SAF Association calls for using used cooking oil to produce sustainable aviation fuel

Collecting 15% of commercial Used Cooking Oil (UCO) could yield ~1.36 million tonnes of Sustainable Aviation Fuel (SAF) annually, exceeding India's estimated 0.8 MMT SAF demand for a 5% blending target by 2030. SAFA recommended UCO be eligible for EPR benefits, stronger collection across restaurants/hotels/catering and urged fast-tracking a SAF blending roadmap of 1% by 2027, 2% by 2028 and 5% by 2030; India currently collects only ~6% of available UCO from ~29 Mt edible oil consumption. The association highlighted long-term potential for India to produce up to 40 Mt SAF by 2050, creating $40–50 billion in annual economic value.

Analysis

Building out UCO collection is not just a feedstock story — it creates a new logistics arbitrage that will reprice last-mile collection services, cold-chain/containers and quality-assurance testing. Firms that already run dense urban route networks can monetize marginal economics from collections (low incremental capex, high route density) and will outcompete stand‑alone collectors; expect consolidation in the next 12–36 months as route scale drives unit cost below small-collector breakevens.

On feedstock pricing, formalising UCO as a commercial commodity will decouple its pricing dynamics from crude vegetable oils and create a two-tier market: premium-clean UCO for SAF/upgrading units and lower-grade streams for commodity biodiesel. That split increases processing capex for downstream converters (more pre-treatment, QA, and warranty exposure), boosting returns to flexible converters while penalising single-path biodiesel outfits.

Strategically, integrated refiners and technicians who can blend multiple waste streams into HEFA/ATJ pathways gain structural optionality; waste managers and logistics integrators capture recurring cashflows. Conversely, small regional biodiesel plants and unregulated collectors face margin compression and compliance risk as traceability and certification standards tighten — expect asset stranding in the weakest operators over 24 months.

Key catalysts to watch are enforceable collection KPIs, EPR rollout details (crediting and penalties), and early long-term offtake contracts from airlines; these will compress financing costs for build‑out. Tail risks: fraud/contamination spikes, rapid substitution by cheaper MSW/PTL pathways, or delayed enforcement — any of which could invert the economics within 6–18 months and leave capacity underutilised.

Key Decisions for Investors

• Long NESTE (NESTE.HE) — buy into a 12–18 month thesis around feedstock-flexible SAF producers; target +30% upside, stop-loss -15% (headline oil shocks are the main downside risk).
• Long VLO (Valero) — 6–12 month trade to capture conversion and offtake optionality as mandates firm; aim for +25% return, size 3–5% portfolio, stop -20% on weak crack spreads.
• Long WM (Waste Management) or RSG (Republic Services) — 9–15 month exposure to formalised urban collection economics; expected steady mid-teens IRR uplift to route monetization, downside -10% on regulatory setbacks.
• Speculative: Long GEVO (GEVO) — 18–36 month call-overlay for high beta SAF exposure if mandate trajectories accelerate; asymmetric payoff (3–5x upside vs >50% downside), cap position at 1–2% of portfolio as a volatility play.