How to increase sales of E85 to break through the ethanol blendwall
August 8, 2016
As the RFS2 mandates for ethanol have risen, the nation has begun to approach the so-called E10 blendwall, that point at which nearly all of the nation’s gasoline has been blended at the 10 percent ethanol level. To get around the E10 blendwall, it is necessary to find pathways to blend more than 10 percent ethanol into ever larger portions of the nation’s gasoline pool. E15 and E85 are the primary pathways to increase ethanol consumption beyond 10%. While a case can be made for increasing E15 sales, increased E85 sales provide much more bang for the investment dollar.
In its latest RFS2 proposal for 2017, EPA has proposed standards based on an assumption that the maximum reasonably achievable volume of ethanol usage is approximately 0.2 billion gallons per year (bgy) above the E10 blendwall through the consumption of E85.
Stillwater has found that there are enough E85 stations and E85 dispensers in the U.S. to substantially increase the volumes of ethanol used in transportation fuels currently and to go far beyond EPA’s proposed volume for 2017. The simplest case where E85 throughput is increased in the roughly 3,100 existing E85 stations with no new hardware required, can increase E85 sales by 1.7 bgy and increase ethanol usage by 1.1 bgy. This can be done if EPA would provide sufficient economic incentives for current flexible fuel vehicle (FFV) owners using E10 to switch to E85. Increasing the value of current D6 RINs by about $1.00 will provide sufficient economic incentive for FFV owners to switch to E85. This is very low hanging fruit in terms of increasing renewable fuels usage.
E85 needs to sell below its energy parity value compared to E10 in order to increase sales to price conscious E10 consumers. EPA’s recently established and currently proposed RFS renewable standards fall short of providing a sufficient driving force to increase D6 RIN value to the point where E85 prices can be set far enough below energy parity with E10 to establish a tipping point where larger E85 sales volumes enable even lower E85 prices to the consumer.
Ethanol volumes can be increased significantly through the use of E85 but EPA needs to provide a sufficient driving force to encourage increases in the sales of E85. EPA’s only lever for this is to increase the RFS renewable biofuel mandate to the point where the D6 RIN is valued high enough to encourage this shift in the marketplace.