2018 February Ethanol Producer Magazine by BBI International

FEBRUARY 2018

PUMP

APPEAL Market to Consumers Where It Matters

Page 22

Expedited Approval for Fiber Pathways

Page 30

Fly-Ins: Initiate Inï¬&#x201A;uence Page 36

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ALSO

Higher RIN Values Incentivize Higher Blends Page 44

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CONTENTS

FEBRUARY 2018 VOLUME 24

DEPARTMENTS 8

AD INDEX

EDITOR'S NOTE

VIEW FROM THE HILL

Sharing Value, Building Brand By Tom Bryan RFA’s 2018 Biofuel Priorities to Help 'Make America Great Again' By Bob Dinneen

EVENTS CALENDAR

GLOBAL SCENE

More Countries Adopting Ethanol Policies By Bliss Baker

ISSUE 2

FEATURES

MARKETING

On the Spot

Strategies to increase ethanol’s appeal at the pump By Lisa Gibson

GROWTH ENERGY

REGULATION

A Straighter, Shorter Pathway Approval is getting simpler for corn fiber ethanol By Susanne Retka Schill

ICM

CLEARING THE AIR

ADVOCACY

Respecting the Law By David Hallberg

BUSINESS BRIEFS

MARKETPLACE

The Fundamentals of Fly-Ins Lawmaker-constituent interaction is vital for favorable biofuels policy By Keith Loria

NATIONAL FARMERS UNION

PRICING

Unexpected Incentive

RIN values prompt higher-blend sales By Lisa Gibson

ETHANOL PRODUCER MAGAZINE

CONTRIBUTION

50 ON-SITE ENERGY

CHP: Obstacles and Opportunities ON THE COVER A consumer uses an E15 nozzle at a Thorntons’ pump in Chicago. PHOTO: GROWTH ENERGY

6 | Ethanol Producer Magazine | FEBRUARY 2018

Plants must navigate rates, policy before payoff BBI INTERNATIONAL By Joe Leo Ethanol Producer Magazine: (USPS No. 023-974) February 2018, Vol. 24, Issue 2. Ethanol Producer Magazine is published monthly by BBI International. Principal Office: 308 Second Ave. N., Suite 304, Grand Forks, ND 58203. Periodicals Postage Paid at Grand Forks, North Dakota and additional mailing offices. POSTMASTER: Send address changes to Ethanol Producer Magazine/Subscriptions, 308 Second Ave. N., Suite 304, Grand Forks, North Dakota 58203.

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VOLUME 24 ISSUE 2

ADVERTISER INDEX

EDITORIAL President & Editor in Chief Tom Bryan tbryan@bbiinternational.com Managing Editor Lisa Gibson lgibson@bbiinternational.com Associate Editor Tim Albrecht talbrecht@bbiinternational.com Copy Editor Jan Tellmann jtellmann@bbiinternational.com

ART Art Director Jaci Satterlund jsatterlund@bbiinternational.com Graphic Designer Raquel Boushee rboushee@bbiinternational.com

PUBLISHING & SALES CEO Joe Bryan jbryan@bbiinternational.com Vice President of Operations Matthew Spoor mspoor@bbiinternational.com Sales & Marketing Director John Nelson jnelson@bbiinternational.com Business Development Director Howard Brockhouse hbrockhouse@bbiinternational.com Senior Account Manager/Bioenergy Team Leader Chip Shereck cshereck@bbiinternational.com Circulation Manager Jessica Tiller jtiller@bbiinternational.com Marketing & Advertising Manager Marla DeFoe mdefoe@bbiinternational.com

EDITORIAL BOARD Ringneck Energy Walter Wendland Little Sioux Corn Processors Steve Roe Commonwealth Agri-Energy Mick Henderson Pinal Energy Keith Kor Aemetis Advanced Fuels Eric McAfee Western Plains Energy Derek Peine Corn Plus Mike Jerke

