Getting Started With Biodiesel
Have you been looking for ways to grow your fuel margins? Introducing biodiesel blends to your product offering is a great place to start — there are fuel retailers that have had their margins increase by several cents per gallon after adding biodiesel blends to their fuel lineup.
So how can you get started? Here are four questions you should ask before you place your first order.
Should I buy blended fuel or blend myself?
Starting out, you will need to decide how you want to purchase biodiesel. One option is to buy diesel fuel that already has biodiesel blended into it. You can see if your current diesel supplier has a biodiesel blended option or can make one available. If not, you can seek a fuel distributor that does.
The other option is to do the blending yourself. This often provides the best margin opportunities, but also comes with additional considerations. You will need to install a dedicated biodiesel storage tank and blending system. While the initial cost may seem expensive, it can provide a relatively quick payback of between six to 18 months. A number of states offer grants and loans to help retailers finance these infrastructure upgrades, so research those options.
If you purchase biodiesel from a producer, you will need to decide if you want the biodiesel with or without Renewable Identification Numbers (RINs). Every gallon of biodiesel produced generates 1.5 RINs. These can be traded for a monetary value, with the value fluctuating based on market conditions. If you buy the biodiesel without RINs, the RIN value should be captured in the price of the biodiesel. If you buy it with RINs, you will want to trade the RINs either by using a third-party vendor, which will likely charge a commission, or by trading them yourself.
Do I have a reliable supplier?
Whether buying blended fuel from a fuel supplier or 100 percent biodiesel, also known as B100 or neat biodiesel, be sure the biodiesel meets ASTM D6751 standards for biodiesel and that the producer participates in the voluntary BQ-9000 quality assurance program. This is the best way to give your customers a quality product. Also look for suppliers that are knowledgeable about the fuel retail industry and have a reliable and cost-effective supply chain to your locations.
What is the right blend level?
In every state, biodiesel blends of up to 5 percent (B5) can be sold without additional labeling at the pump. This is because the blended fuel meets ASTM D975 diesel fuel specs. Blends from B6 to B20 are a good option to maximize profits with positive blending economics but do require additional labeling. Weather can also be a factor, but maybe not as much as you think. Proper storage, handling and additive use allows retailers to sell B20 year-round no matter their location — just like petroleum diesel. But if you are in a colder climate, you may feel more comfortable dialing the blend back a bit in the winter.
What economic incentives are available to me?
Speaking of positive blending economics, many states recognize the benefits of making biodiesel more available and offer incentives to retailers that sell it. In Iowa, for example, outlets that sell B5-B10 blends can receive a 3.5-cents-per-gallon tax credit. For selling B11 and higher, they can get a 5.5-cents-per-gallon tax credit, plus an additional 3-cents-per-gallon tax differential. In Texas, retailers can save up to 20 cents per gallon on the state fuel tax on every gallon of B100. If you operate stores in more than one state, familiarize yourself with each state’s regulations.
REG is here to help
Answering these questions will help you get started with biodiesel so that you can take advantage of the benefits of adding the renewable fuel to your locations. However, you don’t have to do this alone. REG has a team of experts to help you.