel is technically ready to scale commercially. At this early stage of development, stakeholders should consider entering agreements with the aim to balance risks with partners, thereby accelerating the rate of industry growth. For example, airlines could consider innovative pricing structures and long-term off take agreements, investors could require lower cost of capital on investments, feedstock providers could enter into long-term supply agreements with better than market pricing, fuel producers could consider alternative margins, and refiners could consider slightly higher volumes of jet fuel. If all stakeholders are willing to compromise and consider the needs of partners, the industry will reach its potential sooner.

MASBI-financing

8. Demonstrate industry demand with aviation jet fuel purchase guidelines. Aviation stakeholders operate within a constrained operational and economic environment. Likewise, producers have their own sets of constraints. Each side is frequently unaware of the limitations of the other. Aviation industry stakeholders could articulate a series of purchase guidelines to initiate and inform discussions that would result in both sides setting respective parameters and identifying places of overlap where their commercial needs meet.

MASBI-financing-2

9. Create a pool of capital to invest in biofuels. Private financiers are either reluctant to finance biofuel projects or require rates of return that are too high. Aviation industry stakeholders could collaborate with other advanced biofuel consumers, including government or commercial entities, to develop structures allowing for efficient capital raising and vertical integration such as investment in the biofuel supply chain.

The Digest’s Take.

Financing remains highly challenging – faster returns from stable technology in wind, oil & gas isn’t helping any. Though bond financing is an attractive option — not much is new here except for the drive to greenlight Master Limited Partnerships, which have proven to be a strong structure for liberating capital in fossil fuel exploration.

Recently, the Digest proposed the SuperRIN. That’s a renewable fuel credit that can be purchased at a discount to current market prices, can be used to satisfy any renewable fuel obligation, never expires, and can be issued by an advanced biofuels project that has completed a demonstration of its technology but is raising capital for its first commercial plant. We noted that it works in the frequent flyer market to presell inventory – why not in fuels?

Notable milestones and novel ideas to date

Coons, Moran introduce bi-partisan Master Limited Partnerships Parity ActA master limited partnership is a business structure that is taxed as a partnership, but whose ownership interests are traded like corporate stock on a market. By statute, MLPs have only been available to investors in energy portfolios for oil, natural gas, coal extraction, and pipeline projects. These projects get access to capital at a lower cost and are more liquid than traditional financing approaches.

The SuperRIN. What exactly is a SuperRIN? It is a renewable fuel credit that can be purchased at a discount to current market prices, can be used to satisfy any renewable fuel obligation, never expires, and can be issued by an advanced biofuels project that has completed a demonstration of its technology but is raising capital for its first commercial plant.

In today’s Digest we explore more of MASBI’s 14 practical steps to accelerate aviation biofuels to commercialization — and the state of play in policy and sustainability. Lots of charts on approval pathways and waiting times. Plus, links to the full MASBI report and the executive summary, by visiting the page links below.

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