2018 Advanced Biofuels Conference 2018 International Fuel Ethanol Workshop & Expo 2018 National Ethanol Conference Ag Country Farm Credit Services Agra Industries Badger Meter BetaTec Hop Products Buckman CTE Global, Inc. D3MAX LLC DuPont Industrial Biosciences Edeniq, Inc. EISENMANN Corporation Enogen: Syngenta Ethanol Plant Map Fagen Inc. Fluid Quip Process Technologies, LLC Growth Energy Hydrite Chemical Co. ICM, Inc. J.C. Ramsdell Enviro Services, Inc. Lallemand Biofuels & Distilled Spirits Leaf - Lesaffre Advanced Fermentations Louis Dreyfus Company Nalco Water Natwick Associates Appraisal Services North American Services Group On Sight Video Surveillance Phibro Ethanol Performance Group POET LLC R.S. Stover RPMG, Inc. Solenis LLC Sukup Manufacturing Co. Syngenta Trinity Rail Group U.S. Water Services United Sorghum Checkoff Program WINBCO

43 48 21 11 55 25 4 39 56 28-29 43 46 41 49 40 47 16 2 33 26 51 17 42 52 34 32 24 38 13 15 27 35 5 20 49 3 7 18 19

Customer Service Please call 1-866-746-8385 or email us at service@bbiinternational.com. Subscriptions to Ethanol Producer Magazine are free of charge to everyone with the exception of a shipping and handling charge for anyone outside the United States. To subscribe, visit www.EthanolProducer.com or you can send your mailing address and payment (checks made out to BBI International) to: Ethanol Producer Magazine Subscriptions, 308 Second Ave. N., Suite 304, Grand Forks, ND 58203. You can also fax a subscription form to 701-746-5367. Back Issues, Reprints and Permissions Select back issues are available for $3.95 each, plus shipping. Article reprints are also available for a fee. For more information, contact us at 866-746-8385 or service@bbiinternational.com. Advertising Ethanol Producer Magazine provides a specific topic delivered to a highly targeted audience. We are committed to editorial excellence and high-quality print production. To find out more about Ethanol Producer Magazine advertising opportunities, please contact us at 866-746-8385 or service@bbiinternational.com. Letters to the Editor We welcome letters to the editor. Send to Ethanol Producer Magazine Letters to the Editor, 308 2nd Ave. N., Suite 304, Grand Forks, ND 58203 or email to lgibson@bbiinternational.com. Please include your name, address and phone number. Letters may be edited for clarity and/or space.

Please recycle this magazine and remove inserts or samples before recycling

8 | Ethanol Producer Magazine | FEBRUARY 2018

EDITOR'S NOTE

Sharing Value, Building Brand If any doubt remains that the Renewable Fuel Standard is working, look no further than the role RINs play in attracting retailers and consumers to E15 and other higher-level ethanol blends. RINs were, in

Tom Bryan

President & Editor in Chief tbryan@bbiinternational.com

fact, designed to be the chief market mechanism of the RFS, and it’s clear that they’re making certain ethanol blends cheaper and more attractive at the pump. E15’s early-stage growth, for instance, has been mostly propelled by RINs, coupled with retailer education and, of course, good branding. In “On the Spot,” on page 22, EPM Managing Editor Lisa Gibson explains how E15 retailers are using simple, consistent messaging to win over customers at the pump. Market research done by Growth Energy suggests that consumers need to be reassured quickly—like in seconds—that higher ethanol blends are cheaper and cleaner than regular unleaded, and safe for their vehicles. Messaging like that is working, even with variable branding, pump design and blend options between stations. In addition to brand building, engaging ethanol producers in the wholesale transaction process, and making sure retailers understand E15’s RIN advantage, might also help fast-track the fuel’s growth. Deeper in this issue, Gibson reports in more depth on how RIN values affect fuel prices. Ethanol’s opponents often argue that RIN price spikes have a corresponding effect on ethanolblended gasoline. However, just the opposite can be true, especially when it comes to higher ethanol blends in the Midwest. In “Unexpected Incentive,” on page 44, we learn that some ethanol producers are selling RINless ethanol, often E85, allowing the blender to retain the RIN value and pass the discount down the line. One of the big benefits of RINless ethanol is that it removes the RIN marketing burden from small, independent retailers that sometimes struggle to offload the credits at full value. In our page-30 story, “A Straighter, Shorter Pathway,” freelance journalist Susanne Retka Schill reports on how gaining EPA approval for corn fiber-to-ethanol processes is, at last, getting faster and easier. The agency took three years to green-light the first pathway approvals of this kind—granted to Quad County Corn Processors and Edeniq, respectively—and QCCP’s first customer required another two years to get its own go-ahead to generate D3 RINs. Similarly, the first ethanol plants to adopt Edeniq’s process, which gives producers a “cellulosic lift,” required many months for clearance. Today, that’s all changing and other corn fiber-to-ethanol companies are looking forward to a more streamlined approval process. Finally, if you have ever wondered why Washington, D.C., fly-ins are important to our industry’s trade associations, be sure to read “The Fundamentals of Fly-Ins,” on page 36. The founders of this magazine used to say, “Success starts with showing up.” Similarly, the perception that U.S. lawmakers have of our industry is largely the result of our face-to-face interaction with them. Few American industries descend on Capitol Hill with such large groups of well-informed, genuine advocates.

