USDA invests $100M in renewable fuel pumps: the deep dive into who got what, and how the landscape shifts

rp_e15-ethanol.jpgUSDA announces state finalists for the Biofuel Infrastructure Partnership. Will it move the needle? The Digest investigates.

In Washington, US Agriculture Secretary Tom Vilsack announced that 21 states will receive grants through the Biofuel Infrastructure Partnership (BIP) to add infrastructure needed to supply more renewable fuel to America’s drivers.

Since announcing the program in May 2015, the U.S. Department of Agriculture’s Farm Service Agency received applications requesting over $130 million, outpacing the $100 million that is available. With a more than 1:1 match from private and state resources, USDA estimates that the BIP grants will support a projected 4,880 pumps at more than 1,400 fueling stations across the country.

A typical gas pump delivers fuel with 10 percent ethanol, which limits the amount of renewable energy most consumers can purchase at the pump. USDA estimates that this investment will more than double the number of stations that offer intermediate blends of ethanol, mainly E15 fuel levels, nationwide.

The program’s background

Through BIP, USDA will award competitive grants, matched by states, to expand the infrastructure for distribution of higher blends of ethanol. BIP funds from the Commodity Credit Corporation must be used to pay a portion of the costs related to the installation of fuel pumps and related infrastructure dedicated to the distribution of higher ethanol blends, for example E15 and E85, at vehicle fueling locations. The matching contributions may be used for these items or for related costs such as additional infrastructure to support pumps, marketing, education, data collection, program evaluation and administrative costs. This partnership will expand markets for farmers, support rural economic growth and the jobs that come with it, and ultimately give consumers more choices at the pump.

These competitive grants are available to fund activities designed to expand the infrastructure for renewable fuels. BIP grantees must provide matching contributions. The CCC funds must be used to pay a portion of the costs related to the installation of fuel pumps and related infrastructure dedicated to the distribution of higher ethanol blends, for example “E15” and “E85,” at vehicle fueling locations. The matching contributions may be used for these items or for additional related BIP costs such as additional infrastructure to support pumps, marketing, education, data collection, program evaluation, and associated administrative costs.

One caveat before we break out the bubbly

These are grants to states, not grants for specific installations of pumps at stations that have agreed to do it. As Ron Lamberty at the American Coalition for Ethanol observed, “We will do all we can to make fuel marketers aware of these funds and help them obtain what they need to make E15 and flex fuels available at their stations.” Note the remark about building “awareness” of the grants among fuel marleters.

And the (state by state) winners are…

Amounts are not yet finalized and state-by-state pump counts are USDA estimates. Funding amounts for each state will be announced at a later date.

State Estimated Number of Pumps
Colorado 28
Florida 892
Illinois 428
Indiana 110
Iowa 187
Kansas 174
Louisiana 110
Michigan 89
Minnesota 620
Missouri 171
Nebraska 80
North Carolina 190
North Dakota 90
Ohio 148
Pennsylvania 308
South Dakota 74
Texas 763
Virginia-Maryland 191
West Virginia 107
Wisconsin 120
TOTAL 4880

The deeper dive: the program’s scope

Overall, in the program’s conception, the funds will cover a projected 4,880 new pumps at 1400 stations.

We’re frankly not quite sure, here in Digestville, why there’s an average of 3.48 pumps per station in this project — a number of renewable fuel advocates have been emphasizing getting at least one pump into as many outlets as possible, especially for E85 and other high-blends.

So, this is something completely different — more like adding an E15 option alongside the “normal” 87-89-91 octane options that feature E10 ethanol blends.

So, we’re looking at adding E15 at approximately 1400 stations, or 1.23% of total US fuel outlets.  With the USDA tipping that matching grants are in approximately a 1:1 ratio, we’re looking at a conversion cost per pump of $40,984 and a per station cost of $142,857.

Reality check: Rewind to 2013

Several years ago, a war of words erupted between renewable fuel advocates and petroleum interests over the cost of E15 conversions, promoting a 2013 Petroleum Equipment Institute study that was widely hailed in renewable fuel circles.

At the time, the Renewable Fuels Association had this to say:

The cost of upgrading an existing retail gas station to sell E15 is substantially less than recently suggested by ethanol opponents, according to new information from the Petroleum Equipment Institute (PEI).

E15 has now been in the marketplace for over a year, and those stations offering E15 have seen increases in both overall fuel sales and in-store sales. Unfortunately, some of the retailers wanting to explore E15 have been discouraged from doing so by biofuel opponents who hope to block widespread use of the new fuel blend. Those detractors have stated that adding E15 will cost retailers $200,000 to $300,000. The ethanol industry has repeatedly stated that such estimates represent an absolute worst-case scenario that would be far from the norm. In fact, the stations that offer E15 today have spent an average of just $10,000 per station to add the product—or slightly less than $0.01 per gallon of gasoline sold for the average retail gas station.

Today, PEI further underscored the ethanol industry’s point that E15 station conversions can be done affordably. By request from the U.S. Department of Agriculture (USDA), PEI examined the potential cost of installing E15 at retail gas stations under 10 different scenarios. For example, stations that are just required to have compatible equipment can offer E15 with minimal investment. Those that can use existing dispensers—such as the Kansas station that was first in the country to sell E15 last summer—can offer E15 for under $1,200 on average per station. In this case, the investment in converting the station to sell E15 can be recouped in just one month (due to the potential for increased profitability from the sale of E15).

