OPINION: With E85, it pays to skip the middleman

June 2, 2021

BY Robert White, vice president of industry relations, Renewable Fuels Association

I was working for the Kansas Corn Growers Association back in 2004 when I witnessed  E85 made at an ethanol plant being marked up twenty-five cents a gallon between the plant and the retail station where the fuel was sold, which was just 40 miles away. Why the markup? Because it had passed through a fuel terminal and changed hands several times before arriving at retail. It was at that point that I started encouraging ethanol plants to market E85 directly to fuel retailers, and truly become E85 wholesalers.

A lot has changed for the ethanol industry since then. Now, less than two decades later, at least one-third of the industry can blend E85 onsite, and many more have the ability to top off fuel tankers that  that can splash-blend to make E85 on the way to retail. Either of these options allows the predominant ingredient of that blend—ethanol—to be discounted more in line with actual market conditions.

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Why does this matter? Because price is the primary reason consumers choose the fuel that ultimately ends up in their vehicle. Flex fuel vehicle (FFV) owners—or performance enthusiasts who have built E85-optimized vehicles—are searching out E85, but they know the fuel needs to be somewhat lower in price to achieve the best value. In recent weeks, they are finding that value: On average, a gallon of E85 is more than 60 cents per gallon lower than E10, and more than a buck-and-a-half lower than E0.

Right now, those big discounts are being driven by RINs, or Renewable Identification Numbers—the compliance mechanism for the Renewable Fuel Standard. RINs have value because many refiners are trying to avoid blending their prescribed amount of renewable fuels each year, and thus they then need to purchase RIN credits from those refiners who have blended more than their share of renewable fuels. In fact, ethanol RINs are now trading near the $1.80 range, meaning the true cost of the ethanol for a blender is the per-gallon ethanol price minus that RIN value. Just look at the wholesale prices listed for the State of Iowa. Retailers can purchase E85 (pre-tax) for just $0.91 per gallon (as of May 31) when regular unleaded E10 is fetching $2.23. The lower the price of the fuel, the more opportunities you will have to sell this alternative. How often do you think about the comparison of E85 and regular unleaded on your marquee?

I am sure some of you reading this are thinking that because you don’t have an ethanol plant nearby, sourcing E85 direct from an ethanol plant won’t work for you. But before you write off a potential opportunity, consider that some ethanol producers are now selling pre-blended E85 via rail cars to retailers on both coasts.

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At the Renewable Fuels Association, we’re working hard to get automakers to once again boost production of FFVs. At the same time, however, we know there are still thousands on the road that are not taking advantage of this greener, less expensive fuel blend their vehicles are made for, so it’s important to ensure we have E85 conveniently available for individual drivers and for government or commercial fleets.

Where do you start? Come to us, we are here to help. Not only can we point you in direction of a nearby ethanol producer who may be able to supply E85 directly, but we can also advise you on equipment and any grant programs available to lower the cost of any needed equipment upgrades or replacements. Email me at rwhite@ethanolrfa.org, or Cassie Mullen, our director of market development, at cmullen@ethanolrfa.org to get started.

 

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