FOR INDUSTRY NEWS: WWW.ETHANOLPRODUCER.COM OR FOLLOW US:

TWITTER.COM/ETHANOLMAGAZINE FEBRUARY 2018 | Ethanol Producer Magazine | 9

VIEW FROM THE HILL

RFA’s 2018 Biofuel Priorities to Help ‘Make America Great Again’ By Bob Dinneen

It’s been a year since President Donald Trump took office and I can safely say it’s been anything but boring, both here in Washington, D.C., and around the country. The old playbook on how things got done was tossed

in the trash and new guidelines were launched, cutting red tape and helping to make America great again. This new era of getting our country back on track has and will continue to extend into the biofuels industry, making sure we are providing the cleanest, lowest-cost and highest-octane fuels at the pump. To that end, here are a few of the Renewable Fuels Association’s priorities for the new year, to ensure biofuels help make America great again. • E15 RVP parity: The RFA’s top goal for the year is ensuring consumers have year-round access to E15. Due to an outdated EPA regulation, retail gasoline stations are essentially prohibited from selling E15 in more than two-thirds of the nation’s gasoline market during the summer ozone control season, from June 1 to Sept. 15. EPA’s nonsensical and disparate Reid vapor pressure regulation of allowing E10 but not E15 and higher ethanol blends during the summer months offers no consumer or environmental benefit whatsoever. EPA currently has the authority to extend the RVP waiver to E15, but our champions on Capitol Hill have also introduced legislation to ensure consumers have access to E15, regardless of the time of year. Whether through legislative or administrative action, cutting through needless regulation by obtaining RVP parity remains our top goal. • Ensuring a strong RFS: The single most effective clean energy policy in this country has been the Renewable Fuel Standard, helping to clean the air, boost local economies and increase energy independence. Trump is one of our nation’s best advocates for American energy, and there is nothing more American than producing a homegrown fuel that is less expensive, cleaner and better for the environment than ethanol. Trump’s EPA finalized a strong 2018 RFS in November, maintaining the statutory 15 billion-gallon requirement for conventional renewable fuels like corn ethanol. I anticipate the 2019 RFS rule will continue to be a strong statement to American agriculture and consumers across this