Those that require a listing by a testing laboratory also have inexpensive options. Stations can choose to retrofit their dispensers to offer E15 for under $4,200 per dispenser on average or replace dispensers to offer E15 for under $20,500 per dispenser on average. Even new stations being built could add E15 for under $10,000 per dispenser on average.

Given the trivial cost of some station conversions where existing dispensers can be used and what is needed is essentially a signage change, for $1200 — we are looking at either a case where actual conversion costs are coming in for many stations at around the figures cited by the American Petroeum Institute. Or, there are fewer “low-cost, easy conversions” than once hoped. Or, states are spending money on funding the drapery in state offices instead of putting money on the street.

How much renewable fuel will this move?

It’s early days for E15, but Growth Energy touted E15 sales of 1660 gallons per month per station. If this holds up, we’re looking at 1.39 million gallons in additional renewable fuel content from this $200 million program,. Amortizing the cost over 10 years, per station, it comes to an added infrastructure cost of $14.39 per gallon, per year.

The key to understanding the value of these programs is to see how much renewable fuel is actually moved. What we don’t know is how much demand there is going to be.

The deeper dive: the state-by-state

Notable right away, there are 21 states ”in the money” and 29 states and the District of Columbia on the outside looking in. Not surprisingly, given the location of most renewable fuel production, there’s precious little distroibution in this plan along the West and East Coasts. Only Colorado of the traditional 11 Western US states is projected to receive grant money.

Here’s the state map.

As we look at the intensity of grants, we note that Minnesote and North Dajota, Florida and Kansas are the big winners based on projected deployments, taking into account the number of outlets in each state. For Kansas and Florida, the projected totals are equivalent to 4% of the statewide number of fuel stations; for North Dakota, the total rises to 6%; and Minnesota landed the lions share with a planned deployment equivalent to 8% of the fuel stations in the state.

US-E15-pump-program

Here’s the state table.

US-E15-pump-program-2

Reaction from USDA

“The quality and geographic diversity of the applications, backed by supportive state and private partners, demonstrate the strong demand across the country for cleaner, more affordable fuel,” said Secretary Vilsack. “The Biofuel Infrastructure Partnership is one approach USDA is using to aggressively pursue investments in American-grown renewable energy to create new markets for U.S. farmers and ranchers, help Americans save money on their energy bills, support America’s clean energy economy, cut carbon pollution and reduce dependence on foreign oil and costly fossil fuels.”

ACE Senior Vice President Ron Lamberty said: “Secretary Vilsack has worked tirelessly to see that his vision of 10,000 blender pumps across the nation becomes reality, and the Biofuels Infrastructure Partnership is another great example of his commitment to expanding markets for farmers’ products,” Lamberty said.

“BIP is a matching grant program, which means USDA also challenged states and ethanol supporters to step up and make equal or greater amounts of infrastructure funding available to station owners. The intended result is nearly a quarter of a billion dollars petroleum marketers can use to buy equipment and offer more ethanol blends to consumers. In many cases, station owners will pay little or nothing to add state-of-the-art blender dispensers and other equipment they may need to sell flex fuels and E15.  We encourage retailers to apply for funding assistance through the appropriate state agencies.”

Tom Buis, CEO of Growth Energy, said “Today’s announcement by the USDA is a tremendous win for American consumers. The USDA is helping advance consumer choice and market access for higher blends of cleaner burning, American made, renewable fuels. I would like to thank the administration and in particular, Secretary Vilsack, for his unwavering leadership and dedication to promoting America’s renewable fuels and helping bring a choice and savings to consumers when they fill up at the pump.

“The USDA, though these matching grants,” Buis continued, “will help build out the necessary infrastructure to increase market access for higher ethanol blends. This will allow consumers to choose higher performing, less expensive American made ethanol that supports the economy, improves the environment and reduces our dependence on foreign oil and fossil fuels.”

The Digest’s Take

There’s good news, bad news, and news for thoughtful observers who want change, but not at any cost.

The bad news we’ve dwelled on above — the installation cost may be quite high compared to results, and in any case the program, although a strong first move, needs to be continued in order to “move the needle” on more renewable fuels.

The good news? All gallons of affordable low-carbon fuels are steps forward for a low-carbon society.

The thoughtful news? In each of these cases, it’s a cautionary tale on the cost of infrastructure change that should, rather than discourage friends of biofuels, rather encourage them.

The cost of infrastructure change is something that affects all alternatives, and one of the very reasosn many nations focus on biofuels is because of the daunting costs and timelines assocoated with converting to other renewables.

In 2013, RFA said “Given ethanol’s discount to gasoline and the current value of RINs, retailers offering mid-level ethanol blends like E15 can quickly recoup their investments in infrastructure,” and that’s a claim that can not be made, for example, in deploying hydrogen infrastructure, to give an example of another very exciting alternative fuel that faces infrastructure problems.

Electrics, compressed or liquid natural gas, and infrastructure-incomaptible biofuel molecules such as ethanol or biodiesel — they all face dauting infrastructure costs, not only at the pump, but in the vehicle fleet. One thing it does is point out the urgent need for, and attractivenes of, drop-in fuels such as renewable diesel, jet and gasoline as an accelerator in reducing dependence on petroleum.

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