Sustainable Aviation Fuel Bill

Debate between Lord Harper and Lord Ravensdale

Committee stage
Wednesday 10th December 2025 Lords Chamber

[Lord Ravensdale (CB)]

My Lords, I shall speak to my Amendments 1, 5 and 6, and Amendment 3 in the name of the noble Baroness, Lady Bloomfield. I declare my interests as a chief engineer working for AtkinsRéalis and as co-chair of Legislators for Nuclear.

Turning first to Amendment 5, I listened carefully to what the Minister had to say at Second Reading on this matter and was pleased to hear some clarification on competitive allocation. Of course, to get the market moving, most contracts will initially be likely to be bilateral between the counterparty and the SAF provider, but the legislation must be future-proofed.

We had a lot of discussion in the other place and at Second Reading here on the effect on air fares of this legislation. The way to bring costs down and deliver value for money is, of course, through competition. In the longer term, we need a mechanism similar to offshore wind whereby a strike price and an auction are put in place. That would apply the right competitive pressure to the markets and put downward pressure on costs. All other similar government legislation—for example, the Energy Act 2023 for hydrogen carbon capture and storage, and the Energy Act 2004 for offshore wind—include such provisions, but the Bill does not. Clarity on how this competitive process will be set out is important, so I propose this amendment.

Amendment 5 is based upon Section 76 of the Energy Act 2023, but it has been tweaked so that, rather than spelling out all the things regulation might cover, I give the Secretary of State the power to make rules. This reduces the complexity of the other Acts by avoiding the need to table complex secondary legislation and instead covers this through a rule-making power. Through the framework, the amendment also allows the Secretary of State to make decisions on aspects such as the process of producing SAF, the outputs and, critically, the location of production, which feeds into some of the amendments in the next group.

Overall, Amendment 5 is an opportunity for the Government to clarify the overarching strategy of the Bill in moving from bilateral negotiation to competitive allocation by embedding competition within the Bill. This would clarify the Bill and ensure that the benefits of competition in lowering costs are taken forward.

Turning to Amendment 6, there is another opportunity here for the Government in aligning the Bill with the SAF mandate order. The strategic nature of power-to-liquid fuel, or third-generation SAF—eSAF—has been recognised by the Government. In the SAF mandate order, there is a table that specifies by calendar year the percentage of SAF that must be in power-to-liquid form.

It is crucial that the revenue certainty mechanism secures enough eSAF production capacity to meet the SAF mandate in the UK; otherwise, there is a real risk that the mandate will not be able to be met due to global scarcity. Analysis from the Transport & Environment NGO shows that the UK cannot rely on eSAF imports from the EU, for example, to meet the SAF mandate, as planned EU production capacity is just enough to meet EU regulations. That shows the importance of aligning the revenue certainty mechanism with the SAF mandate order.

In Amendment 6, I am proposing to take aviation fuel demand in the UK, which is around 10 million tonnes per year—that figure is at the lower end of aviation fuel demand over the past couple of decades and is taken from ONS data—and multiply that figure by the percentages in the SAF mandate order.

The amendment would help the Government to ensure that the revenue certainty mechanism and domestic SAF production delivers the quantities of power-to-liquid fuel that are required to meet the SAF mandate. Critically, it would ensure that we have join-up between these two parallel pieces of legislation and that the revenue certainty mechanism is joined up with the SAF mandate order.

I will also speak to Amendment 3 in the name of the noble Baroness, Lady Bloomfield. This amendment, which is very straightforward, proposes a modification to the SAF revenue certainty contract having a default length of 10 years in that it would extend it to 20 years. This is particularly of interest for nuclear-derived SAF. If a SAF offtake is to support the investment in a nuclear power station like an electricity offtake agreement does today, revenue certainty beyond 10 years is highly likely to be required. Ten years’ offtake of SAF is too short to be bankable and is likely to block a SAF developer from supporting investments in nuclear new-build projects, as they would need to do in order to comply with the SAF mandate. This amendment is to probe whether a change to the 10-year period is required for certain classes of projects or whether the option of longer-term contracts is open in the existing legislation. I beg to move.

