On-site RIN Collection

Some ethanol producers are capturing renewable identification numbers (RINs) and promoting higher ethanol blends.
By Chris Hanson | May 15, 2014

Recognizing an opportunity to reduce inefficiencies or address a need with a novel approach can lead to a big break in business.  In the case of ethanol production, some are skipping the traditional blending routes and blending ethanol with gasoline on-site to capture RINs and give retail gas stations the opportunity to save on wholesale, higher blended ethanol mixes, such as E85.

In the corn growing powerhouse that is Iowa, at least four ethanol plants are currently blending on site as of early April, says Monte Shaw, executive director of the Iowa Renewable Fuels Association, adding, there could be more that haven’t reported to the IRFA. Some may have initially implemented on-site blending to meet demands from local retailers. At times when RIN prices were higher, some ethanol producers felt E85 wholesale prices being offered by blenders were not reflecting that RIN value. “In other words, the blender at the terminal was charging them for the ethanol and the gas,” Shaw explains. “Additionally, the blender was getting the RIN, which in some cases, was 50 to 75 cents, and putting that in their pocket.”

Blenders who pocketed the RINs value prompted some to begin on-site blending to capture RINs, creating the opportunity for retailers to pass along the savings. “So [the producers] did what it took to start selling E85 through their channels, and what they would pass along is the vast majority of the RINs to the retailer,” Shaw says, but clarifies that was a choice for the producer. “Obviously we hoped the retailer was passing that along to the consumer. What we found was that E85 prices were extremely attractive and sales really went up and set some records last year in Iowa for E85 sales.”
In response to the movement, the IRFA began compiling publically available pricing data for wholesale E85 and publishing the information once a week to help gas retailers find the fuel at the most attractive prices for their operations. The IRFA found it helped lower the price of E85 at some nonethanol plant suppliers, Shaw says.

“What we did see is that more of the suppliers were saying, ‘we need to keep this market and we’ve got to pass more of those RINs through,’” Shaw says. Additionally, the IRFA released the data to the U.S. EPA to help address the belief that RINs increase consumer gas prices, when in actuality, the RINs had the potential to reduce consumer gas prices as long as there was competition within the market and the values were allowed to pass to the consumer, he adds. “Iowa E85 sales are a great example of that.”

According to the IRFA’s Wholesale E85 Price Listing page, the price of E85 blended onsite at an ethanol plant is roughly 20 to 30 cents lower than fuel coming from blending companies. As of April 7, Absolute Energy and The Andersons Denison Ethanol LLC were offering some of the most inexpensive blended fuel at $2.36 and $2.21 per gallon, respectively.

Carbon Green
The notion of on-site gasoline blending is certainly not a one-state show. In the heart of the automobile industry territory, Carbon Green BioEnergy at Lake Odessa, Mich, has been blending E85 and capturing RINs since 2011. "I have been involved with E85 blending since I was the plant manager of Chippewa Valley Ethanol," says Mitch Miller, CEO of Carbon Green BioEnergy and Energetix LLC. "We bought this plant in 2009 and we had plans from right at the start to supply the E85 market, and from July 2009 to early 2011, we focused on debottlenecking the plant and internal maintenance items. So that came up on the list, as far as a priority, and we installed it."

The main incentive to install the blending equipment was to serve the 125 E85 stations within the area. At the time, ethanol plants were not supplying the retail stores and prices were high due to blends with unleaded gasoline, Miller explains. "We vetted with other station owners about E15 coming down the line and E85," he says. "Their biggest concern was that it was too expensive and lack of consumers."

The expiration of the U.S. Volumetric Ethanol Excise Tax Credit in 2011 was another motivation to get the E85 blending equipment online and smooth the transition into a post-VEETC market in order to get the lowest E85 price onto the market, Miller says. The plant invested roughly $100,000 to implement the blending technology and convert both its truck and railcar load outs to blend the fuel.
By becoming a blender, the plant was able to sell a portion of its ethanol close to the production facility. "We credit the RIN to the product to lower the cost," Miller says. "We see it as a long term, market share opportunity for our location, because ethanol is going to be more expensive to come into our area than it is to produce right here. We believe we can develop this market and supply it long term."

Generating a critical number of RINs is one of the big challenges in being a blender. Carbon Green BioEnergy generates at least 100,000 RINs per month in order to sell them in units of 100,000. "That's probably one of the largest challenges, because you can't do that off one station," Miller explains. "We are supplying about 50 stations."

