Q Good afternoon, Mr New. Fast-forwarding from your review to where we are today, is there anything that you wanted to see, that you recommended or that you found in that review, that is lacking in the Bill that this Committee is considering? If that is the case, how would you improve it—or is this the mechanism that you think will pump-prime the UK SAF industry?
Philip New: The main conclusions from the report that I did were, first, that the SAF mandate as laid out—it was at a slightly more formative stage then than it is now—was a really smart way of trying to define the market mechanisms, the targets and the obligations framing a new market. The question then was what other mechanisms would need to be in place, having got the demand side largely mapped by the mandate, to enable supply to occur.
My first thought when I saw the RCM was that there was very little that was needed: if you believe that the market will be short of SAF, as many people do, with a buy-out price and a target, you would expect the product to price close to the buy-out price—that which is available. That sends a very strong price signal to investors. I was unfortunately thinking of that from my historical perspective as a strategic investor and had underestimated the conservatism of the banking community. It was clear to me that they were pushing very hard—perhaps because they had grown very comfortable with the idea of a CFD in other parts of the green transition—and they were really enthused and insistent on the idea of a revenue certainty mechanism. The way that the RCM has emerged so far is very highly aligned with the proposals that emerged in that original report. From that point of view I would say, “So far, so good.” The mandate is evolving well and the RCM feels pretty much where it needs to be.
The questions that are still out there, as I think Josh Garton was referring to, are specific to very first-of-a-kind technologies. Part of the issue with the second-generation products is that, while the feedstocks are already wastes, they are often already being used in other sectors. There needs to be, I think, some greater degree of comfort to enable some of those wastes to be bid away without wrecking the project economics of the SAF developer. A good example is black bin waste. The prospect is that by having more competition for black bin waste, we reduce costs for local authorities. It is really nice if we can get there, but for now, while these technologies are so uncertain and regarded as such a risk, it is difficult for local authorities to commit to them with enthusiasm, because they are afraid that they will end up paying landfill fees if they do not manage to do it.
That is one example suggesting that there should be some more comfort around feedstocks. The rest of the answer are the mechanisms that could be put in place to smooth some of the risk around the very first projects. The risks there are around integrating new technologies for the first time and then getting through some of the operating teething problems, because everyone involved will be coming across those issues for the first time. It took me about four years to get a much simpler plant up and running to a point of satisfactory operation. We should not underestimate the challenges of getting those initial assets over that first set of hurdles, but the RCM is an absolutely necessary part of the mix that needs to be put in place.