Sustainable Aviation Fuel: On the Flight Path to Revenue Certainty – Part 1

Back in October 2025, the UK Government consulted on how to fund its proposed revenue certainty mechanism (RCM) supporting production in the UK of sustainable aviation fuel (SAF) (see our previous article). The government has now taken the next step in readying the RCM for take-off by launching a new consultation on its “minded to” positions on the proposed terms of the contracts for difference (which can be found here) which will deliver the RCM support to SAF producers and the rules that will apply for the first allocation round of the RCM contracts (known as SAF AR1).   

This article focuses on the indicative Heads of Terms (HoTs) provided with the consultation. We will shortly be publishing Part 2, looking at the proposed approach for SAF AR1.

Proposed Contract Terms 

As confirmed in January 2025, the government has elected to deliver the RCM using a Guaranteed Strike Price mechanism and a contract for difference. This approach (and many of the proposed contract terms) will be familiar to those with knowledge of the low carbon electricity contracts for difference (CfDs), the low carbon hydrogen agreement and the industrial carbon capture revenue support scheme.  

Under this approach, the SAF producer and a government-backed counterparty will enter into a private law contract which sets a price (Strike Price) that the SAF producer is guaranteed to receive for its qualifying volumes of SAF. A reference price (typically representing the market price of the SAF) will determine whether a payment is due from, or to, the relevant SAF producer. Where the reference price exceeds the Strike Price, the producer pays the difference to the counterparty but, where it is below the Strike Price, the producer is paid the difference by the counterparty. 

The HoTs provided as part of the consultation detail some of the proposed terms for the RCM contracts to be included as part of (at least) SAF AR1. Below, we have set 5 of the key areas to be aware of:

1. Term

It is proposed that the RCM support is provided for a maximum of 15 years, in line with other UK low carbon business models that also use a CfD approach to provide revenue certainty. 

The SAF producer will be required to satisfy certain conditions precedent (including achieving project milestones) before the commencement of the RCM support period and within a “Target Commissioning Window” (TCW) . If the producer is late in delivering the project, the period of revenue support will start to erode.

The HoTs include a Longstop Date (following the end of the TCW) for satisfying the operational conditions precedent which, if not achieved, may result in termination of RCM contract. This device is intended to allow (government's) committed funding to be redeployed rather than being tied up in projects with no realistic prospect of being commissioned. Extensions of time to the TCW and the Longstop Date are permitted for events of force majeure and certain delays to utilities and CO2 network connections.

The below figure (taken from the consultation) is helpful is illustrating the various periods and deadlines:

2. Calculating the reference price

The reference price is the benchmark against which the strike price is compared. This would usually represent the market price for the relevant product but as there is not currently a market price for non-HEFA SAF (i.e. SAF made from sources other than animal fats and cooking oils) there is currently no established market price. So, the government has proposed use of an alternative proxy for the RCM while the market matures. 

The consultation document sets out three alternative potential options for this proxy reference price: 

1. the higher of the achieved sales price and the price payable for conventional Jet A-1 fuel;
2. the higher of an achieved sales price and the price payable for HEFA SAF; or
3. Jet A-1 Fuel Price plus UK SAF Mandate certificate Price (per certificate earned)

The government has not provided a “minded to” position on which of these options to adopt and is seeking stakeholder views. It is worth noting that:

1. The Government has indicated that the achieved sales price would include both the value of the SAF as jet fuel, and the value of the SAF Mandate certificates that the fuel would be eligible for;
2. views are being sought on whether, if Option (1) is chosen, a premium should be added to the Jet A-1 fuel price to reflect the monetisation of carbon savings available to airlines using SAF due to the existence of compliance and voluntary carbon/offset markets (e.g., UK Emissions Trading Scheme, CORSIA, etc.); and

3. views are being sought on whether it is possible for the reference price to transition from the proxy to a reliable market price (once this is determined for the SAF market) during the term of the RCM contracts.