To build the crucial well of E85 customers the plant draws upon, Carbon Green BioEnergy started its Yellow Hose campaign in order to reach out to E85 consumers by using the YellowHose.com landing page, billboards, radio commercials, television spots and even sending postcards to flex-fuel vehicle owners to let them know where they can get E85 fuel for $1 less per gallon than the price of regular gasoline. "Our station's volumes are way up year over year," Miller says. "And the sales are increasing. We're getting steady percentage increases each month at each location. It's been a very successful campaign." 

In addition to attracting more consumption of E85, Carbon Green BioEnergy and Bennett Pump Company recently reconnected with other stations at a trade show and were able to speak with station owners about higher blends of ethanol fuel. "Currently, we have nine new locations in the pipeline that are going to install higher-level blends in 2014," Miller says. "The 26 Yellow Hose stations that are currently in the program are averaging more than 500 percent increases, year over year. Last year, we also installed a flex-fuel pump at the plant and it sits right across from our scales. It's open 24 hours a day and we sell E10, E15, E30 and E85.  We put the two tanks above ground behind them so the general public can see we're blending E85 and how simple it is. We are selling about 1,000 gallons a day of all blends. We didn't anticipate this at all.”

Absolute Energy
Absolute Energy LLC’s 115 MMgy ethanol plant near the Minnesota-Iowa border has been blending E85 on site since April 2013. “We knew that ethanol had a significant price advantage to gasoline and there was a potential to lower the price at the pump,” explains Rick Schwarck, president and CEO of Absolute Energy. “But nothing was happening.”

After trying to convince blenders to make ethanol blends more cost effective for retailers, Absolute took the ball back to its home court. “We were making no headway, so we said, ‘If you don’t do it, we will,’ and we did,” Schwarck recalls.

The first step in incorporating the blending technology, as with almost any new industrial process, lies in securing the proper permits. In the case of Absolute Energy, it had to obtain a 637M Blenders permit from the U.S. Internal Revenue Service, proper air permits for a storage tank to include undenatured ethanol storage and E85 requires 3475 placards. For the state of Iowa, Absolute Energy had to register with the Iowa Department of Natural Resources for 6B blending regulations and comply with those regulations as a bulk terminal. “I don’t think it’s so much a hurdle, but a necessary step—permitting and making sure you understand the taxes and reporting requirements—you don’t want to enter into this lightly because there are rules to follow,” Schwarck explains. “There is a process and you can do it. You just have to be committed to it.”

Similar to Carbon Green BioEnergy, the biggest challenge in the process wasn’t with the plant, but with the stations. Some retailers have branded contracts that require the station to purchase fuel from specific venues, Schwarck says. Spreading the word to retailers, figuring out the logistics of getting the product to independent retailers and creating a business account is one of the big challenges, he adds. “It’s pretty much common sense, but that might not be readily apparent at first glance.”

Absolute offers two options to retailers for wholesale E85, with or without the RINs. The most popular choice is the fuel without the RINs, Schwarck says. “If the retailers can get the price without having to go through the hassle themselves, they like that. We will sell the E85 to the retailer and then we will mark the price appropriately with the RINs value, and then we will sell the RINs ourselves.”

“The savings on the RINs were not getting out to the consumer,” Schwarck says. “They were being eaten up in the distribution chain. If the savings doesn’t get to the retail level, he doesn’t have a chance to pass it on to the consumer. We want to make sure that, at a minimum, the retailer has the opportunity to pass that savings on.”

For plants determining whether to implement blending equipment, they should examine their market situation and communicate with other plants to make the best, individual business decision. “Every plant needs to assess the sales opportunities for this type of situation and what it would take them, in terms of staff and equipment, to implement it,” Shaw says. “I have no doubt there are a few more places in Iowa where upon looking at that, people would say, ‘this makes sense.’ But I also have no doubt that it’s probably not applicable to every plant in Iowa.”

By becoming a blender, a plant may become more in-tune with its local market. “You learn more about the distribution channel when you are selling it directly out of the plant,” Schwarck says. “This is part of increasing the downstream acceptance of E85, and ultimately E30. If we can get it to the consumer at a good price, more gallons will be consumed.”

Miller encourages all ethanol producers to become blenders. “We need to supply this market, and we need to go around the blenders,” he says. “Skip the terminal and go direct to the market. We need to support and engage the retailers and do the marketing of our product on their behalf. If we sell to the retailer and don’t support them at all, you’re going to get mediocre results.”

Author: Chris Hanson
Staff Writer, Ethanol Producer Magazine
chanson@bbiinternational.com
701-738-4970