Biodiesel RIN prices trend higher
November 17, 2010
BY Erin Voegele
Posted Dec. 9, 2010
Although the U.S. biodiesel industry has struggled since the lapse of the $1 per gallon tax credit, renewable identification number (RIN) prices are currently trading high enough to fill that void. One factor that seems to be contributing to the relatively high price of RINs is the volume requirements mandated by the U.S. EPA under the renewable fuel standard (RFS2).
In late November the agency released 2011 volume requirements, which consists of nested mandates. According to the release, 1.35 billion gallons of advanced biofuel must be consumed next year. Of that number 800 million gallons must be biomass-based diesel. Since biodiesel is currently the primary commercially-available advanced biofuel, the agency notes it will likely be used to meet the vast majority of the 1.35 billion advanced biofuel mandate.
According to Sam Gray, a renewable fuels trader with VICNRG LLC, 2010 biodiesel RINs hit an all-time high on Dec. 8, trading at 96 cents per RIN. Since each gallon of biodiesel that is produced generates 1.5 RINs, that equates to $1.44 per gallon, which more than offsets the lost value of the expired $1 per gallon biodiesel tax credit.
Although prices began slipping Dec. 9, Gray notes that they could easily remain in the 80 to 90 cent range for the remainder of the year. The good news for biodiesel producers is that the RIN system seems to be working as it was intended to by the EPA. "[RINs] are doing their jobs, they are doing exactly what EPA intended to do; to recognize the subsidy behind the gallon of renewable fuel to try to get favorable blending economics-or something resembling decent blending economics," Gray said. "RINs are performing well within the mandate RFS2." The biodiesel market in 2011 is expected to remain tight, which should ensure relatively high prices for 2011 biodiesel RINs as well.
While RIN prices are currently high, Clean Fuels Clearinghouse and RINSTAR founder Clayton McMartin said it's important to note the RIN market is characterized by volatility, and that is not expected to change. Due to the fact that obligated parties are required to prove compliance only once per year, he said that RINs tend to drop in value in the spring and increase in value towards the end of the year when obligated parties near the compliance deadline. "Obligated parties who…are behind the game now are in a panicked market trying to catch up," McMartin said. "That's essentially what is happening right now. [RIN prices could] just as easily be back to 40 or 50 cents tomorrow. It's a very thin market."
Current market conditions seem to be indicating tight biodiesel supply in 2011, leading to relatively high RIN prices, but McMartin and Gray agree that this will change if the biodiesel tax credit is reinstated. "If that $1 comes back, there is no way RINs can remain high, the market just wouldn't allow it," Gray said. "The market will correct that, so if the dollar comes back, you are going to see a large percentage of that dollar proportionally wipe away the 2010 and 2011 RIN value."
Although reinstatement of the biodiesel tax credit would certainly benefit producers, Gray points out it is important to note that the market is functioning right now without it. "[RINs] have performed as they should, and the market is functioning without the tax credit now," Gray said. Even more importantly, McMartin said that sustained high prices for RINs could allow some idle biodiesel producers to bring their assets back online. "RINs are a key component to any financial performance by anybody operating in the renewable fuel industry," he said. "Without the tax credit, they become even that much more important."
Although the U.S. biodiesel industry has struggled since the lapse of the $1 per gallon tax credit, renewable identification number (RIN) prices are currently trading high enough to fill that void. One factor that seems to be contributing to the relatively high price of RINs is the volume requirements mandated by the U.S. EPA under the renewable fuel standard (RFS2).
In late November the agency released 2011 volume requirements, which consists of nested mandates. According to the release, 1.35 billion gallons of advanced biofuel must be consumed next year. Of that number 800 million gallons must be biomass-based diesel. Since biodiesel is currently the primary commercially-available advanced biofuel, the agency notes it will likely be used to meet the vast majority of the 1.35 billion advanced biofuel mandate.
According to Sam Gray, a renewable fuels trader with VICNRG LLC, 2010 biodiesel RINs hit an all-time high on Dec. 8, trading at 96 cents per RIN. Since each gallon of biodiesel that is produced generates 1.5 RINs, that equates to $1.44 per gallon, which more than offsets the lost value of the expired $1 per gallon biodiesel tax credit.
Although prices began slipping Dec. 9, Gray notes that they could easily remain in the 80 to 90 cent range for the remainder of the year. The good news for biodiesel producers is that the RIN system seems to be working as it was intended to by the EPA. "[RINs] are doing their jobs, they are doing exactly what EPA intended to do; to recognize the subsidy behind the gallon of renewable fuel to try to get favorable blending economics-or something resembling decent blending economics," Gray said. "RINs are performing well within the mandate RFS2." The biodiesel market in 2011 is expected to remain tight, which should ensure relatively high prices for 2011 biodiesel RINs as well.
While RIN prices are currently high, Clean Fuels Clearinghouse and RINSTAR founder Clayton McMartin said it's important to note the RIN market is characterized by volatility, and that is not expected to change. Due to the fact that obligated parties are required to prove compliance only once per year, he said that RINs tend to drop in value in the spring and increase in value towards the end of the year when obligated parties near the compliance deadline. "Obligated parties who…are behind the game now are in a panicked market trying to catch up," McMartin said. "That's essentially what is happening right now. [RIN prices could] just as easily be back to 40 or 50 cents tomorrow. It's a very thin market."
Current market conditions seem to be indicating tight biodiesel supply in 2011, leading to relatively high RIN prices, but McMartin and Gray agree that this will change if the biodiesel tax credit is reinstated. "If that $1 comes back, there is no way RINs can remain high, the market just wouldn't allow it," Gray said. "The market will correct that, so if the dollar comes back, you are going to see a large percentage of that dollar proportionally wipe away the 2010 and 2011 RIN value."
Although reinstatement of the biodiesel tax credit would certainly benefit producers, Gray points out it is important to note that the market is functioning right now without it. "[RINs] have performed as they should, and the market is functioning without the tax credit now," Gray said. Even more importantly, McMartin said that sustained high prices for RINs could allow some idle biodiesel producers to bring their assets back online. "RINs are a key component to any financial performance by anybody operating in the renewable fuel industry," he said. "Without the tax credit, they become even that much more important."
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