[Lord Harper (Con)]

My Lords, I rise to speak briefly to this group of amendments. I strongly agree on the importance of having a proper framework for these contracts and a competitive process. The lesson from the energy market is that that competitive process is important to make sure that we achieve the policy objective, which is the production of the fuel, but at the lowest possible cost, which in the end will be passed on to consumers, so having some sort of competitive process is very important.

Two amendments in this group are potentially conflicting. I understand the argument in favour of allowing a longer contract period, particularly for nuclear-derived power-to-liquid fuel, as the noble Lord said, but equally, I would not want that to be the automatic default for all these contracts. I was struck by the amendment from my noble friend Lord Moylan about making sure that it is possible for the Government to exit from these contracts. From my point of view, the attraction here is just to make sure that we learn one of the lessons from the energy market. There is a balance to strike here. We want long-term contracts to give the certainty to the investors and those going into first-to-market plants in the UK to produce this, but we do not want to lock in contracts longer than necessary but potentially at a point where the market price is lower and we are effectively holding the price higher than it needs to be. We have learned some lessons from how that works in the energy market. The amendments on the paper may not be the right way of doing that.

The Minister referred in his speech at Second Reading to the contracts for difference models from the energy market. When he winds up this group, I would be interested to hear what the Government have learned. What detailed work has been done about getting these contracts right at the outset but also enabling them to be flexed as the circumstances change, so that we get the right level of price protection which is necessary to get the initial investment and produce investor certainty but do not keep it going past the point at which investors are making returns above what was necessary to get them to invest? Obviously, you cannot change those rules retrospectively, so it is about getting the right level of certainty. I will be interested to hear what the Minister has to say there.

I am supportive of the thrust of the noble Lord’s Amendment 6 on power-to-liquid fuels. The only thing I would quibble with is that it has a “must” in it; I do not know the likelihood of this, but I would not want to force the Government to enter into revenue certainty contracts that were not necessary to produce. If we had producers producing enough of that third-generation sustainable aviation fuel, I would not want to force the Government into having to enter into unnecessary revenue certainty contracts. Therefore, I support the thrust of the noble Lord’s argument, which is to make sure that enough of the third-generation SAF is produced to meet the requirements in the mandate, but I would not want the Government to be forced to do that. So the wording in the amendment just needs something which says that they only have to do that if not doing so would not allow that level of fuel to be produced for the market.

[Lord Ravensdale (CB)]

I thank the noble Lord for his comments on the amendments. I would certainly be open to what he is saying about the wording in that amendment. I will just say that the way we have structured this amendment is to provide 1 million tonnes of oil equivalent figure. We have tried to do it using a floor mechanism, so we looked at the total aviation fuel demand in the UK over the past 20 years or so, took the lowest figure and simply multiplied that by the percentages in the SAF mandate order. I hope that by providing that floor mechanism, there is that flexibility there, but I certainly take his point about the wording.

[Lord Harper (Con)]

I am grateful to the noble Lord for that clarification. As I said, I certainly agree with the thrust of his amendments; I just would not want there to be a legislative mandate for the Government to do something that proves to be unnecessary. Again, I think we need to understand from the Minister what is the appropriate amount of flexibility for the Government to have in practice, because we want the Government to use the lessons from those contracts and to have the appropriate level of negotiating space to strike the best deal for aviation consumers. However, we also want to make sure that the Government do not give away unnecessary amounts of consumers’ money that is not necessary to produce the results.

Overall, the amendments in this group are helpful in enabling us to have that debate and to just test what lessons we have learned from the way these sorts of contracts work in the energy market, but also the amount of negotiating space that Ministers will need when they are directing the counterparty to strike the best possible commercial deal.