Driving Up Demand

Overcoming the E10 blend wall and increasing the market for ethanol-blended fuels is not only important in sustaining first-generation producers, but is also vital to ensuring industry growth and support for second- and third-generation producers. An important component in lifting the blend wall is increased use of flex-fuel vehicles and E85.
By Erin Voegele | January 04, 2010
In the preamble to its proposed rule for the second stage of the renewable fuels standard (RFS2), the U.S. EPA explored ways in which the U.S. fuel market can absorb the immense biofuels mandates that were established by the Energy Independence and Security Act of 2007. According to the EPA, the U.S. will reach the E10 blend wall when annual ethanol production reaches 14.5 billion gallons per year, assuming 100 percent E10 utilization nationwide. Using these parameters, the agency estimates the blend wall will be reached by 2013. However, the EPA also states this benchmark could be reached sooner if demand for gasoline falls or if E10 cannot be distributed nationwide.

While the approval of a midlevel blend such as E15 could postpone reaching the blend wall, the EPA states that it will not provide a way to completely overcome it. Current estimates show implementation of E15 could delay the blend wall issue by one to six years, depending on how quickly E15 is adopted by fuel retailers. This indicates that an E15 waiver will offer more time to instigate greater utilization of flex-fuel vehicles (FFVs) and E85, but will not offer a total solution for meeting EISA mandates.

Putting More FFVs on the Road
Although the number of FFVs on American roadways has increased exponentially in recent years, overall E85 utilization is extremely low. The EPA estimates that 7 million FFVs were on the road in 2007, but only about 12 million gallons of E85 was sold at retail during that year. This means that on average in 2007, each FFV utilized only approximately 1.7 gallons of E85.

The U.S. DOE's Alternative Fuels and Advanced Vehicles Data Center (AFDC) estimates there are nearly 8 million FFVs on the road today. According to the AFDC, 36 models of FFVs were offered for sale in the U.S. during model year 2009, which is a substantial increase from the 6 FFV models that were available 10 years ago. The number of FFV models is expected to continue to grow as Ford Motor Co., General Motors Corp. and the Chrysler Group LLC move forward with their commitment to produce 50 percent FFVs by 2012. But the question of whether those vehicles will be fueled with E85 remains.

According to Peter Hardigan, manager of Ford's sustainable business strategy group, although his company is continuously increasing its FFV offerings, Ford hasn't seen much consumer interest in FFVs outside of the few regions in the U.S. that are heavily saturated with E85.

Mary Beth Stanek, GM's director of energy and environmental policy, says most of the company's new models are flex-fuel capable. However, she says it is difficult to gauge whether consumer interest in those vehicles is related to their E85 capability because consumers make purchase decisions for a wide range of reasons. "Our flex fuel offerings are on very popular models," Stanek says. "Every individual is different, so it's difficult to say if the distinctive purchase reason was for flex-fuel capability."

Adding Infrastructure, Value
Although Ford and GM are working to put more FFVs on the road, E85 sales statistics show that most FFV owners are not taking advantage of their vehicles' flex-fuel capability. Stanek and Hardigan agree that more fueling infrastructure and a better price point is necessary to increase E85 utilization.

"I think one important piece of the puzzle is making [E85] available to more consumers," Hardigan says. It's also important to make sure there is a clear value for consumers in buying the fuel. This means ensuring the price of E85 reflects the true energy content of the fuel in relation to standard gasoline. "Over the past year, I've seen where E85 is priced a penny or two below gasoline, and that is not providing value to customers," Hardigan says. "It's not just making the fuel available. It's making sure there is a value there for consumers."

Stanek says that fuel is a commodity purchase. "If you have E85 priced correctly in FFV dense markets, sales and consideration will go up a lot," she says. "Truly, I think you need to have gasoline over $3 per gallon to really see a substantial switch from one fuel choice to the other. That's when we've really begun to see increased consideration."

Although a few more E85 stations have come online recently, Stanek says the truth is that many more E85 locations are needed in areas of the country with high concentrations of FFVs. "We have quite a few underserved markets for choice," she says. "We need to get more stations to offer the fuel, we really do. I think that will increase use more than anything."

If E85 availability expands sufficiently in the future, it may even be possible for vehicle manufacturers to optimize FFVs to run on ethanol. However, before that would happen, there needs to be consistent and widespread E85 infrastructure, Hardigan says. "It's clearly doable, but we wouldn't head down that path until there is [increased E85] availability," he continues.

"It's clear that we need biofuels," Hardigan says. "We are a big supporter of biofuels." However, he also notes that to get enough FFVs on the road to meet EISA's mandates, other vehicle manufacturers need to produce FFVs as well. "It's going to take more than just the commitments by Ford, GM and Chrysler," he says. "It's going to take all automakers getting into the mix."

While auto manufacturers continue to produce more FFVs, a new campaign jointly spearheaded by the American Coalition for Ethanol and the Renewable Fuels Association aims to expand fueling infrastructure. That initiative, the BYOethanol campaign, seeks to install 5,000 ethanol blender pumps nationwide over the next three years.

Unlike earlier blender pump and E85 initiatives, the BYOethanol campaign does not directly provide funding to petroleum marketers to install pumps. Instead, the campaign aims to educate fuel marketers on why it makes financial sense to install them. To this end, the group has established a website that serves as a central clearinghouse for information of interest to petroleum marketers, including information on existing infrastructure incentives, taxes, E10, E85, midlevel blends, equipment, laws and renewable identification numbers. Essentially, the site is designed to answer any questions a fuel marketer might have about selling ethanol.

According to Ron Lamberty, ACE's president of market development, the initiative's goal is to educate petroleum marketers while dispelling many of the ethanol myths they might believe to be true. "What we've found as we've talked to [petroleum marketers] is that they think this BYOethanol program is all about putting E30 in standard vehicles and breaking the law, and that's NOT what it's all about," he says. "We're really talking about giving [FFV] owners some options." While FFV owners have traditionally only had the choice of filling up on E85 or standard gasoline, Lamberty says ACE has found that in places where alternative blenders such as E20 or E30, are offered those options tend to sell better than E85.

The BYOethanol campaign stresses the economics of ethanol blender pumps. Unlike dedicated E85 pumps, blender pumps allow petroleum marketers to recoup the costs of the pump through the fuel they sell. This is because a blender pump can offer standard gasoline, E85, or any ethanol fuel blend in between. This option allows petroleum marketers more flexibility in the types of fuel they sell, while offering customers a wider range of fuels. In addition to allowing station owners to economically supply their FFV customers with E85 or a midlevel blend, those who install blender pumps will also be equipped to sell alternative fuel blends to the general public in the event the E15 waiver is approved by the EPA. "If you are looking at putting new pumps in at a gas station, there really isn't a good reason not to put in blender pumps," Lamberty says. EP

Erin Voegele is a BBI International associate editor. Reach her at evoegele@bbiinternational.com or (701) 850-2551.