I've mentioned in earlier posts about a program called yellow hose. My employer, Carbon Green BioEnergy, has a deal in place with 33 retailers in Michigan where they are sold near-cost E85 (pre-blended at the plant), on the condition that they maintain a $1/gallon difference between E85 and regular gasoline. In what started with barely over a dozen locations, has nearly tripled since the program took effect in October 2013.We now have participating stations in southwest Michigan, Grand Rapids, Lansing, and the Flint region.
What Mitch Miller, Carbon Green BioEnergy CEO, and Carbon Green are doing is proving that at $1/gallon, E85 sells. And sells a lot. A number of folks know their vehicle is flex fuel, but won't use E85 unless it's close to or greater than a price difference that works for them. Recall that E85 has between a 15% and a 25% loss in miles per gallon when compared to its E10 Regular counterpart. The beauty of a flex fuel vehicle is that you are not required to use any specific blend of ethanol - you can use ethanol-free gasoline, go all the way to E85, or use any mixture of the two. Just don't go back and forth with the ethanol content of the fuel (i.e. switching back and forth between E85 and regular gasoline). Most people that I've talked to personally, have told me that they want a $0.70 to $0.80/gallon price discount to regular gasoline before they'll use E85. From a financial standpoint, I at least understand where they come from. I think this fight is about more than mpg, but I'll get into this in a later post.
At $1/gallon price difference, people begin to notice. People notice when $3.59 is posted in a price sign right next to $2.59. Sales of E85 continue to skyrocket, and are on what seems to be an exponential curve. I'm not able to share too many of the sales numbers, but many of these stations saw a 2-3 fold increase in E85 sales immediately after yellow hose took effect on October 1st, 2013. I know I did a double take when my dad gave me the daily list of prices to submit to e85prices.com. I saw $2.38 at the Carriage Hills Marathon I mentioned in my previous post, and I asked my dad a couple times, "am I seeing right? I know it's 10:00 at night, but is this correct"? Sure enough, it was. I had to go and confirm these prices for myself. Earlier that day, both stations had E85 at $2.89/gallon. 50 cents/gallon of a price drop is virtually unheard of in just a few hours for any region of the country. That allowed me to see $1.99 later that winter.
Any rate, you name a walk of life, job, age, type of car, personality, attractiveness/appearance, and odds are I've seen it fill with E85. I have seen all kinds of people fill with E85 lately.
The plant location itself is in Lake Odessa, Michigan. To add an additional outlet for the product, Carbon Green BioEnergy installed two above ground tanks (one for regular E10, and one for E85) alongside a pump. This pump dispenses Regular E10, E15, E30, and E85. It is credit-card only, open to the public, and is available 24/7. Need fuel at 2 am? Not a problem! Just stop on in and pump. Within a few months, we learned that 2,000 gallons was not a big enough tank for E85. We sell upwards of 1,200 gallons of E85 per day, and this is excluding sales of E15 and E30, which blend fuel from both tanks into the desired blend for the consumer. It has been a challenge keeping the tanks full, and we already have daily visits from one of the companies we supply E85 to as part of yellow hose, Petersen Oil and Propane. They load up with E85 from the loadout at the back of the plant, and fill the tank for us. Problem is, they can't even seem to do that fast enough! While there are short periods of calm at the pump, we frequently have lines of 2 or 3 cars waiting to fill at the pump. While cleaning the pump, I've spoken to folks from nearby communities like Sunfield, Hastings, and Ionia. This station fills in a sizable gap in E85 locations, and people definitely appreciate being able to fill up for $2.25/gallon. At least twice now, we've had to close the pump because the tank was empty. Right now, the company is exploring options to prevent this problem from occurring again.
My point in all of this is that this is precisely how we overcome the "blend wall", a fictional argument against expansion of ethanol blending, that argues we've blended in all of the ethanol to the transportation fuel market that can be absorbed in the capacity we're using it (E10, mostly).
Bruce Babcock, an economics professor at Iowa State University, has done some amazing research regarding E85, ethanol, and agriculture. His work has included a study which proves what, I think, many in the ethanol industry already know. At good prices spreads, people want to buy E85. Not everyone, but far more people than would be the case if the price difference was small.
I encourage you to read more from his publication How Much E85 Can Be Consumed in the United States. In my opinion, this is equally as important to proving this point as the work that Carbon Green BioEnergy is doing.
I'm elated when I go to an E85 station, and see all kinds of people fill up with E85. It's awesome to see both sides of the E85 pumping E85 at the same time. More and more people are using E85, which is actually increasing pump capacity! As more people continue to learn about the price difference between E85 and gasoline, sales will continue to increase. I think one hurdle is that there is only one double-sided E85 pump at most stations, which also dispenses gasoline. It frustrates me to no end when I have to sit there and wait for either side of the E85 pump to open, when the people there are pumping petrol - when there are at least 6 gasoline-only pumps open at that same station. I'm concerned that we will have people who might want to use E85, be forced to fill with petrol because they're in a hurry.
But one thing at a time.
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