What Biofuels need: Infrastructure and brand-name recognition

(An opinion piece posted by Chris DeMorro, and published by web site Gas 2.0)

The other day I searched for E85 ethanol fueling stations in my home state of Connecticut. Turns out there are just two such public stations in all of New England. Even biodiesel stations are still sparse. Why?

In a piece last week in GigaOM, Boonsri Dickinson talked about how the biofuel businesses remains very small nationwide. There’s just a single biofuel station in San Francisco, DogPatch Biofuels. Across the whole of the U.S., there are just over 1,500 biodiesel stations, and 2,500 stations that serve E85 ethanol. Compare that to the over 130,000 gas-only stations in the U.S., and there is obviously a huge discrepancy there. While biofuel businesses do manage to turn a profit despite small scale (the San Francisco station sells just about 600 gallons of biodiesel a day) they often have to turn to selling other stuff, like chicken seed, to make more money. A big reason biofuel stations don’t draw big business is that biofuels are missing two components; infrastructure, and trust.

There is no “name-brand” biofuel business in the U.S., no trusted source of high-quality fuels. Now I’m not saying the start-up entrepreneur working out of a warehouse making biodiesel doesn’t know what he is doing. But when it comes to fueling up an investment that can cost tens of thousands of dollars, people are hesitant to put just any ol’ fuel into their car.

Beyond that, biofuel companies don’t have the infrastructure of deep pockets of Big Oil, but they’ve got the advantage of being able to farm their fuel from local sources as opposed to shipping it halfway across the country (or the world). Even so though, the people interested in fueling up with ethanol or biodiesel are still few and far between, and many of these people have learned how to use their vehicles minimally, if at all. Biofuels have a high hill to climb, and they may forever remain a niche market.

At least to me though, it remains a better alternative to petroleum.

Our Take:
This is an interesting point–what would it be like to have recognizable ethanol brands or biodiesel brands? Before its demise, VeraSun was toying with the vertically integrated model pioneered by the Big Oil companies–owning or having strategic partnerships with fuel retailers and offering a branded fuel. We think such a thing will eventually be a necessity, but the infrastructure piece is the much bigger, much more pressing concern–under two percent of the nation’s fueling sites offer E85.

We know there would be a consumer response if/when the government requires auto manufacturers, domestic and foreign, to make flexible fuel systems standard in all vehicles sold in America. At a cost of about $100 per vehicle for this flexible fuel equipment, this is not going to break anyone’s bank. And to go along with that, let’s have a serious federal commitment to increase E85 and biodiesel infrastructure through cost-sharing and other incentive structures. When the competition pumps their product out of the ground and sells it for multiples of what it cost to do so, the risk of marketing alternatives to oil is too great for the renewable industry to capitalize on its own. Once the infrastructure is in place, and flexible fuel vehicles are in the show room, ethanol will be in a place where a brand name could capture the imagination and the loyalty of America’s drivers.

After all, NASCAR just joined Indy as the next big race organization moving to ethanol blended fuel. A brand name could really exploit that, and sure enough, Sunoco–the supplier of racing fuel to NASCAR, plans to market its branded E15–the fuel blend that used by America’s favorite racers in NASCAR races starting in 2011.

 

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