10 | Ethanol Producer Magazine | FEBRUARY 2018

country, helping to break up Big Oil’s near-monopoly at the pump and make us more energy-secure. • Promotion of high-octane fuels: Demand for higher-octane gasoline is growing, as EPA continues work on light-duty vehicle greenhouse gas standards and automakers introduce more vehicles that require or recommend the use of premium fuel. A high-octane, midlevel ethanol blend—E20 to E40—can deliver the same, or better, fuel economy as regular gasoline when paired with an optimized engine, but with less energy expended per mile and far fewer emissions. RFA will be working to make sure EPA and automakers recognize the significant role high-octane ethanol blends can play in meeting clean-air and fuel economy-related regulations. • Growing exports: As the world’s lowest-cost producer, the U.S. continues to be the international market’s most reliable and affordable source of high-octane ethanol. However, in the past year, there have been nonsensical tariff and nontariff barriers to trade, such as those imposed by China and Brazil, which ultimately end up harming consumers in those countries. Trump’s administration knows the value of American agriculture and homegrown fuels, and will continue working to ensure free and fair trade for ethanol around the globe. • Increasing the number of stations offering higher ethanol blends: At the end of 2017, there were more than 4,000 retail stations offering E85 and other higher ethanol blends, as well as 1,215 stations across 29 states selling E15. Thanks to the Blend Your Own Ethanol Campaign, U.S. Department of Agriculture’s Biofuels Infrastructure Partnership Program, and the ethanol industry-funded Prime the Pump initiative, retailers helped provide greater choice at the pump. The RFA will continue to push for greater consumer access to higher ethanol blends such as E15 and E85. While I expect this year to be just as unpredictable as 2017, I remain confident that Trump’s support for our industry remains steadfast and look forward to working to ensure consumers here and abroad have access to the cleanest, lowest-cost ethanol in the world. Author: Bob Dinneen President and CEO Renewable Fuels Association 202.289.3835 bobd@ethanolrfa.org

EVENTS CALENDAR 2018 National Ethanol Conference February 12-14, 2018 JW Marriott San Antonio San Antonio, Texas The National Ethanol Conference is the most widely attended executive level conference for the ethanol industry. Since 1996, the RFA’s NEC has been recognized as the preeminent conference for delivering accurate, timely information on marketing, legislative and regulatory issues facing the ethanol industry. In 2017, 1,000 industry leaders and professionals attended the NEC, representing 38 states, the District of Columbia and more than 14 countries. Networking and business development have been the leading factors promoting attendance since the NEC’s inception. 202-315-2466 | www.nationalethanolconference.com

2018 International Fuel Ethanol Workshop & Expo June 11-13, 2018 CenturyLink Center Omaha Omaha, Nebraska

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From its inception, the mission of this event has remained constant: The FEW delivers timely presentations with a strong focus on commercialscale ethanol production—from quality control and yield maximization to regulatory compliance and fiscal management. The FEW is the ethanol industry’s premier forum for unveiling new technologies and research findings. The program covers cellulosic ethanol while remaining committed to optimizing existing grain ethanol operations. 866-746-8385 | www.fuelethanolworkshop.com

2018 Advanced Biofuels Conference June 11-13, 2018 CenturyLink Center Omaha Omaha, Nebraska Colocated with the International Fuel Ethanol Workshop, the Advanced Biofuels Conference is tailored for industry professionals engaged in producing, developing and deploying advanced biofuels, including cellulosic ethanol, biobased platform chemicals, polymers and other renewable molecules that have the potential to meet or exceed the performance of petroleum-derived products. 866-746-8385 www.advancedbiofuelsconference.com

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GLOBAL SCENE

More Countries Adopting Ethanol Policies By Bliss Baker

In the years since the international community began taking the human contribution to global climate change seriously, the ethanol industry has experienced several ups and downs. National

mandates created markets that enabled the development of domestic biofuel industries in a number of countries, but these government commitments wavered when oil prices dropped to historic lows after the 2008 economic collapse. Encouragingly, despite an extended period of uncertainty and lessthan-ideal market circumstances, free trade has enabled global biofuel production to continue its incremental growth year after year. This resilience has been supported by real-world data becoming available to replace unreliable projections, illustrating the lifecycle greenhouse gas (GHG) benefits of ethanol use compared to conventional fossil fuels in transport. There are clear signs that a growing number of countries are recognizing biofuels not just for their GHG emission and economic benefits, but also for their contribution to improved air quality in highdensity urban centers and their ability to reduce reliance on crude imports. Most significant for the global biofuels industry are the recent signals from the governments of India and China—two of the world’s largest economies and auto markets—of their intention to significantly scale up the use of biofuels in their countries’ transport sectors. These signals are particularly noteworthy because they focused on the economic opportunities biofuels production presents for farmers, as well as ethanol’s ability to reduce harmful particulate matter emissions from transportation fuels. At the 2015 U.N. Climate Conference (COP21) where the historic Paris Agreement was signed, dozens of countries highlighted policies promoting or mandating the use of biofuels for domestic transport in their Nationally Determined Contribution plans. It has been encouraging to see an increasing number of countries introducing or enhancing biofuel mandates for transport fuels in their revised plans submitted at COP23 in November.

