Catching the Biofuel Beat
Higher margins, tax credits, green cache lure E-85 and biodiesel retailers
ATLANTA -- Imagine if you could sell a fuel that provided enough margin to cover credit-card fees, and maybe even a little extra. E-85 and biodiesel, thanks to government financial incentives and, in the case of E-85, a recent drop in ethanol prices, could be that miracle product, argued presenters at Wednesday's Biofuels and Beyond session at the NACS Show 2007 in Atlanta.
Ethanol's got some good economics right now and you would be a fool not to take advantage of it, said Ron Lamberty, vice president of market development for the American Coalition [image-nocss] for Ethanol, and an operator of two convenience stores in South Dakota. Evidence in point: Excess capacity and lukewarm demand have caused prices to dip, with tax credits pushing E-85 prices to about $1 per gallon less than regular blends. Depending on the product, the subsidyor blender's tax creditcould net a retailer 9 cents per gallon more than regular grade gasoline, enough to pay your credit-card fees, so a pretty good deal, he said. And for marketers who'd like to blend their own E-10, tremendous margins are available.
Ed Burke, chairman of the board for Dennis K. Burke Inc., which was the first retailer in the state of Massachusetts to sell biodiesel, has found an awarding niche selling the fuel. Indeed, he warned retailers that thanks to individual state mandates, it's only a matter of time before they'll be forced to sell ethanol blends. Thus, it's best to embrace it and take advantage of the PR opportunities. There's a lot of green in green marketing, Burke said.
Problems of coursemany centering around qualitypersist with biodiesel in particular. Burke pointed out a study finding that about half of biodiesel tested at retail locations in the United States did not meet spec. You need to know your source, Burke urged. You don't want to be buying it from a guy with a machine in the back of a pickup truck. Cold-weather issues also complicate the fuel's handling. But for Burke, all of these considerations fall to the side under the considerable PR boost his company has received for embracing biodiesel.
For retailers interested in pursuing a biofuel focus, the government is eagerly standing by to offer help. Caley Johnson, an analyst with the National Renewable Energy Laboratory, pointed to several tools available as part of the agency's Clean Cities program, which includes pro-E-85 coalitions in 45 states. These include technical troubleshooting assistance, help securing funding and finding fleet partners to guarantee a minimum amount of demand, as well as online tools to pinpoint ideal biofuel markets. The agency is also conducting a study with NACS comparing the store of a successful E-85 retailer to a struggling one in an attempt to define best practices.
A separate study of the state of the market in Minnesota, where one quarter of all E-85 is sold, already has reported a few key learnings: a road sign advertising E-85 is the largest indicator of success, for example, and interestingly, a 1-cent rise in gasoline prices increases E-85 sales twice as much as a 1-cent drop in E-85. For more details, visit www.eere.energy.gov/afdc.