As 2025 draws to a close, Dentons and Energex reflect on a landmark year for the sustainable aviation fuel (SAF) industry in Europe and what to look out for in the sector going into 2026.

2025 Reflections

• Policy: 2025 was a pivotal year for the mandatory SAF compliance market in Europe. The blending targets under the UK SAF Mandate and EU’s ReFuelEU came into effect, imposing (for the first time) a minimum 2% SAF blending requirement on aviation fuel suppliers with penalties for failing to meet the mandatory threshold.

• Supply and demand: Regulation has therefore clearly boosted SAF demand in 2025. The market has largely been supplied by existing production of HEFA-derived SAF (i.e. first generation biofuels derived from used cooking oils, animal fats and vegetable oils). Notwithstanding this, the UK national average blending was still trending below the 2% requirement and the surging SAF price seen towards the latter half of the year (by more than 50% in recent weeks) signals that suppliers are scrambling to obtain available supply on the spot market to avoid a shortfall against the mandatory requirements.

• Ongoing challenges: However, despite the implementation of the SAF blending mandates, announcements of construction of new SAF plants has been sluggish. The perception that HEFA-based SAF will be oversupplied through the rest of the decade may have resulted in delayed procurement. In the short term, this may have proved unwise and will lead to a change of behaviour as obligations mount. In addition, there have been other core challenges faced by SAF producers in securing third-party investment and getting their projects to FID.

• Lack of FIDs: Such challenges include the funding of large upfront DevEx costs (often without a clear line of sight on FID), securing long-term offtake arrangements, the price delta between cost of production and the price offtakers/airlines are willing and able to pay (essentially the fossil fuel cost plus a limited green premium) and stable supply of eligible feedstocks. In particular, significant additional investment is needed to ensure increased SAF supply from PtL/e-SAF, noting the e-fuel sub-mandates that will take effect from 2028 in the UK and 2030 in the EU.

• First steps government financial support to industry in Europe: The UK government’s intention to implement a revenue certainty mechanism to support long-term SAF offtake at a guaranteed price commenced the legislative process with the introduction of the Sustainable Aviation Fuel Bill into the House of Commons in May 2025. A summary of the proposed bill, its legislative readings and key points arising from Parliamentary debates was published in August 2025 and is available here. The Bill is expected to be passed by the end of 2026. The UK’s Advanced Fuel Fund also awarded £63 million across 17 SAF projects in 2025 in an effort to assist with high upfront development costs and accelerate SAF production. In the EU, the European Commission published its Sustainable Transport Investment Plan in November 2025 (STIP) which promised increased capital for grant funding for SAF projects and signposted plans to launch an EU-wide double-sided auction for second and third generation SAFs. A summary of proposed measures can be read here. In November 2025, the EU’s Innovation Fund also announced €2.9 billion in grant funding to 61 net-zero technology projects. Four of the winning projects are for e-SAF production. Both the UK and EU have therefore shown strong regulatory commitment to the acceleration of SAF production.

• Book and claim: The voluntary SAF market also continued to grow alongside the compliance market, with airlines, airports and corporate travellers committing to their own decarbonisation goals, pushing demand in excess of the mandatory requirements. Book and claim models (which decouple the physical fuel from its environmental benefits) emerge on the voluntary market as corporations seek to obtain the environmental attributes of SAF (without purchasing the physical fuel itself). The launch of the IATA SAF Registry was a critical logistical milestone for the industry, providing the essential Book & Claim transparency framework needed for global corporate offtakers and to reduce double-counting risks. Book & Claim is seen as a key near-term mechanism to overcome infrastructure bottlenecks by enabling greater SAF production in the most efficient locations, the environmental benefits of which can be claimed in locations where SAF production/access is less feasible.

Outlook

• Project FIDs: To meet mandated 2030 demand targets, an estimated 5.8 Mt of additional capacity must secure Final Investment Decision (FID) in 2026 and 2027. It is essential that the pathfinder projects awarded grant funding the EU and the UK start to take steps towards FID, in order to come online in time for the ramping-up of the blending mandates in 2030. Lack of scalable alternative SAF production by the end of the decade threatens to make the mandates for e-SAF impossible to achieve and add penalty costs to suppliers.

• Supply and demand: Expect HEFA to meet market demand for 2026.

• Regulatory: The European Commission is required to review and assess the effectiveness of the EU ETS in 2026. It is anticipated that, as part of this review, the EC will extend the allocation of free SAF allowances to continue to support the scale-up of the SAF industry. The UK Revenue Certainty Mechanism will be progressed and we expect advancements to be made on support measures identified in the STIP.

• Airlines, suppliers, producers and lenders grapple with new offtake models: Traditional offtake structures which have underpinned the financing of large power and fuels projects previously will be re-moulded to adapt to the market dynamics of the jet fuel supply industry. A certain level of market risk may be borne by projects which will impact on the debt capacity of those projects and ultimately the production cost of SAF.

• Technological evolution: Spurred by strong regulatory support and a tightening of feedstock supply for HEFA, expect investment to continue to come into technologies to lower costs to unlock scalable feedstocks such as agricultural waste, forestry residues and municipal solid waste as well as PtL/e-SAF, without which the mandates will be challenging to meet.

 
If you would like to discuss the contents of this article please contact Liz Martin (Partner), lmartin@energex.partners, or Jonathan Martland (Partner) jmartland@energex.partners

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