At that conference, parties to the 2015 Paris Agreement established terms for full implementation of the agreement, including their NDCs. This sets the stage for the development of clear policy commitments in the next year, specifically designed to achieve national emissionreduction targets in the short and near term. These efforts will have to consider the additional challenges presented by the fact that in the time since the 2015 commitments were made, multiple nongovernmental organizations have reported that governments will have to increase the ambitiousness of the NDC plans submitted in 2015 if the global community is to achieve the targets laid out in the Paris Agreement. This was recognized by 19 countries at COP23, including Brazil, China and India, who complemented their overall NDC plans by committing to development of biofuels targets and an action plan to achieve them. This agreement is significant for the countries participating and the potential for trade, but also because the decisions included in the declaration were informed by modeling from the International Energy Agency and the International Renewable Energy Agency, which concluded that the temperature goals adopted in the Paris Agreement cannot be reached without a major increase in the production and use of sustainable biofuels. Because structural economic and infrastructure reforms require a significant amount of planning and budgeting, governments have a limited number of policy pathways to choose from if they are to achieve short-term emission reductions. Ethanol’s value as a cost-competitive and immediately dispatchable alternative to fossil fuels, using existing transport fuel infrastructure and auto fleets, represents a unique policy solution to the challenges faced by governments. Establishing domestic biofuel industries takes time, but a focus on free trade will enable countries to satisfy their demand for biofuels as they develop their capacity. The Global Renewable Fuels Alliance looks forward to working with countries as they increasingly turn to biofuels to support their efforts to cut GHG emissions, and to facilitate longer-term transitions to a low carbon future. Author: Bliss Baker President, Global Renewable Fuels Alliance 647.309.0058 info@globalrfa.org

12 | Ethanol Producer Magazine | FEBRUARY 2018

CLEARING THE AIR

Respecting the Law By David Hallberg

Since taking office, U.S. Environmental Protection Agency Administrator Scott Pruitt has been very clear about his role when it comes to the Renewable Fuel Standard. “My responsibility as

Administrator of the Environmental Protection Agency is to faithfully administer the laws passed by the U.S. Congress. This agency must and will respect those laws.” Subsequently, EPA issued its final volume obligations under the RFS, and Pruitt, although the biodiesel and advanced categories are subject to debate, was true to his word. In general, the law was respected and that's good news. Hopefully Pruitt has established a precedent that will apply to one of the most important, yet ignored provisions of the Clean Air Act, which is the control of air toxics. Section 202(l) of the CAA requires EPA to regulate, to the greatest degree achievable, aromatic compounds in gasoline, which are produced in increasing volumes to meet the demand for octane. In 2017, the U.S. consumed more than 140 billion gallons of gasoline. Today, 25 to 30 percent of gasoline consists of highly carcinogenic and carbon intensive aromatic compounds (benzene, toluene, xylene), refined from crude oil, that refiners add to increase octane. To compensate for what the U.S. Department of Energy is calling a “looming octane shortage,” expanded supplies of ethanol’s “clean octane” are needed to provide consumers the required octane for their autos. This looming octane shortage is a result of refiners’ increased use of lower-octane light, tight oil, the unnecessary E10 blend wall and the CAA’s mobile source air toxics (MSAT) aromatic restrictions. Thanks to the RFS, U.S. ethanol producers have proven they can supply this clean octane without the need for tax incentives or other government support. So here is where respect for the law is needed: If EPA fails to enforce MSAT, as required under Section 202(l) of the CAA, we might see a dramatic rise in a range of respiratory and even neurological ailments directly related to gasoline mobile air toxics. From research we have conducted at the Urban Air Initiative, it is increasingly clear that gasoline exhaust is the primary carrier of the most lethal aromatics that lead to ground-level ozone formation. If gasoline aromatics continue to

