British Airways owner International Consolidated Airlines Group agreed to buy sustainable aviation fuel from Velocys Plc (AIM:VLS)'s planned Bayou Fuels biorefinery project in Mississippi, USA.
The non-binding agreement is for an expected 73mln gallons of the fuel. A definitive deal will hopefully be agreed within the next six months, which will include an option for IAG to invest in the project development stages.
Bayou Fuels will take waste woody biomass and convert it into sustainable aviation fuel and naphtha using Velocys’ proprietary reactors.
IAG, which has been a backer of the Oxford University spin-out for many years, last year contributed part of a £1mln funding round for Velocys' Altalto waste-to-fuels project, which plans to convert hundreds of thousands of tonnes per year of residual waste into sustainable fuels, mainly aviation fuel.
Today IAG chief executive Luis Gallego said the Anglo-Iberian company has plans to invest US$400mln in the development of sustainable aviation fuel in the next 20 years.
"This new agreement is another important step towards achieving our goal of 10 per cent sustainable aviation fuel use by 2030," he said.
Velocys also agreed a first offtake agreement for the sustainable aviation fuel with Southwest Airlines, which agreed to purchase an expected 219mln gallons of fuel over a fifteen-year term starting as early as 2026, when the biorefinery is scheduled to begin commercial delivery of fuel. After blending, this will enable approximately 575mln gallons of net zero SAF.
Velocys chief executive Henrik Wareborn said: "We are delighted that IAG, our partner for many years through our work with British Airways, intend to purchase a large volume of SAF from the Bayou Fuels project. This long-dated offtake, encompassing support for environmental credits, will provide certainty of revenue for the project which should enable construction capital financing. We have now secured long term offtake clients for 100% of the expected SAF production and associated environmental credits for the Bayou Fuels facility."
On Southwest he said the agreement was a major milestone for the project: "It is very encouraging to see Southwest make such a strong commitment to using fossil free fuel as part of its environmental sustainability plan and to see Velocys technology performing a central role in making this possible."
The Bayou Fuels project plant is designed to produce approximately 22mln US gallons per annum of SAF, which in turn after blending will produce approximately 57mln US gallons per annum of net zero SAF under US regulations.
It will incorporate carbon capture and storage (CCS) to enable the commercial-scale production of the air fuel with an "extremely negative" carbon intensity, with CCS and renewable power designed to maximise incentives derived from the California Low Carbon Fuels Standard and US 45Q tax credits.
Project financing for the final engineering phase of the Bayou Fuels project is targeted to occur in the first half of 2022.
Velocys shares have soared 39.37% or 2.42p to 8.85p.