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Renewable
Jet Fuels
Carbon War Room
September 2014
Contents
2
I. Introduction to Renewable Jet Fuel and
Leading Companies
II. Overview of the RJF Forward Access Model
Carbon War Room
5
The Market
Policy
Technology
CWR: Dismantling Market Barriers
Capital
Renewable Jet Fuels and the Valley of Death
How do Scale Proven Technologies?
Renewable Jet Fuels and the Valley of Death
How To Scale Proven Technologies?
Renewable Jet Fuel Pathways
7
Natural Oils
Jatropha
and Other
Perennial
Oilseeds
Camelina Waste
oil/tallow
Aquatic
Micro-
Organisms
Hydrolysis of
Biomass to
Produce Sugars
Biomass
Hydrotreating
Thermochemical Conversion of
Biomass
Pyrolysis
Oil
Gasification
to Fischer-
Tröpsch
Fermentation of
Sugars through
GMOs to Produce
Alcohols, Oils or
Hydrocarbons
Further Refining to Produce Finished Fuels
Liquid-
Phase
Catalytic
Processing
• Food-based
starch crops (corn,
sugarcane)
• Dedicated Energy
Crops
• Residues/Waste
streams
Certain Demonstrated
Technologies Exist
8
$60.00 $77.50 $95.00 $112.50 $130.00 Base Value
Base Value = $80.81 cost per barrel in 2018 Dollars
Variable
Seed Yield at Maturity Scenario High Low Base
Non-Labor Irrigation ($/HA) 0.00 600.00 100.00
Average Labor Per Harvesting Man Day 5.00 30.00 10.00
Hectares Harvested Per Man Day 2.00 0.15 0.40
Crop Maintenance Labor ($/HA) 40.00 400.00 100.00
3rd Party Crushing ($/Tonne) 11.00 55.00 35.00
Seed Oil Content Scenario High Low Base
Number of Harvests Per Year 1 10 6
Cost of Crude Oil Scenario Low High Base
Years to Production 2 0 1
Renewable Jet Fuel Deal Model
9
Airline Challenge: Airlines are subject to escalating, unpredictable fuel (&
carbon) costs that are currently the largest single portion of operating costs.
Supplier Challenge: Low carbon, renewable jet fuels are not yet at
commercial scale. Certain demonstrated technologies exist, but suppliers
are facing the “Valley of Death”
Solution: Connect fuel consumers and fuel producers through a
transaction that solves for both challenges.
What Do Airlines Need?
10
Fuel
• Certified (technical, sustainability)
• At or below market price (at volume)
Complete solutions
• Able to be integrated into existing business model without additional infrastructure or human capital
investment
Airlines’ constraints:
• Cannot purchase more than small volumes of fuel at price premium
• Generally do not make direct investments in external companies/assets
• Creditworthiness insufficient to support project loan with offtake agreement
• Limited control over physical fuel delivery infrastructure
• Challenges in sustainability credentials/messaging
Financial Structure
11
Airlines RJF
Supplier(s)
• Airlines buy long-dated contracts for sustainable renewable jet fuels
specifying future volumes at a predetermined price structure.
• Fuel delivery will begin 1-5 years from date of contract signing and will
continue for a specified multi-year period.
• The offering will be syndicated among a select number of airlines,
limiting the expense and individual exposure of any one airline. The
money raised through the sales of the RJF contracts creates a pool of
non-dilutive capital that can be infused into selected renewable fuel
producer(s).
Financial Structure
12
The opportunity is to access the rights to future output of competitively priced renewable fuels
for physical delivery and carbon credits
Fossil Jet Fuel – Cost of Physical
Delivery + Regulatory Credits
Renewable Jet fuel
production cost
Upper price collar
Lower price collar
Time
$/bbl
Where the price of fossil Jet-A and
the cost of production of renewable
Jet fuel meet
While fossil Jet A is the main supply, the market price of renewable will
follow the red line – even though the production cost will likely diminish
Financial benefit to
the airline
• Net Present Value of Contract = Total Fuel Savings Adjusted By Discount Rate
• Discount Rate = Airline’s WACC + Fuel Project Risk
Mutual Benefit
13
Benefits for Airlines
• The right/ability to purchase lower cost RJF over a long-term time
horizon
• Reduced fuel prices and price volatility over the medium-long term
• An innovative vehicle to meet carbon emission reduction targets
• Airlines need not make direct investment in upstream companies or
assets. No need to pay premiums for fuel today.
• Public relations benefits: taking concrete climate action, setting a
precedent for the airline industry.
Mutual Benefit
14
Benefits for RJF Producers
• The fuel producer receives a much-needed short-term, non-dilutive cash
infusion and a long-term off-take contract for fuel;
• Improved ability to attract the growth capital it needs to produce
commercial volumes of fuel.
Thank You
Dan Fuller, Senior Advisor
djf@fullersmith.com
Mobile: +1 202 256 6013
Suzanne Hunt, Senior Advisor
shunt@carbonwarroom.com
Mobile: +1 202 256 6013
Aaron Tyrell Mitchell, Associate
amitchell@carbonwarroom.com
Office: +1 202 717 8446
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