Is it time for convenience store operators to introduce so-called green fuel pumps that can accommodate E-85, biodiesels and other emerging renewable fuels?
As with so many other issues in the c-store business, the answer is “it depends.”
The consensus thus far is this: the trend is very much in its infancy. Those who wish to and can shoulder the risks and potential rewards of being on the cutting edge will. Others will hang back and play it safe, and probably forego a good portion of the benefit.
Best estimates place the number of flexible-fuel vehicles (FFVs) on the road at between four- and five million, and the number of stations that pump some sort of renewable fuel at roughly 1,500 to 2,000.
Richard Browne, vice president of North American marketing for Gilbarco Veeder-Root in Greensboro, N.C. said the equation may well be different for operators who own existing facilities or are building new ones.
“If I’m building a site I want to build the infrastructure of what I need for the next 20 years,” Brown said. “If you look at the growth in the E85 vehicles, the government’s objectives around E85 and the advancements in the efficiency of ethanol, you want to be future-ready.”
With an existing location, Browne added, the decision “depends somewhat on your market conditions and your branding objectives. So you can, in some markets, create a unique position by being early in and position yourself as offering more fuel alternatives and being green. So there is a marketing opportunity there.”
Browne pointed out that the relative margin of E85 versus traditional gasoline blends “bounces all over. On gasoline, for the first half of last year the margin was about 21 cents per gallon,” he said. This year in the first half it was about 10 cents, so it’s kind of like, how much does a jug of milk cost? It’s all over the map.”
There may be more margin opportunity on ethanol than on gasoline. “It depends on how far you are from an ethanol plant, and on the price of corn versus the price of gas,” Browne said. “There are a lot of variables that go into it.”
Understanding Equipment
Blender pumps offer customers a variety of ethanol blends—E10, E20, E30, E40 and E85—from a single dispenser by blending ordinary gasoline or E10 from one underground tank with E85 or denatured ethanol in a second tank. Enriching fuel with 10% ethanol helps it to burn cleaner and at a cooler temperature, which can add to engine longevity.
“A lot of people think a blender pump is truly a new technology, and it’s not,” said Deputy Director Robert White of The Ethanol Promotion & Information Council (EPIC). “A lot of the convenience store folks are used to a blender pump. It may come under a different name, such as a multi-product dispenser. What it does is simply take two products, typically, like regular unleaded and a premium, and blend those two together to make a mid-grade.
“What we’re talking about with the ethanol blender pumps is exactly the same thing. It’s blending either regular gasoline with E10 with E85 or, in some cases, pure fuel-grade ethanol. The dispenser itself, based on what selection the consumer makes, blends the appropriate ration.”
Underwriters Laboratories (UL), the safety testing and certification organization, announced in October 2007 the establishment of safety requirements for E85 fuel dispensing equipment. Gus Schaefer, UL’s Public Safety Officer, said the group took the need for E85 dispenser requirements “very seriously due to the unique characteristics of ethanol-blended fuels and believe the potential issues we identified through our thorough process will help promote the efficient, effective delivery of E85 as safely as possible.”
UL’s research indicated that although certain materials found in commercially available dispensers can be expected to perform acceptably when exposed to motor vehicle fuels blended with high concentrations of ethanol, some materials experienced significant deterioration during research tests. The new safety requirements address these material compatibility findings.
Federal Incentives
Effective through December 31, 2010, gasoline retailers are eligible for a 30% federal credit for the cost of installing clean-fuel vehicle refueling equipment like E85 ethanol pumping stations. Under the provision, a clean fuel is any fuel that consists of at least 85% ethanol, natural gas, compressed natural gas, liquefied natural gas, liquefied petroleum gas, or hydrogen and any mixture of diesel fuel and biodiesel containing at least 20% biodiesel.
EPIC partnered with the South Dakota Corn Utilization Council (SDCUC) to launch a Blender Pump Program for the state of South Dakota on May 1, 2008. The program provides financial assistance for the installation of blender pumps, along with branding, marketing and public relations support.
In August, the Kansas Corn Commission said it would work with EPIC to launch a blender pump incentive program across the state. The initiative will help fuel station retailers obtain funding and the equipment needed to sell higher blends of ethanol, which range from E20 (20% ethanol and 80% unleaded gasoline) to E50 (50% ethanol and 50% unleaded gasoline) and can only be used in FFVs. One of the goals is to increase the state’s blender pump infrastructure by installing a minimum of 100 blender pumps over the next year. Currently, three blender pumps are open in the state thanks to a pilot program adopted by the Kansas Department of Agriculture that made Kansas one of the first states in the nation to allow ethanol blender pumps.
Driving Down the Road
Scott Zaremba, CEO and principle of Zarco 66, operates eight retail locations in the Midwest and markets and transports wholesale fuels throughout the U.S. The company offers gasoline and diesel fuels at each of its locations, as well as a variety of ethanol blends and on- and off-road biodiesel products at its new Green Energy Gateway in Lawrence.
The first station of its kind in the country, the Green Energy Gateway represents “Zarco 66’s commitment to helping develop sustainable, affordable and environmentally friendly alternative fuels,” Zaremba said. Zarco worked closely with manufacturer Dresser Wayne to design pumps to meet specific space requirements.
Eventually, the proposition “is going to make sense to the customer, but again, it’s an extremely volatile marketplace right now. Corn and commodity prices have gone through the roof, and every time fuel (price) moves they move. It’s a matter of getting those things stabilized. But we have to start today,” Zaremba said. “Operators have to look long term and have some vision. If they put a pencil to it and say, ‘this is what’s going to happen tomorrow,’ they are going to be discouraged.”
Federal and state funding can provide tax credits up to 30% of the cost of some equipment, up to about $30,000. Still, the debate over dollars and “sense” continues.
“It is not economically feasible, in my opinion,” said Hugh Canady, owner of two Huey’s Mart locations in Las Vegas. “The pumps cost $10,000 more than a regular pump, and a regular pump is going to last you 10 years if you’re using E85
in it, and if you do have to have repairs they’ll probably cost less than $400 a year. So you come out more economical buying a regular pump and pump E85 through it.”
in it, and if you do have to have repairs they’ll probably cost less than $400 a year. So you come out more economical buying a regular pump and pump E85 through it.”
Canady runs a total of eight dispensers at his two locations, and all of them offer E85.
“The number of vehicles that can utilize these blends is literally increasing every day,” White said. “There are over seven-million flex-fuel vehicles on the road today that can use the mid-level and higher blends. General Motors, Chrysler and Ford have committed that in model year 2012, 50% of all the vehicles they make for the United States will be flex fuel.”
Future Concerns
More and more Americans in car dealerships are finding yellow gas caps, which indicate the vehicle is an FFV. “When they ask how much more it costs,” said White, “and they hear, ‘Nothing—and by the way it’s 50 cents to maybe $1 less a gallon,’ all of a sudden the bells and whistles start going off.”
White encourages gas retailers to partner with dealerships to provide fill-ups for every FFV they sell. “I like to say we more or less have the McDonald’s model,” he said. “We want an E85 or a blender pump and biodiesel within, say, 10 miles of every American. There is obviously a growing place for these alternative fuels.”
“You have to have a cost benefit for what you’re doing,” added Zaremba, “and I think that’s going to come over time. It’s going to come through the expanded Renewable Fuels Act that has been created. People are going to start looking for these products. I feel we’re just on the very baby steps of moving this forward.” CSD
