Unlocking the future of clean transport

As the world shifts towards cleaner energy sources, sustainable liquid fuels (SLFs) are emerging as a promising solution to decarbonise the transport sector. These fuels, with low net carbon emissions, have the potential to replace conventional fossil-based fuels like diesel, petrol, and kerosene. They can be produced in many ways and, in some instances, can also be used in lieu of fossil-based alternatives, with minor or even no adjustments required to engines, assets and support infrastructure.

Figure 4: Most common sustainable liquid fuel pathways by feedstock and end product

The key to decarbonising transport

The European Union's ambitious climate targets, outlined in the European Green Deal and the Fit-for-55 initiative, set a course for significant decarbonization by 2030 and carbon neutrality by 2050. With a focus on reducing emissions from the transport sector, the EU has introduced sector-specific goals and policies. Key strategies include incorporating transport modes into the EU Emissions Trading System (EU ETS) and enhancing renewable energy usage.

To achieve these objectives, policies such as the ReFuelEU Aviation initiative and FuelEU Maritime have been introduced, mandating the use of sustainable liquid fuels in aviation and maritime sectors. The demand for these fuels is expected to rise substantially, driven by regulatory requirements and voluntary commitments. However, meeting this demand will require substantial investments in production capacities, with estimates surpassing €50 billion by 2035.

While there's a growing interest in sustainable fuel production projects, the current pipeline may fall short of meeting future demand, largely due to the complex nature and typical failure rates of large energy infrastructure projects. To address this shortfall, urgent expansion and maturation of the project pipeline are needed, along with targeted public support to overcome regulatory and market challenges. What are the challenges facing the financing of sustainable liquid fuels, and how can we overcome them?

An EIB Advisory Study sheds a light

EIB Advisory published a comprehensive study titled “Financing Sustainable Liquid Fuel Projects in Europe: Identifying Barriers and Overcoming Them”, delving into the intricacies of SLF projects, focusing on 34 companies across various roles within the European SLF sector. These roles include technology providers, developers, investors, and public bodies.

The study reveals that SLF projects encounter several barriers when seeking the necessary financing. These include, among others, market and technology risks, which limit access to non-recourse lending. Without adequate financing, Europe’s SLF production capacity remains constrained, hindering the transition to cleaner transport options. Additionally, the lack of capital to cover project development costs contributes to the current shortfall in Europe’s SLF project pipeline.

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Figure 10: Key perceived market challenges

Recommendations to unlock financing for SLF

The study proposes actionable recommendations to address these challenges. By fine-tuning existing EU and EIB financing mechanisms, we can better support SLF projects. Moreover, the creation of new EIB Group products—such as credit enhancement mechanisms and equity funds—specifically aimed at financing project development costs can bridge the funding gap. Educating SLF project developers about available financing products and mechanisms is equally crucial. Advisory support can also play a crucial role to accelerate access to finance for SLF projects and foster the uptake of these fuels within the European Union. To find out more, check out the study and get in touch.

Figure 11: Recommendations for overcoming barriers and facilitating access to finance for the sustainable liquid fuels sector

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