Pumping Up E85
In most U.S. states, the number of flex-fuel vehicles (FFVs) owned and operated within the state is disproportionately greater than the number of retail E85 pumps. This unfortunate distribution imbalance is starkly apparent in California, where there are currently more than half a million FFVs on the road and only about 53 E85 pumps, according to the most recently available U.S. DOE statistics. What makes the need for E85 pumps even more desperate in California is the fact that it is the nation’s largest fuel market and is home to more FFVs than any other state. The potential to increase ethanol market share through greater use of E85 is significant and so is the potential to profit from the installation of E85 pumps. Propel Fuels Inc. has seized this opportunity and recently launched an aggressive station expansion plan that could quadruple the current number of E85 stations in California over the next two years and may impact other states as well.
Founded in Washington state, Propel Fuels was created specifically to address the lack of retail infrastructure for renewable fuels, says CEO Matt Horton. In 2007, the company installed its first Clean Fuel Point dispenser, offering biodiesel blends to consumers in Seattle. Since then, Propel has installed five additional renewable fuel dispensers in Washington. In 2010, the company moved its headquarters to northern California and proceeded to open 21 of its Clean Fuel Point dispensers in the state, selling E85 and biodiesel, mostly in the San Francisco Bay and Sacramento areas. Propel’s experience over the past few years has demonstrated that when consumers have the choice available to them, they willingly fill their vehicles with alternative fuels, company leaders say. Therefore, greater availability of E85 in California will unquestionably lead to greater consumer usage and, as a result, increased demand for ethanol from producers. The company recently unveiled plans to roll out 200 more E85/biodiesel stations in California within the next two years and plans to expand its business model to include other states as well.
You Play, We Pay
California has been good for Propel’s business model, Horton says, because it has the most vehicles, the largest fuel market and employs progressive environmental policies. Alternative fuels infrastructure is supported by the government, policy-wise and financially, and Propel has benefitted from both aspects. California also has the most difficult regulatory environment of any state, however, and is one of the most expensive markets to do business in. The benefits outweigh the challenges though, and Propel believes that success in California will prove the company’s strength and enable it to easily penetrate other areas of the country. “We wanted to prove this business model in California because we believe if we can do it in California, we can do it anywhere,” Horton says.
Propel’s business strategy is unique in that the company doesn’t produce fuel nor does it deploy typical retail stations. Instead, the company markets fuel on a case-by-case basis, leasing space at existing retail stations where Clean Fuel Point dispensers can be installed. This arrangement works well for retail station owners, Horton says, because many of them lack the capital and appetite for risk that can be necessary for installing alternative fuels dispensers. By partnering with Propel Fuels, station owners receive the benefits from selling fuels that their competitors may not offer without having to foot the bill associated with installing the pumps. “We designed our business model to be a partner for these stations where we can provide them with all of the benefits of having renewable fuels on their site without all the headache and hassle that usually goes with it,” he says. Propel provides capital for infrastructure costs, installs storage tanks and files all grant and permit applications. The partnership requires no financial investment from the station owner. “It’s like found money for them because we’re helping them monetize a part of their site that wasn’t being used before,” Horton adds. “Many of them are most interested in the number of new customers that we bring to their sites every month. Those are customers that will use their convenience store, their car wash or other services on site.”
“One of the barriers for many station owners is just a lack of understanding of the market,” Horton continues. Propel tries to alleviate those concerns by conducting educational campaigns to introduce consumers to their new fueling option. “Just putting an ethanol pump out there … if you haven’t reached the relevant flex-fuel drivers you’re not going to move much ethanol. That’s a huge concern for individual station owners who just don’t have the resources to aggressively market the fuel. We do all of the customer service, marketing and outreach to the public.”
In August, Propel was awarded a $10.9 million grant from the U.S. DOE and the California Energy Commission to build and operate 75 Clean Fuel Point stations by the end of 2011. The DOE invested $6.9 million in the project through its Clean Cities’ Petroleum Reduction program. The CEC provided the remaining amount through its Alternative and Renewable Fuel Vehicle Technology program. The project, known as the Low Carbon Fuel Infrastructure Investment Initiative, will create 450 jobs and is expected to displace 39 million gallons of petroleum and 187,500 tons of CO2 emissions annually once all 75 stations become operational. Propel has agreed to match the grant with $16 million of its own funds.
The build-out is already under way. By the end of 2010, Propel had nearly doubled the number of E85 stations previously located within the state. By fall 2011, Horton expects to have a total of 80 stations in place. By the end of 2012, the company’s business model calls for 200 Clean Fuel Point stations throughout California. If that plan is achieved, approximately 80 percent of California’s FFV drivers will be within a 12-minute drive from a Propel alternative fuel station, Horton says. “That’s the point of our business model—to place stations in areas where it’s convenient for FFV drivers to fill with E85,” he says.
Room to Grow
Propel’s model includes room for further expansion and the company is aggressively seeking new markets outside of the West Coast. Blender pumps are not currently part of Propel’s repertoire, but the company is exploring adding them in certain markets. It’s also eyeing a possible partnership with the USDA to assist with its target of installing 10,000 blender pumps across the U.S. by 2015. To prepare for these potential expansions, Horton says Propel has brought in a number of new executives who have experience in managing large construction projects and retail fuel companies.
Significant investments are also being made to make Propel’s pumps unique. One such improvement is the addition of a data program, called CleanDrive, which calculates the consumer’s emissions reductions and the amount of petroleum they have displaced by fueling with either E85 or biodiesel. The data is reported to the customer via a personalized online account and they can immediately see the effect their alternative fuel purchases have made on the environment. Propel also compiles the data and reports it to participating fleet managers. “For some of our large customers like the U.S. Postal Service, it’s a really helpful way for them to show that they are in compliance with their own objectives in terms of renewable fuels usage,” Horton says. “For us, it’s a great way to build customer loyalty.”
While mid-level blends have taken the spotlight in recent months, Horton says Propel’s top priority continues to be E85. “We recognize that we’re not going to get where we need to go with limitations of low-blend gasoline, so a big part of our business is focused on expanding access beyond the blend wall, and that means high-blend ethanol infrastructure,” he says. The company “definitely” plans to expand outside of California in 2011, according to Horton but the specific location has yet to be announced. Propel’s business model works best in areas where there is a high concentration of FFVs and few E85 fueling stations, so expansions are likely to occur elsewhere on the West Coast and in areas of the East Coast.
Propel tries to purchase as much locally produced ethanol as possible to supply its fueling points, according to Horton, although that is not always an option, depending on the location of its dispensers. The company declined to release information detailing specific amounts of ethanol purchased and sold by Propel in recent years. But Horton says the company has established good working relationships with producers in California and he expects that would also be the case in other areas of the country as the company expands its operations. “We think there is a great opportunity in this country to localize fuel production and consumption,” he says. “We think we can be a very important part of that.”
Horton also believes the government needs to play a greater role in building out alternative fuel infrastructure and he encourages ethanol producers to bring the need for retail infrastructure to their legislators’ attention. “We need to let our elected officials know that expanding market access by building more infrastructure is the most important thing we can do to help the ethanol industry long-term,” he says. He cautions against overlooking the importance of E85 as a piece of ethanol market share and says pricing will be key in gaining consumers’ acceptance of the fuel. “Rebuilding the nation’s fueling infrastructure takes time,” he admits. “But we need to understand as an industry that it’s more than just making a pump available. There are lots of places we can put stations where they just will not perform very well, so we need to treat this issue holistically and make sure we’re addressing all the key drivers for success.”
Author: Kris Bevill
Associate Editor, Ethanol Producer Magazine