One year ago, if you were told the cost of fuel would jump over 68%, would you believe it? Just a month ago, the average cost of diesel was $6.18 per gallon. This year's supply disruptions in the Middle East raised costs for every fleet, farm and vehicle that runs on diesel. The U.S. Energy Information Administration expects prices to ease next year, but its 2027 forecast of about $4.50 a gallon is still well above the 2025 average of $3.66.

When fuel costs reach such highs, energy investors do not typically explore wind or solar projects. Price spikes may necessitate strategy pivots, but the general market sentiment is that they are only temporary. The wish for an alternative, stable energy source fades when prices fall. Although there may be one exception.

‍

Waste-to-energy, more specifically waste-to-fuel companies, is becoming more attractive. These businesses turn used oil and other waste streams into diesel and other finished products, and a higher fuel price makes every gallon they produce worth more.

‍

What Is Waste-to-Fuel?

Waste-to-fuel covers processes that turn waste materials such as used motor and industrial oil, waste plastics, and fats and greases into finished fuels and products, including diesel, naphtha, and base oils for lubricants.

The U.S. generates about 1.37 billion gallons of used oil a year, of which approximately 900 million gallons are collected, and roughly 429 million gallons go unaccounted for (DOE).

‍

Why Would High Diesel Prices Create Demand for WTE?

Waste-to-fuel facilities sell into the same market as any other fuel producer. When diesel climbs, so does the value of every gallon it makes.

‍

Local production also lowers exposure to global supply shocks such as the events in the Middle East that drove this year's prices. However, buyers that source fuel made from regional waste depend less on events half a world away.

‍

How Do Waste-to-Fuel Companies Maintain Stability?

Waste-to-Fuel seems like a promising market right now, but is there any guarantee that startups in this space will last for more than a few years? Here are 3 factors that drive successful WTE startups:

‍
1. Local and Dependable Feedstock

‍

Used oil and other waste streams are generated close to where fuel is needed, which shortens haul distances and limits exposure to global markets. When investors ask whether a company can show reliable volume for the life of its financing, collection agreements with several suppliers and consistent feedstock quality can prove dependability for consistent ROI.

‍

2. Demand That Doesn't Hinge on a Subsidy

‍

Trucking, farming, and construction are just a few industries that rely on diesel regardless of policy cycles, making steady demand the foundation of a waste-to-fuel business.

‍

While some WTE companies receive government credits, they choose not to rely on them, since select processes qualify for federal clean fuel credits while others do not. If a founder decides to change their process or if the value of those credits swings, it could be detrimental to the startup’s finances.

Just this year, credits for diesel made from plant oils and animal fats hit a record of about $2.30 in May, then fell to about $1.93 by September, a drop of roughly 16% in four months. Another federal credit, known as 45Z, runs through 2029, but WTE plants producing fuel made from materials sourced in North America can qualify.

‍

The strongest companies still make money if their credits disappear, and they treat any credit as a bonus. 

‍

3. Capital Raised in Stages

‍

It is very rare to find a first-of-a-kind facility that has raised all of the capital it needs in a single round of funding. Early waste-to-fuel companies do not rely on private equity investment. Instead, they have to prove themselves over time. Family offices and specialized investors tend to come in after milestones such as permits, feedstock contracts, and offtake agreements. A larger capital partner then funds the first full facility. Each stage makes the next one easier to raise, as long as the company delivers the milestones it promised.

‍

A Strong Case Holds When Prices Fall

The diesel spike has given waste-to-fuel a moment of attention. There is no question that fuel prices will eventually move again. Businesses built on strong fundamentals should have no reason to worry about the price of diesel.

PhiCap has spent years growing waste-to-energy startups into successful enterprises. Learn more about how you can advance the energy transition through strategic leadership.

‍

Explore PhiCap's Capital Services

‍

‍