Grant from Bill Gates-led fund will make green jet fuel as cheap as fossil fuels


The booming market for sustainable jet fuel will soon reach a milestone, with a plant capable of producing low-emission fuel for the first time at the same price as fossil fuel options. But that price parity will only result from a $50 million grant from Breakthrough Energy, led by Bill Gates, as well as support from discounted loans and other financial subsidies.

LanzaJet, the Breakthrough-backed startup, is building its first commercial factory in the US state of Georgia and plans to begin production next year. The facility will double the current US capacity to manufacture sustainable aviation fuel, or SAF.

While the global aviation sector is only responsible for about 3% of the gases that warm the planet today, its emissions are growing rapidly. In a world that must achieve net zero emissions to avoid the worst effects of climate change, green solutions are desperately needed to meet the growing demand for flights.

SAF is one such solution. This is a broad label given to aviation-compliant fuel that is made from more sustainable sources than traditional kerosene-based jet fuel, although so far SAF has been held back by supplies limited which are sold at much higher prices.

LanzaJet’s technology extracts ethanol from sources such as sugar cane in Brazil, waste gas in China or corn in the United States, then chemically converts it into SAF and renewable diesel. Depending on the feedstock used to make the ethanol, LanzaJet says its SAF’s greenhouse gas emissions could be up to 85% lower than conventional fuel.

The chemistry to convert alcohol into jet fuel was developed almost 100 years ago, but has since been refined to work with much higher efficiency and lower costs. LanzaJet claims it can convert almost any carbon going into the process into usable fuel.

But the process is still energy intensive. This means that, without subsidies or other incentives, the cost of LanzaJet’s SAF from the first plant would be around twice as much as its fossil fuel cousin at current prices. To enable LanzaJet’s SAF to compete in the market, the company has sought “concessional capital”, i.e. funds that come in the form of grants or low interest loans. interest.

LanzaJet secured a cheap loan worth $50 million from the Microsoft Climate Innovation Fund and also secured a grant worth $14 million from the US Department of Energy. The rest of the $200 million it needs to build the factory will come from LanzaJet shareholders: LanzaTech, Mitsui & Co., Suncor Energy, British Airways and Shell Plc.

LanzaJet chief executive Jimmy Samartzis said Breakthrough Energy’s $50 million grant comes at a crucial time, two years after construction began on the Georgia plant. That’s because last year’s inflation caused construction costs to skyrocket. Without this extra money, factory-produced SAF would still have cost 25% more than conventional aviation fuel. The subsidy erases this so-called green premium.

These types of unforeseen risks are common when trying to bring new technology to market. That’s why Breakthrough Energy launched the more than $1 billion Catalyst program, which includes contributions from 15 companies and philanthropic organizations such as General Motors Co. and Boston Consulting Group. Breakthrough aims to channel support for projects aimed at moving new technologies towards commercial viability. The $50 million grant comes from Microsoft Corp., Builders Vision, BlackRock Foundation and Gates itself.

The initial Georgia plant will produce 9 million gallons of SAF and 1 million gallons of renewable diesel per year. That’s a small fraction of the 14 billion gallons of aviation fuel consumed by the United States each year.

Given government and company announced policies to reduce aviation emissions, US demand for SAF alone is expected to increase by 3.2 billion gallons each year by 2030, according to BloombergNEF. LanzaJet said it expects lessons learned from building and operating its first factory to help it expand rapidly, installing factories with 10 to 30 times that initial capacity as early as 2026.

United Airlines Holdings Inc. is among several carriers looking at sustainable jet fuel in an effort to reduce emissions. Its chief executive, Scott Kirby, told a conference in Chicago this week that he plans to create an investment vehicle linked to FAS.

And why is Breakthrough giving a grant to a company that has big oil companies as shareholders at a time when the oil industry is posting record profits? “Nobody is making any money on this product,” says Samartzis. Oil companies that hold stakes in LanzaJet are taking a risk, he says, because they signed 10-year deals to buy LanzaJet’s fuel regardless of what the wider market does or what happens if or when government incentives to encourage the development and use of SAF disappear.

© 2022 Bloomberg


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