Why Are Biofuel Stations Still A Hippie Niche?

The DogPatch Biofuels station reeks of French fries. But DogPatch is no McDonald’s. The station sells cold beverages such as Reed’s Ginger Brew, organic chocolate bars, kettle chips, biolighters and handmade hats and soap — items more typical of Whole Foods than a gas station — and goods that reflect the kind of customers who come there to fuel up. All the customer needs is a diesel engine and an open mind.

But the truth is, most people haven’t seen a biofuels station. There are only 1,500 stations in the U.S. At the same time there are about 8.4 million flex fuel vehicles (fuels that can use ethanol) in the U.S, and by 2015, the number of flex fuel cars is expected to grow to over 21 million. Ford and GM says that 50 percent of their cars produced next year will be flex fuel capable.

Profitable But Niche

Just off of highway 280 rests San Francisco’s only biofuel station. According to the biofuel station owner, about 60 customers come and guzzle up around 600 gallons of biofuel a day.

That’s not bad for a two-pump station. The owner, Brian Deninger, bought DogPatch in May of this year, so he says it’s too soon to tell if the station is profitable or not (pre-tax season, and all). He bought the station to fuel his tour company called Incredible Adventures.

Deninger’s gut feeling is that his station is profitable. But at the same time it’s still a risky niche business. DogPatch buys fuels at market price and sells it to consumers at a more expensive price. “It’s a niche market because people who buy biofuels are into the idea of being petroleum-free and environmentally friendly,” said Deninger.

But since he started running the station, Deninger realized people are fundamentally confused about biodiesel: “Customers come in with flex fuel cars thinking they can fill up with biodiesel. People must have diesel vehicles [to fuel up on our biodisel]. Biodiesel is not the same as corn-based ethanol,” said Deninger.  “Used cooking oil is good for the environment, but it is still a niche market.”

Margaret Farrow, an owner of Berkeley-based BioFuels Oasis, said her biofuel station is also profitable. “Biodiesel is a low profit margin business. In order to increase profits we began selling additional products. People come to us to purchase chicken feed, beekeeping equipment — not just fuel.”

Farrow’s business does the best when there are spikes in gas prices. The Gulf Oil spill motivated people to fuel their tanks with biodiesel rather than petroleum. “I would say the limiting factors in biodiesel growth are: a relatively high price compared to diesel and a limited amount of diesel cars and trucks to choose from,” said Farrow.

Chicken & Egg Problem

But biofuels are missing a key ingredient to greater adoption: the infrastructure. Matt Horton, the CEO of Propel Stations, said one of the biggest reasons biofuels is a niche market is that there is no availability of biofuels retail stations around the country.

“People don’t have a high level of confidence in the fuel quality. Our company was established to address those two issues, deploy infrastructure everywhere and greatly increase the number of stations and increase consumer’s confidence level,” said Horton.

Horton said Propel designed a business model that can make money with biofuels in a way that major oil companies can’t afford to do today. “We partner with existing fuel stations, install all equipment and manage and monitor it remotely,” said Horton. And Horton contends that without the infrastructure the next-generation of biofuels companies (cellulosic, ethanol and algae-based) won’t have a market.

Policy Push

Deninger has to report the number of gallons he sells to the state because biodiesel is an experimental fuel – all DogPatch’s customers are part of a user group.

Last week, President Obama signed the H.R. 4852 bill, extending a biodiesel tax incentive into law. “The tax credit has been a great help to the biofuels industry,” said Deninger.

Farrow also thinks the biodiesel tax incentive helped the industry. “It has been credited with creating lots of jobs in the biodiesel industry, developing the market by helping production plants buy necessary equipment, and potentially lowering the price for the consumer. In 2010, the tax credit, which usually is adopted in the beginning of the year, was postponed until just this week,” said Farrow.

Biofuel of Choice?

It’s not entirely clear what will be the biofuel of choice for when/if the market grows substantially. “Ethanol will play a key role in the early years. We are trying to remain as technology neutral as possible,” said Dimitri Stanich, the public information officer at the CARB. Ideally, the cars driving around on the road will be a mix of alternative fuel vehicles, hydrogen, electricity, natural gas, and ethanol.

It is the laws in California that are driving adoption of biofuels and other renewable fuel options. According to Annual Energy Outlook EIA, there are 13.2 million renewable (flex fuel and diesel) cars on the roads in California and 110,000 natural gas cars. In 2020, the number of vehicles purchased will look more like this in the state: 3.6 million renewables vehicles (flex fuel and diesel), 90,000 natural gas vehicles and 300,000 electric vehicles.

Electric vehicles have been all the buzz these days, there seems to be a place for every type of car out there. It’s too early to tell where we will be in a decade from now, but chances there will be more alternatives fuels at the gas station.

Image courtesy of Dogpatch Biofuels.

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