Advanced BioFuels USA

by Susanne Retka Schill (Ethanol Producer Magazine)   Getting the right business model drives E85 sales.  …  Protec in the East and Propel in California are learning what it takes to drive E85 sales. With both companies reaching about a decade of experience in working out their business models, each is seeing solid growth in the number of locations served and volumes handled.

In California, Propel’s model is to partner with strategically located retailers with space to add a fuel kiosk offering Propel’s Flex Fuel E85 and, in many cases, renewable diesel. “We build, own and operate,” says Rob Elam, CEO. “We have found very, very little cannibalization of existing customers when we go onto a gas station site, so it’s almost all new customers. We give them a base rent and a revenue share of the upside of gallons. We offer them more C-store purchases, additional branding and visibility and media attention.”

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Further East, Protec has built on the business started in 1999 to serve small and midsize retailers and fleets as their equipment and fuel supplier, along with risk management services. Offering a turnkey operation to a retailer drives its business model, CEO Todd Garner explains. “Once the retailer determines they’re going to put in the money, they don’t have to do another thing. We pull all the permits; we do all the construction; we change out all the signage; we bring in the dispensers. We deliver the fuel and we price the fuel out.”  Protec helps the retailer access any available grant money and will invest in the project as well.

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Garner and Elam both stress that success in offering E85 requires managing the pricing of the fuel, selling the product at a big enough discount to gasoline to drive the business forward. That means moving away from the spot market and relying upon risk management tools to maintain the needed spread between gasoline and ethanol. Both companies are blenders, separating the renewable identification number (RIN) and passing its value along to the consumer and managing that price risk as well. “It’s not a simple thing to do,” Garner says. In one area Protec serves, they’ve even seen a major oil company struggle to price E85 competitively. “They’re fluctuating with the market, going up and down and their price of ethanol could be only 20 cents under gasoline when ours is consistently 40, 60, 80 cents below,” Garner says.

That spread between gasoline and E85 may seem low to Midwesterners, Garner admits, “but we’ve got a lot of cost to get the ethanol to those locations.” Getting the infrastructure in place to keep logistic costs down has been a big part of Protec’s expansion strategy. Garner reports having nearly 400 retailers interested in the Protec program, but those in places lacking infrastructure won’t be economically feasible until the logistics are aligned. Some areas, like Atlanta and parts of Florida, now have the logistics in place and are seeing strong E85 growth.

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Protec works with the Clean Cities Coalition, distributes news releases and sends out postcards to local residents. For the past year, Protec has also been working with Prime the Pump in the nonprofit’s mission of expanding E15 locations. As E15 is not yet available from terminals, that has meant adding blender pumps so E85 is available to blend into E15. As a result, sales of both are growing, Garner says. “Not only have we seen E15 take off, but we’ve seen an increase in our E85 business, because now it’s more convenient. It’s at every dispenser instead of just one.”

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While sales volume and customer demographics are normally confidential information, Propel released a white paper in June titled “E85: A California Success Story,” to share what it’s learned about its E85 customers. “When we realized that Propel pumps sell 10 times the national average on a per pump basis and we have single dispensers selling over 50,000 gallons a month, which has got to be the highest in the country, and that we have a way of attracting and retaining customers to our high-blend ethanol product that nobody else seems to be able to figure out—we wanted to release information about those facts,” Elam says.

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“You can see in the white paper what the average incomes are, what the demographic breakdown is. For instance, in the Central Valley and Inland Empire of the Los Angeles basin, 49 percent of our customers are Latino, which in California compares to 37 percent of the overall population being Latino.”

Fairness is a strong value in California, Elam says, and E85 is a means of bringing renewable energy benefits to working and middle class citizens today. He argues California needs to balance its investments in expensive new technologies for the future, like hydrogen, with renewable energy that’s available now. Ethanol can help the state meet the Low Carbon Fuel Standard and the new goal recently announced by the governor to cut the state’s petroleum use in half by 2030, Elam says. His personal goal is to see just how much E85 California can consume. After all, the state is the third largest petroleum market in the world, behind the U.S. as a whole and China.  READ MORE / MORE Download white paper Summary