   3. Price Adjustments

The consultation also sets out several proposed incentives and price adjustments for the Strike Price. It states that:

1. the Strike Price is expected to be adjusted using CPI (in line with other similar low carbon business models) to safeguard against margin erosion as operational costs increase during the contract term
2. the government is minded to adjust the Strike Price depending on the carbon intensity (and therefore the savings) the SAF achieves as, if the RCM guarantees a fixed Strike Price irrespective of the saving, producers will not be incentivised to produce SAF with a carbon intensity that will deliver the UK SAF Mandate as efficiently as possible, undermining the policy intent
3. A number of options are being considered as an incentive to encourage producers to seek the best possible price for their SAF, and to support the emergence of a non-HEFA SAF market price. These “Price Discovery Mechanisms” include:

• Offering producers a financial incentive via a revenue bonus from the counterparty where their SAF has been sold at a higher price than a ‘floor price’.
• Providing producers with a guaranteed strike price for a proportion of their volumes (‘supported volumes’) and therefore expose any ‘unsupported volumes’ to market pressures, therefore incentivising producers to seek the highest possible pricing for non-HEFA SAF
• dictating how certain volumes are sold (e.g. either by a public exchange or a producer auction), and
• Imposing conditions for producers to sell their SAF on “reasonable, commercial arm’s-length terms.

4. SAF sales: caps, floors and restrictions

The HoTs propose a number of caps, floors and restrictions on SAF volumes sold:

1. the “Contract Sales Cap” – the maximum qualifying volumes of SAF which can be sold during the term of the RCM contract (i.e. 15 years) which will be eligible for the Strike Price payment. Once this limit is reached, there will be no further payments in relation to any SAF produced
2. the “Annual Sales Cap” – the maximum qualifying volumes of SAF which can be sold during a single year. This seeks to cap the annual liability under the RCM contract but is not intended to be 1/15th of the Contract Sales Cap and will allow an additional percentage of sales in any given year beyond that pro-rata amount to give producers some flexibility to account for operational variability and market fluctuations
3. the “Annual Sales Floor” – the minimum qualifying volume of SAF that must be sold in a year. If this is not met then the volumes of SAF sold by the facility will be deemed to be equal to the Annual Sales Floor, meaning that the amount of SAF eligible for difference payments over the lifetime of the contract is reduced. However, DfT is also considering other consequences for failing to meet this floor, including the use of shortfall payments

4. ”Qualifying Offtakers” and “Non-Qualifying Volumes (NQVs)” – the difference payment will only be payable to the SAF producer on volumes of SAF produced by the SAF facility, which meet the sustainability criteria and are sold to a “Qualifying Offtaker”. The HoTs envisage several classes of non-qualifying offtakers including a class aimed at preventing SAF producers receiving difference payments in respect of SAF which is exported outside of the UK. However, where NQVs are sold in excess of the Strike Price, the producer must still pay any Strike Price excess to the counterparty.  

    

5. Sustainability Criteria

The HoTs propose that RCM contracts will be underpinned by the same sustainability criteria as the UK SAF Mandate. However, as the SAF Mandate is a regulatory instrument that could be subject to amendment over time there is a need to consider how to manage any misalignment which appears in the event that the sustainability criteria in the mandate are updated. 

The consultation is therefore seeking views on whether the sustainability criteria in the RCM contract should remain the same throughout the term of the RCM contract (i.e. the SAF mandate criteria would “grandfathered”), be updated in line with the SAF mandate or, even, whether there should be any criteria at all.

Next steps

At this stage, the HoTs remain indicative and, whilst it sets out a number of “minded to” positions, the consultation seeks responses from stakeholders to inform the final decisions. The consultation closes on 3 April 2026 and the government anticipates that the required legislation to implement the RCM will be laid by the end of 2026, including any associated regulations. 

If you would like support from us in reviewing the HoTs and providing a response to the consultation or any further information, or advice related to any of the information in this article, then please contact Nick Churchward, Greg Fearn or your usual Burges Salmon contact. 

This article was written by Nick Churchward, Greg Fearn and Sasha Anisman.

The government is committed to decarbonising aviation in support of our missions to kickstart economic growth and make Britain a clean energy superpower, and to achieve our legislated climate targets.

https://assets.publishing.service.gov.uk/media/6964e5b15534c732221e0d69/saf-rcm-heads-of-terms-approach-contract-allocation.pdf