Propel to Build 75 Biofuel Stations in Cali

Politics and the recession have been a one-two punch for the ethanol industry in recent years. But a sizable project to sell biofuels at branded alternative gas stations in California is now underway. Propel Fuels, a startup trying to create a brand around alternative fuels, held a grand opening at a biofuel station in Oakland Tuesday and announced a plan to add 75 new stations in California by the end of 2011.

Propel said it’s gotten $10.9 million from federal and state coffers to build 75 biofuel stations, starting with the three that have been completed recently (Oakland, Fremont and South San Jose). The three stations marked Propel’s foray into the Bay Area, and the company is working on new stations in downtown San Jose, North San Jose, Berkeley, Palo Alto, Redwood City, Livermore and Concord.  The company is ponying up $16 million for the overall California project, money that comes from the $20 million it raised earlier this year, said Matt Horton, CEO of Propel.

The company also operates six other stations in the Sacramento region, along with six more in Seattle. The California stations peddle both E85 (85 percent ethanol, 20 percent gasoline) and biodiesel. Horton declined to divulge the costs of building and operating these stations, but assured us that they are less than the costs for regular gas stations of comparable sizes. For one thing, Propel leases instead of owns the land. In the Oakland station, for example, the Propel fuel pump takes up a portion of a Chevron station (and the signage for its biofuel prices comes with a “Not a Chevron Product” disclaimer).

The ethanol for Propel’s fuel is coming from states such as Oregon and Idaho, Horton said. California used to have several ethanol production facilities, but they closed because of the rough economy and an overly optimistic belief that consumers would embrace biofuel-enabled vehicles (called flex fuel vehicles) in droves. The federal government mandate to increase the amount of ethanol consumed nationwide through 2022 promised to create a huge market. But the enthusiasm has been tempered by the realization by many ethanol producers and investors that developing and commercializing next generation ethanol at scale is extraordinarily expensive.

Meanwhile, the federal government has devoted a lot of attention and money to plug-in hybrids and electric cars. Just yesterday, the Environmental Protection Agency unveiled two proposed fuel economy labels that would address the rise of electric vehicles and the requirement to include on the stickers information about the car’s tailpipe emissions.

Horton said despite the hoopla, electric cars will not quickly take over the garages across the country, so biofuels remain an important solution for the national goal of reducing gasoline consumption and cutting greenhouse gas emissions.

“The scale of problem is so huge that we are focusing on solutions of the same scale,” Horton said. “There is a huge market today for [biofuel-powered] vehicles.”

California alone has nearly 500,000 cars that can take the ethanol blend; the nationwide number is about 9 million (see a list of car models), Horton said. California also has more than 500,000 of biodiesel cars on the road today. By 2012, half of the models made by American automakers would be able to do flex fuels, he said.

Propel’s investors include Craton Equity Partners, Nth Power and @Ventures.

For more research on the smart grid and batteries check out GigaOM Pro (subscription required):

Cleantech Financing Trends 2010 & Beyond