De-Risking Fischer-Tropsch SAF at Scale: What Actually Moves IRR

De-risking SAF at scale requires balancing CapEx, OpEx, feedstock, policy, and offtake dynamics to optimize IRR

Introduction: IRR as the Compass for Capital Allocators

Institutional investors and senior decision-makers in aviation decarbonization circles understand that Fischer-Tropsch (FT) sustainable aviation fuel (SAF) is no longer a science experiment. It is a question of capital allocation. As we move into the second half of the 2020s, the projects that succeed will be those that align investor IRR with operational resilience.

But “de-risking” SAF at scale is often misunderstood. Too often, the conversation narrows to technology readiness levels, or the carbon intensity scores that help a project qualify for credits. The reality is that IRR — the metric that ultimately governs capital flow — is shaped less by what the technology promises and more by how the ecosystem behaves around it.

In this piece, we go beyond the data room and into the practical lessons: what actually moves IRR in FT SAF projects, why execution is as critical as policy, and how investors can position themselves in a sector that will be tested by fragility and volatility.

IRR — More Than a Spreadsheet Outcome

For most capital allocators, IRR is the outcome of discounted cash flow modeling. But in SAF, especially with Fischer-Tropsch, IRR is the frontline filter. If a project cannot cross an acceptable IRR threshold (often low to mid-teens for infrastructure-grade capital), it won’t survive IC review.

Key drivers that shape IRR in SAF include:

• Feedstock costs and variability — availability of waste lipids, biomass, or municipal solid waste at contracted terms.

• Policy supports and their durability — credits, mandates, or grants can evaporate faster than project finance timelines.

• Execution risk — delays in permitting, construction, or commissioning can erode IRR faster than any policy cut.

• Offtake agreements — the ability to lock in long-term SAF pricing with airlines or intermediaries is often the single most decisive lever.

In short: IRR is not a number. It is a reflection of resilience across technical, commercial, and political layers.

Feedstock Economics Beyond the Model

The Illusion of Static Assumptions

Many FT SAF models assume fixed feedstock costs indexed to inflation. Real-world experience shows otherwise. Feedstock is dynamic, politicized, and in many cases already claimed by other value chains (renewable diesel, biogas, chemical recycling).

• Competition for lipids and biomass: Existing HEFA plants already absorb waste oils at scale, leaving FT plants to rely on less-preferred biomass streams.

• Emerging feedstock bottlenecks: Municipal solid waste and forestry residues may appear abundant but require aggregation, logistics, and policy clarity.

Optionality as a Shield

Projects that build feedstock optionality — multiple qualified streams, flexibility in feed preparation, and modular procurement strategies — will sustain stronger IRRs. In contrast, projects locked into a single stream often see IRRs collapse when that stream dries up or reprices.

This is where investors must look: not just at the headline feedstock contract, but at the clauses, backstops, and flexibility engineered into it.

Policy Volatility and the Fragility of Incentives

Policy is the scaffolding on which SAF projects rise. But scaffolding is temporary by design.

• In the U.S., the Inflation Reduction Act (IRA) provided unprecedented incentives, only to see key provisions repealed or restructured under the One Big Beautiful Bill Act (OBBBA, 2025).

• In Europe, Fit for 55 mandates coexist with growing pushback from airlines and policymakers grappling with inflation and voter fatigue.

• CORSIA’s global framework offers credibility, but compliance markets remain fragmented.

The lesson for investors is clear: policy dependence is a fragility. IRR projections must bake in downside cases where incentives taper, credits devalue, or compliance timelines shift. Projects that integrate resilience — via offtake floors, diversified markets, or even hedging strategies — are those that survive.

Execution Lessons from Market Attempts

Quiet Failures, Subtle Signals

Not all lessons are written in headlines. Several FT pilots in the U.S. and Europe demonstrated high conversion efficiency but stalled before scaling — often due to cost overruns in EPC execution or the inability to secure offtake agreements at bankable prices.

Success Through Incrementalism

Meanwhile, some hybrid facilities (co-processing FT waxes with petroleum streams, or piloting modular FT reactors) have shown that incremental approaches reduce execution risk and preserve IRR. These projects are not perfect, but they reveal the trajectory: scale comes not from one leap, but from many disciplined steps.

For allocators, the lesson is to interrogate not just the technology, but the execution track record of the teams involved — including their ability to manage contractors, negotiate offtakes, and navigate permitting.

Capital Stack and Offtake Structures

A Fischer-Tropsch SAF plant is not bankable until its capital stack and offtake are aligned.

• Debt vs. equity ratios: IRR sensitivity hinges on whether projects can achieve infrastructure-grade leverage (60–70% debt). Without it, equity IRRs dilute rapidly.

• Offtake certainty: Airlines are vocal about decarbonization, but few commit to 15-year take-or-pay contracts without backstops. The projects that succeed often involve intermediaries, credit enhancements, or government guarantees.

• Credit monetization: LCFS, RINs, and future aviation-specific credits represent upside — but must be modeled as bonus IRR, not baseline.

This is where many promising projects falter: they underestimate the time, negotiation, and financial engineering required to convert MOUs into binding contracts.

Strategic Positioning for Investors

For allocators, the question is not whether FT SAF is technically feasible — it is whether projects can cross the IRR threshold amid fragility. The framework for positioning:

1. Interrogate feedstock optionality — does the project rely on one stream, or can it pivot?

2. Test policy downside — can the IRR hold if credits fall by 30–50%?

3. Evaluate execution competence — what evidence exists beyond pitch decks?

4. Scrutinize offtake rigor — is it a signed, enforceable contract or a non-binding MOU?

5. Map fragilities — from supply chain shocks to ESG fatigue — and assess how they are mitigated.

This is the investor edge: to see not just what is promised, but what is protected against failure.

Conclusion — Toward Resilient Returns

De-risking Fischer-Tropsch SAF is not about eliminating uncertainty. It is about recognizing where IRR is truly made and lost. Projects that sustain returns will be those that absorb shocks — feedstock volatility, policy reversals, execution delays — and emerge bankable.

For investors and policymakers, the call is clear: the winners in SAF will not just be the next big projects, but the next resilient systems.