Navigating the SAF Transition: Risks, Opportunities, and Contractual Strategies

Briefing

07 January 2026

10 MIN READ

2 AUTHORS

Sustainable Aviation Fuel (SAF) is widely heralded as aviation’s most immediate lever for decarbonisation. Yet its ability to deliver meaningful lifecycle emissions reductions hinges on the successful development and deployment of second and third-generation advanced technologies. Increasing demand and rising blend targets under applicable SAF mandates mean that suppliers cannot rely on first-generation methods – such as blending fossil-based jet fuel with hydroprocessed esters and fatty acids (HEFA) derived from waste oils – to meet the future scale and sustainability demands of modern aviation.

The transition to advanced technologies will often require first-of-a-kind (FOAK) plants integrating multiple advanced processes. These projects are inherently high-risk: technology performance is uncertain, supply chains are delicate, and traditional EPC contracting models may not be appropriate. For stakeholders, this means an increased chance of ending up in a claims process involving delay, performance guarantees, or interface challenges. Anticipating risks through robust contractual frameworks and risk-sharing mechanisms will be critical to delivering SAF infrastructure successfully.

Why SAF matters

Aviation faces the same decarbonisation challenge as the resources and waste management sector and other heavy industries. Global air traffic is forecast to grow from 4.5 billion passengers in 2019¹ to 12.4 billion by 2050,² intensifying scrutiny on aviation’s carbon footprint. In 2023, aviation contributed 2.5% of global energy-related CO₂ emissions; growing faster than rail, road, or shipping.³ This trend is likely to continue as demand for travel rises.

Battery-electric and hydrogen aircrafts remain commercially unviable in the near term. Conversely, SAF, a “drop-in” replacement for conventional jet fuel, is readily available and offers an average of 70% lifecycle emissions reductions⁴ when fully replacing kerosene, depending on feedstock and process.

The Regulatory Push Toward Advanced SAF

Today, most SAF is produced via HEFA. These are essentially waste oils and fats like used cooking oil, which can be blended with traditional jet fuel to create aviation-grade fuel. However, HEFA is limited and mostly imported from Asia.

To reduce dependence on first-generation SAF, regulators in the UK and Europe are steering the industry towards advanced production pathways. Both the UK’s SAF Mandate and the EU’s ReFuelEU Aviation Regulation recently came into force and set a clear signal: that the future lies beyond HEFA. Two key routes dominate the pipeline:

Second-generation SAF: Fuels from waste and residues such as municipal solid waste or forestry residues. These feedstocks are familiar to the resources and waste management sector, but competition from energy recovery and biomass markets could limit availability.
Third-generation SAF (Power-to-liquid (PtL)): Synthetic fuels made using renewable electricity or low-carbon power to convert power into liquid hydrocarbons. These processes are energy-intensive and may compete for scarce renewable power.

Under the UK SAF Mandate, suppliers must blend 2% SAF into jet fuel by 2025, rising to 10% by 2030 and 22% by 2040.⁵ From 2027, suppliers will not be able to rely on HEFA alone to meet compliance, and by 2040 HEFA’s share will be capped at approximately 40% of SAF used in the UK.⁶

The EU has taken a different approach, focusing on PtL. It has set ambitious PtL targets: 0.7% of jet fuel by 2030, rising to 35% by 2050.⁷ For operators or suppliers straddling both jurisdictions, the message is clear, start planning for a future built on these advanced SAF technologies.

Opportunities in Advanced SAF

SAF offers a chance to turn residual waste streams into high-value products. Municipal solid waste, forestry residues, and industrial offcuts can become SAF feedstock, diverting waste from landfill and creating new revenue streams. In the UK, these opportunities should continue to grow under the UK’s proposed Revenue Certainty Mechanism (RCM), which intends to operate like a CfD-style scheme guaranteeing a strike price for SAF, funded by a levy on jet fuel suppliers. The RCM framework is set out in the Sustainable Aviation Fuel Bill, which is currently under review in the House of Lords. While the RCM could reduce revenue risk and help projects reach Final Investment Decision (FID) in the near future, its political durability and strike price adequacy remain uncertain.

The UK Government’s support is also significant. Earlier this year, the UK’s Advanced Fuels Fund awarded £63 million to 17 developers, following £135 million in earlier rounds. These pioneering projects use technologies such as gasification, Fischer-Tropsch synthesis, ethanol-to-jet, and PtL through electrolysis. Continued government grants and subsidies will likely assist the rate upon which these technologies can get up to scale.

Challenges and Risks in SAF Deployment

The majority of second and third-generation technologies are not yet proven at scale. Scaling these technologies will require complex, integrated and often FOAK plants combining chemical processing, power generation, and even carbon capture. These remain at pilot or early commercial stage and so the commercial viability and timelines of constructing plants of this nature are far from guaranteed.

Stakeholders involved in funding, designing, and constructing these plants should consider the following risks.

Technology Risk

Advanced SAF technologies are still in their infancy. Performance guarantees will be hard to secure, and lenders will demand strong risk mitigation. Employers and funders will seek to push liability down the chain, but contractors will invariably resist without clear risk-sharing mechanisms such as caps on liability and contract exclusions. Negotiating realistic performance guarantees and liquidated damages regimes at contract formation will be essential.

Supply Chain Issues

Critical plant components such as electrolysers, Fischer-Tropsch reactors, and carbon capture units are in short supply. Delays in procurement in one subsystem could have significant knock-on effects on project completion. Early procurement and contractual clarity on who bears procurement risk will be vital.

Integration Complexity

SAF plants combine multiple processes. Managing interfaces will require detailed FEED, clear commissioning regimes, and strong contractual integration. Traditional EPC models (i.e. where the EPC contractor holds sole responsibility) may not be feasible.

Certification and Compliance

SAF must meet strict aviation standards (e.g., ASTM D7566). Contracts should align performance testing and certification requirements across all packages. For second generation technologies using municipal solid waste, feedstock variability (as existing EfW plant operators will be all too familiar with) adds further complexity and will necessitate clear definitions of fuel envelopes and sampling protocols.

Fraud Risk

As demand increases for waste feedstocks required for the production of second-generation SAF, the risk of fraud also increases. SAF producers need to ensure that they have robust due diligence processes in place to verify the source and sustainability credentials of waste feedstocks.

Environmental and Policy Uncertainty

SAF production is energy-intensive and may compete for land, water, or renewable electricity. Policy support mechanisms such as the RCM could shift with political cycles, affecting investor confidence.

General Construction Risks

As with all major engineering projects, risks associated with unforeseeable delays, specification changes, payment disputes, and supply chain issues are invariably part of the construction phase. Contracts should address these risks at the outset and include resilient dispute resolution mechanisms (such as tiered dispute resolution) to address both routine and complex disputes.

Reputational Risk and Risk of Misleading Investors

The regulatory framework that applies to the production, supply and use of SAF (and other biofuels) is complex and the obligations under applicable SAF mandates may not be understood easily by consumers and investors. The advertising and promotion of SAF may give rise to legal risks under consumer protection laws and financial regulations.⁸

Conclusion

The SAF transition is not just an energy shift; it is a complex infrastructure challenge. Delivering second and third-generation technologies at scale will require rigorous planning, innovative contracting, and realistic risk allocation. These projects will test traditional delivery models, supply chains and technology performance.

Success demands realism: second and third-generation SAF technologies are not a silver bullet. Their future depends on overcoming cost, technology, and policy uncertainties. Those who anticipate these risks early and craft resilient contractual frameworks will be best placed to navigate any turbulence ahead.

Footnotes