RIN values rise as ethanol production, blend margins fall

By Ron Kotrba | February 04, 2009
The value of renewable identification number (RIN) credits is on the rise, as high as 13 cents per unit in mid-January. According to Clayton McMartin, president of Clean Fuels Clearinghouse, operator of the RINSTAR renewable fuels registry, the reason for the spike is multifaceted but heavily influenced by poor ethanol-blend economics.

Another factor, however, is the year-end compliance report for obligated parties, due Feb. 28. "There are some parties coming late to the game and just now starting to understand what their obligations are under the regulations," McMartin told EPM. "Consequently they are trying to find RINs, but there's less ethanol being put into gasoline right now, so the RINs that are in the marketplace are catching a higher price."

Out of 202 ethanol plants representing 12.4 billion gallons of annual production capacity, 27 of them are currently idle, according to EPM data. The idle production capacity totals nearly 1.7 billion gallons per year, leaving 10.7 billion gallons per year in operating nameplate capacity. However, this number doesn't include plants operating under nameplate capacity, also known as "hot idle" condition. The 2009 mandated volume of ethanol consumption under the federal renewable fuels standard (RFS) is 11.1 billion gallons. In addition, 1.29 billion gallons of annual construction capacity is expected to come on line in 2009.

RINs function as a way to enforce the RFS, but McMartin said people are confused by the system. A RIN is generated and assigned for every gallon of ethanol produced or imported into the U.S., but once a RIN is assigned to a gallon, it's not required to move with that same gallon. "The regulations provide for commercial flexibility," he said. "Producers have the latitude to move a gallon of ethanol with zero RINs or up to 2.5 RINs, and anywhere in between, so why don't producers set one price for ethanol without RINs and another price for ethanol with RINs?" The idea is to move more RINs to customers willing to pay more for them, something McMartin said not many producers are doing today.

Some say ethanol is going through a consolidation period as bankrupt ethanol plants are put up for sale. "When you're in a consolidation period, you've got hardware on the ground, and ultimately it will be utilized, but it most likely won't be utilized by the same people on the title today," McMartin said. "They're going to recapitalize, and we've already seen some of that." VeraSun Energy Corp., which filed for bankruptcy in the fall, is putting seven of its 16 plants up for auction. Only four of its 16 facilities are operating today.

Ironically, the U.S. Energy Information Administration projected in December that U.S. oil consumption will plateau through 2030 partly because of biofuels' displacement of fossil fuels, which is lowering gas prices and, in turn, making ethanol blending less economical.