14 | Ethanol Producer Magazine | FEBRUARY 2018

rise, our public health will continue to be at risk. In formal comments, UAI has provided EPA with a deregulatory road map to faithfully administer the law and escape this aromatics dilemma. The first and most important step is for EPA to correct its misinterpretation of Section 211(f) of the CAA, the “sub-sim” rule. As of January 2017, ethanol became a “fuel additive used in fuel certification,” which means the CAA no longer limits the concentration of ethanol in market fuel. If EPA wants to regulate ethanol content, it must do so under Section 211(c), which puts the burden of proof on EPA, rather than the ethanol industry, to prove any harmful effects of ethanol. Many ethanol supporters, including the National Farmers Union, Renewable Fuels Association, American Coalition for Ethanol, Clean Fuels Development Corp., Nebraska Ethanol Board, etc., have endorsed UAI’s deregulatory road map, which, if adopted by EPA, would open the door to mid-level blends up to E30 to be used in legacy vehicles. EPA’s adoption of the UAI road map would produce many winners, and very few losers. Consumers and automakers would save billions in compliance costs. EPA would cut regulations and unleash market forces easing compliance with a host of important programs— the RFS, Corporate Average Fuel Economy, Tier 3 and MSAT. Refiners would not have to alter their crude slates or sub-octane blendstocks; 20 percent more ethanol can be easily splash-blended on top of E10 at the terminal to produce 100+ RON high-octane, low-carbon fuels. Farmers and ethanol producers would be able to gradually expand as corn starch surpluses are offset by increasing ethanol demand. Precision agriculture advances and high-yield corn acres will restore soil organic carbon, retain more moisture and nutrients, and sequester substantial amounts of carbon. Ethanol’s substitution for toxic aromatics will save taxpayers and businesses billions of dollars each year in reduced health costs. All this if Pruitt faithfully administers the law. Author: David Hallberg Board Member, Siouxland Ethanol LLC Adviser, Urban Air Initiative dehbiofuels@gmail.com

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BUSINESS BRIEFS

People, Partnerships & Projects

Green Plains to use Enogen corn from Syngenta Syngenta has announced a partnership with Green Plains Inc. to expand its use of Enogen corn enzyme technology across its 1.5 billion-gallon production platform. Green Plains purchases more than 500 million bushels of corn each year. Using Enogen corn as a portion of the feedstock enables alpha amylase to be delivered directly in the grain, eliminating the need to add a liquid form of the enzyme and significantly reducing the viscosity of the corn mash. Using Enogen corn gives Green Plains the opportunity to enhance production and invest locally, according to Green Plains President and CEO Todd Becker. “We have been using Enogen corn at a number of our locations for the past several years and have noted significant benefits, including enhanced yield and reduced energy costs,” Becker said. “Combining our focus to buy more corn directly from farmers and purchasing alpha amylase locally, in the form of high-quality grain for all of our plants, we believe Enogen will create value for our shareholders, growers and the communities where we do business.”

Enogen corn enzyme technology is an in-seed innovation available exclusively from Syngenta and features the first biotech corn output trait designed specifically to enhance ethanol production. “Enogen is rapidly gaining popularity because of the value it delivers to ethanol producers and the opportunity it provides corn growers to be enzyme suppliers for their local ethanol plants,” said Jeff Oestmann, head of biofuels operations – Enogen at Syngenta. “Enogen corn enzyme technology creates increased profit potential for ethanol producers and corn growers while adding significant incremental value at the local level for communities that rely on their ethanol plant’s success.”

Making efficiency our first priority to get us to profitability. Discovering better ways to run continuously at full capacity. Seeing the potential of a feedstock that can also produce a high-value livestock feed. That’s what fuels me. Learn how sorghum can fuel your ethanol operation at

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18 | Ethanol Producer Magazine | FEBRUARY 2018 Ethanol Producer Magazine

Due to the pub:

