ACE conference features retailer, ethanol producer capturing RINs

Posted: Friday, August 30, 2013

An Iowa ethanol plant and a South Dakota gas station have found a way to capture value from higher Renewable Identification Number (RIN) prices, resulting in lower prices for consumers at the gas pump. Representatives of both businesses gave presentations at the 26th annual Unite and Ignite ethanol conference put on by American Coalition for Ethanol (ACE).

Rick Schwarck, chairman, president and CEO of Absolute Energy LLC, and Bruce Vollan, owner of Vollan Oil in Baltic, S.D., spoke Aug. 28 to more than 200 people that attended the Aug. 25 to Aug. 28 event in Des Moines, Iowa. Vollan was also presented with the Paul Dana Marketing Vision Award as part of the second day’s general session.

Schwarck said Absolute Energy, a 115 MMgy ethanol plant in St. Ansgar, Iowa, has been blending E85 on site and selling it direct to retailers since mid-April. As a blender, the ethanol plant retains D6 RINs from the sale of E85, which the company sells at the end of the moth for the average price of that month.

The company decided to move forward with becoming a blender after seeing that the price advantage of ethanol and added benefit of higher RINs prices meant blenders at terminals and others were raking in the profits, but not passing that down to gas retailers so consumers could benefit. Schwarck said he initiated many conversations trying to convince these businesses to pass the savings through. “It was falling on deaf years,” he said. “So the only way to get it done was, fine, if you can’t beat them, join them. So we did.”

He provided a chart, showing the steep increase in E85 sales volume at two gas stations the plant provides with fuel, which went from about 2,000 to 2,500 gallons in April to as much as nearly 9,000 gallons in late June. Schwarck’s presentation also provided an outline of what the ethanol plant did to become a blender. That included permitting requirements, registration with state agencies to blend (in Iowa it’s the Department of Natural Resources), the right placard information for shippers and fuel testing requirements. The ethanol plant uses in-line blending skids, however, splash blending is also acceptable, he said. The company also collects state and federal taxes from the customer and files monthly state tax reports and a federal excise tax return quarterly.

There are some hurtles to being a blender, he said. One of the biggest is finding convenience stores that don’t have supply agreements in place already. Secondly, the ethanol plant can’t and wouldn’t tell the retailer what to charge for the fuel. However, by selling E85 at a lower price, retailers can greatly increase their sales volumes of the fuel and even of other items, such as snacks and drinks, with more traffic coming through the door. He also outlines renewable fuels tax credits offered in Iowa, including the Ethanol Promotion Tax Credit, E85 Promotion Tax Credit and E15 Tax Credit, all of which offer retailers tax credits ranging between 2 cents per gallon and 16 cents per gallon. “Other than dancing girls I don’t know what else we can do,” he said to laughter from the audience.

Vollan, who is also a blender and leveraging higher-valued RIN prices to sell lower priced fuel at his South Dakota gas station, installed blender pumps in 2007 and started selling E15 in June of 2012. His small, struggling gas station has been transformed and went from selling 250,000 to 300,000 gallons of fuel a year to being well on its way to sell one million gallons of fuel in 2013. “For the life of me I can’t figure out why everybody with an independent, unbranded gas station doesn’t do this,” he said.

After E15 was added to the mix of fuels he offers, it quickly became his second most popular fuel, behind E10. Currently, E85 is the most popular fuel. Vollan checked his gas prices before he left South Dakota for the ACE conference and illustrated just how much cheaper he is able to sell his ethanol blends, thanks to being a blender and taking advantage of RINs. E10, the most popular fuel, was priced at $3.39 a gallon and E85, currently No. 2 on the list, was priced at $2.29. E15 and E30, which currently switch back and forth between the No. 3 and No. 4 position, cost $3.29 and $3.13, respectively. Straight gas, which is at the bottom of the popularity list, was the most expensive at $3.59 a gallon. That’s a 20 cent difference in price between straight gas and E10 and a $1.30 a gallon price difference between straight gas and E85.

In addition, Jeff Hove, vice president of RIN Alliance, a RIN compliance and Marketing company, spoke during a breakout session Aug. 27, about the effect that increased RIN prices has had on the company’s 200 members, 95 percent of which are renewable fuel blenders, including ethanol and biodiesel. The value of RINs is providing incentives to blend higher percentages and install more blender pumps, he said. It’s absolutely clear, he said that the renewable fuel standard (RFS) is doing what it was meant to do—prompt the use of renewable fuels.

Looking at the Aug. 21 rack prices in Des Moines pre-blended E10 was $2.93, straight gas was $2.99 and E100 $2.40. With a RIN value of 76 cents blenders that blend their own gasoline can achieve a price of $2.86 cents a gallon for E10, opening up the door for about a 13.5 cent margin from the price of straight gas. “In our industry that is huge,” he said. “We’re used to talking half a cent type numbers.” He then added that incentives to blend renewable fuels would remain even if RIN prices don’t stay that high.