SAF update: Revenue Certainty Mechanism and its funding

In January 2025 the UK government published its response to last year's consultation on the possible forms of a SAF revenue certainty mechanism, which confirmed the government's decision to implement a Guaranteed Strike Price (GSP) model to help attract the necessary long-term funding to support the SAF industry meet the demand generated by the UK SAF Mandate.

As anticipated in the government's January response, in March 2025, the UK government initiated a consultation to seek the views of stakeholders on how the revenue certainty mechanism will be funded. The government has proposed for the revenue certainty mechanism to be funded by industry, preferably by introducing a levy on jet fuel suppliers. In addition to reducing risk for SAF producers, the revenue certainty scheme aims to limit costs and protect consumers from significant cost increases.

This article explores how the GSP model works, why it was selected, the key considerations for its implementation, and how it is proposed that the revenue certainty mechanism will be funded.

How GSP works and why it was chosen

The GSP model provides revenue stability by ensuring SAF producers receive a fixed price per unit of fuel through private law contracts with a government-backed counterparty.

• If the market price falls below the agreed strike price, the counterparty compensates the SAF producer for the difference.
• If the market price rises above the strike price, the SAF producer repays the difference to the counterparty.

The GSP model was chosen as the preferred revenue certainty mechanism because, when compared to the possible alternatives,  it was seen to provide the highest level of investor confidence with the private law contract with a government-backed counterparty protecting against potential policy changes and legislative uncertainty.

To implement the GSP model, the government aims to leverage the experience of contracts for difference (CfD) used in the renewable power sector which were first introduced over a decade ago. Although the existing CfD model will need to be adapted to cater for the differences between energy and fuels (such as the absence of a national grid), the government believes that the precedent set by CfD in the low-carbon energy sector demonstrates that the GSP model can (i) effectively attract investment, (ii) offer a clear and predictable claim process, and (iii) ensure fair risk-sharing, making it the most viable option for scaling UK SAF production.

GSP contract considerations

While the response identified the GSP as the government's preferred revenue certainty mechanism, key elements of how the mechanism will operate remain unclear.

1. Scope: In their response to the consultation stakeholders raised concerns about the scope of the GSP mechanism, including whether it should cover: (i) SAF produced in the UK but exported, (ii) hydrogen from the Hydrogen Production Business Model, and (iii) all production costs, including electricity and feedstocks.
2. Duration: Responses also questioned the appropriateness of the proposed 10-15 year contract length, suggesting that different durations based on technology type (such as nuclear-derived power-to-liquid (PtL) SAF) or dividing contracts into stages to support varying SAF volumes. Other concerns included contract flexibility, differential treatment for SAF technologies, feedstock supply, and incentives for competitive pricing.
3. Allocation Method: While the government sought feedback on the preferred method of allocating GSP contracts (such as through market-led proposals, tendering processes, competitive auctions), no strong preference was expressed in the responses to the consultation. However, many respondents suggested bilateral negotiations or a tendering process for early rounds, transitioning to competitive auctions as more projects enter the market. Some recommended grouping SAF technologies into separate categories based on costs and emissions. Concerns were raised about ineffective selection criteria allowing underdeveloped projects to bid. Standardised pricing received little support due to varying SAF production challenges.

The government acknowledged these complexities and said it will work with stakeholders to ensure a balanced approach that supports investment, affordability, and sustainability, while refining key policy details.

The consultation also considered which entity should act as the counterparty to manage GSP contracts. While some respondents suggested alternative bodies such as the Civil Aviation Authority, the Low Carbon Contracts Company (LCCC) emerged as the preferred choice, backed by most respondents due to its credibility, financial strength, and experience with CfD scheme. The government has confirmed that it will work with LCCC to integrate best practices from CfD into the GSP scheme.

Industry funding for the revenue certainty mechanism

Consistent with the "polluter pays" principle, the government has confirmed its position that the revenue certainty mechanism should be funded by the aviation industry. Industry funding would need to cover the cost of payments issued under a GSP mechanism and the costs incurred by the counterparty to administer the scheme.

The government's proposed approach is for the GSP mechanism to be funded through a variable levy on aviation fuel suppliers that would cover the cost of payments to SAF producers and the cost of administering the scheme. The consultation notes that the proposed approach is similar to that taken for other schemes where industry provides funding support for low carbon technologies (such as the Electricity Supplier Obligation where a levy is imposed on licensed electricity suppliers to fund the CfD scheme for renewable energy projects).

The aviation fuel suppliers that would be subject to the levy would be consistent with those suppliers that are subject to the SAF Mandate (ie suppliers owning 15.9 terajoules or more of aviation turbine fuel at the duty point for use in the UK, during a calendar year).  Individual contributions for each obligated supplier would be determined by market share, with the period for calculating market share and scheme costs to be determined.

It is envisaged that a forecast will predict the expected scheme costs over a specified period and determine each supplier's contribution in advance of payment.  The levy will include a 'reserve payment' to cover any minor divergences from the forecast.  The levy amount can adapt and change between collection periods and where an interim levy is collected based on forecasts, there would be a reconciliation based on actual data.

Ahead of any scheme introduction, the government intends to further consult and engage with industry regarding the detail of how the levy will work in practice.

Costs associated with the revenue certainty mechanism

Under the proposed levy on suppliers of jet fuel, UK fuel suppliers' costs include the difference between the agreed strike price and the market price of SAF when the SAF price is lower than the agreed strike price. This cost is additional to the price of purchasing SAF under the SAF Mandate.

The reality of the GSP mechanism is that fuel suppliers will see the effective price of the SAF volumes that are covered under the revenue certainty mechanism fixed at the strike price. Low SAF prices will result in higher revenue certainty mechanism payments for UK fuel suppliers.

To limit the cost impacts of the revenue certainty mechanism, the scheme's liability can be managed by agreeing the strike price within contracts and limiting the support to a pre-determined volume of SAF. The GSP mechanism is only intended to provide interim support to help establish inaugural plants in the UK and deliver the UK SAF mandate targets. The government has indicated that it will continuously monitor the impacts of the scheme to ensure that they are not disproportionate.

Next steps

The government has decided that the initial tranche of GSP contracts will be awarded to UK SAF projects utilising non-hydroprocessed esters and fatty acids (HEFA) technologies. This is due to the comparative maturity of HEFA-based SAF and the current supply and availability of HEFA fuel. By focusing on non-HEFA technologies, the government aims to encourage the development of advanced SAF production methods.

The eligibility criteria and the quantity of available contracts will be published by the government as soon as possible for business planning and viability.

The Government has reiterated its commitment to working closely with industry and other stakeholders to finalise details of the GSP contracts, the allocation method, and scheme administration. The Sustainable Aviation Fuel Revenue Support Bill was announced during the King's Speech on 17 July 2024 and the government has confirmed that its aim is to have all required legislation for the revenue certainty mechanism in place by the end of 2026, allowing GSP-backed contracts to be awarded as soon as possible.

Responses to the March 2025 industry funding consultation process will be considered when drafting the provisions of the Sustainable Aviation Fuel (Revenue Support Mechanism) Bill to implement a revenue certainty mechanism and any subsequent regulations.