Specifically, Delta (NYSE:DAL) has greatly expanded its deal with Gevo, while the aviation industry is moving more quickly than I thought it would to embrace fuels with low-carbon emissions. Finally, I’ve learned that it’s much easier to adapt planes to biofuels than to hydrogen.
Given these points, I believe that investors looking for a means to play the energy transformation can consider buying a relatively small amount of GEVO stock.
On March 22, Gevo announced that it had agreed to supply “75 million gallons of sustainable aviation fuel,” or SAF, to Delta annually for seven years. Under the companies’ previous deal, Gevo had provided 10 million gallons of SAF each year to Delta.
Delta’s decision to increase the amount of SAF that it’s purchasing from Gevo represents a tremendous vote of confidence in Gevo and its SAF. Additionally, the deal will supply Gevo with a meaningful amount of revenue and will encourage other airlines to consider buying SAF from Gevo.
Delta’s move comes as the entire aviation sector begins to pivot to sustainable fuel. For example, European plane maker Airbus (OTCMKTS:EADSY) is rapidly moving ahead with its efforts to launch hydrogen-propelled planes, while all major airlines pledged in October to attain “‘net zero’ carbon emissions by 2050,” Investor’s Business Daily reported on March 25. To achieve the latter goal, they have to start making significant moves very soon, given how long it takes to alter existing planes and make new ones.
Gevo’s biofuels, like SAF produced by many other companies, are “drop-in hydrocarbons.” According to Investor’s Business Daily, “A drop-in type of fuel can be used interchangeably with traditional jet fuel without significant alteration of an aircraft’s engines.”
I had previously believed that hydrogen had a meaningful advantage over SAF because hydrogen, unlike SAF, is being widely embraced by multiple governments around the world. But it will take much more time and money to enable airplanes to run on hydrogen than on SAF. Consequently, I now think that SAF likely has a slight edge in the aviation sector.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.