Gevo (NASDAQ: GEVO), the renewable fuels company and major sustainable aviation fuel (SAF) producer, announced in an update that it now has agreements with multiple partners to deliver approximately 375 million gallons of SAF and other hydrocarbon fuel annually.
The take-or-pay agreements represent approximately $2.3 billion in expected annual sales, and will allow Gevo to ramp up infrastructure to meet demand.
“We are excited to get on with building out capacity and getting the product to the market at commercial scale,” said Dr. Patrick Gruber, CEO at Gevo.
The company said it would need to build multiple plants over the next four years to meet customer agreements. So far, partners include U.S.-based airlines Delta Air Lines, American Airlines, and Alaska Airlines, and overseas carriers such as Finnair, Japan Airlines, British Airways, Aer Lingus, and SAS. It also includes oil-trading company Trafigura and oil manufacturer Kolmar.
Inflation Reduction Act a Game-Changer
Gevo’s quest to produce more SAF comes in the wake of the Inflation Reduction Act (IRA), which was passed into law in August and includes tax provisions for SAF producers to boost production.
The IRA allocates a $1.25 per gallon tax credit for each gallon of SAF sold. In order to claim the credit, however, SAF producers must demonstrate that the fuel can cut greenhouse gas (GHG) emissions by 50 percent as part of a qualified mix compared to regular jet fuel.
“The passage of the Inflation Reduction Act is a game changer and is expected to reward companies like ours that drive to net-zero emissions,” Gruber said.
The U.S. Department of Energy (DOE), the U.S. Department of Transportation (DOT), the U.S. Department of Agriculture (USDA), and other federal government agencies have set a Grand Challenge to boost research, development, and production of SAF. The goal is to get to 3 billion gallons per year by 2030 and 35 billion gallons per year by 2050.
Currently, global SAF production is a minuscule 26.4 million gallons a year—about 0.1 percent of all aviation fuel.
Gevo Breaks Ground on Net-Zero 1 Facility
To support its endeavor, Gevo recently purchased and broke ground on 240 acres of land near Lake Preston, South Dakota, to launch its Net-Zero 1 (NZ1) facilities. The site was attractive because of its abundant, sustainable corn supply, high-protein feed demand, rail transportation, and renewable energy potential. Gevo says it hopes the facilities will allow it to produce 55 million gallons per year (MGPY) of SAF, which is about 14 percent of its 375 MGPY target.
Moreover, with the tax credit in place, the company said that the site would yield as much as $ 300 to $325 million per year in earnings, up from the prior estimates of $200 million per year.
At the same time, construction costs are on the rise, the company said. Building the facility could cost as much as $850 million, up from $640 million, owing to the rising cost of steel, equipment, and other supply chain issues. The company is now looking for other locations like NZ1 to boost its efforts.
“Our team will take all that we have learned, and continue to learn, from the design and construction process for NZ1 and leverage that growing knowledge base as we plan and design each subsequent plant,” Gruber said. “NZ1 is going to demonstrate how a commercial scale SAF plant can achieve net-zero greenhouse gas emissions.”