12-22-15

BUSINESS BRIEFS¦

Renewable Industries Canada unveils 'Facts Don’t Lie' campaign Renewable Industries Canada (RICanada) recently announced the launch of a public awareness campaign on the environmental and economic benefits of biofuels mandates. Dubbed “Facts Don’t Lie,” the campaign is designed to educate the public on the role of biofuels in reducing carbon emissions from transportation and calls for the federal government to increase mandates for renewable fuels. The campaign’s key points include: • Ethanol can reduce greenhouse gases (GHGs) by 62 percent compared to gasoline. • Biodiesel can reduce GHGs by over 100 percent compared to diesel. • Canada’s biofuels mandates reduce annual GHG emissions to the same extent as taking 1 million cars off the road. • Each year, Canada’s biofuels mandate removes as much carbon dioxide from the atmosphere as 21 million trees. • Increasing the federal biofuels mandate could add 31,000 jobs and $5.6 billion to Canada’s economy. • Canada was once a world leader in implementing renewable fuel requirements. Today, over 40 countries require higher levels of biofuel blends in transportation fuels than Canada requires. The RICanada campaign will feature print and digital ads in Ottawa and key markets across Canada.

United Ethanol to install Whitefox ICE bolt-on membrane system United Ethanol LLC will install a Whitefox ICE membrane system at its plant in Milton, Wisconsin. The modular bolt-on system frees up capacity in the distillation-dehydration section, which enables the plant to increase its annual production capacity to more than 60 million gallons. “The Whitefox system allows us to expand and at the same time reduce natural gas, power and cooling water usage,” said David Cramer, United Ethanol president and CEO. “This helps us to achieve our overall mission of being a low-cost producer of fuel ethanol, enabling United Ethanol to maximize the returns for our shareholders while providing economic benefits to our local Wisconsin communities.” Paul Kamp, Whitefox vice president of business development North America, said, “A Whitefox ICE installation is a non-disruptive, integrated bolt-on solution that dehydrates the recycle streams from the molecular sieves to finished, inspec fuel ethanol product. We are very pleased to be working with United Ethanol and look forward to delivering a fourth Whitefox ICE installation in the U.S. in 2018.”

FEBRUARY 2018 | Ethanol Producer Magazine | 19

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MARKETING

ON THE

SPOT

Most consumers make their fuel purchase decisions at the pump. Consistent branding based on market research can help boost ethanol’s appeal. By Lisa Gibson

The average consumer spends no more than 15 seconds deciding which fuel to buy after pulling up to a pump, says Randy Gard, chief operations officer for Bosselman Enterprises. In that moment, the consumer is looking for a low price and a simple message, he adds. “At the pump. That’s when the decisions are made,” says Charlie Bosselman, owner of Bosselman Enterprises. Thus, promotion and marketing there are crucial. Bosselman Enterprises, which owns 44 Pump & Pantry stations in Nebraska, markets E15 as Clean 88, with the trademarked slogan “Better fuel, costs less.” The message is short and simple, helping boost sales, while attracting and retaining customers, Gard says. “It’s very easy to understand and consumers seem to grab it pretty quickly.”

SUCCESSFUL SIGNAGE: Pump & Pantry, owned by Bosselman Enterprises, markets E15 as Clean 88. The trademarked slogan, “Better fuel, costs less,” is displayed on the tops of blender pumps that offer the fuel at 15 of the company’s 44 locations in Nebraska. PHOTO: BOSSELMAN ENTERPRISES

22 | Ethanol Producer Magazine | FEBRUARY 2018

MARKETING

To help make ethanol blends more attractive at the pump, Growth Energy is working with 12 retailers across the country—including Minnoco, Kum & Go, Thorntons and others—to establish best practices in marketing, O’Brien says. “We’re working on making E15 stand out, but in a relevant way that will break consumers’ preoccupation so they’ll look. And once they look, what’s the No. 1 message that’s going to draw them to E15 and pick that handle?”

The Message

GRAPHIC DETAILS: Pump & Pantry locations use this simple, informative graphic to market E15. PHOTO: BOSSELMAN ENTERPRISES

Mike O’Brien, vice president of market development for Growth Energy, says consumers are apt to simply purchase the

fuel they’re accustomed to, often regular 87. “It’s a habit. They don’t want to think about it.”

Growth Energy recently conducted 2,000 interviews with consumers to determine what’s important to them when buying fuel. Results indicated they had three main requests: confirmation that ethanol is OK for their vehicles; confirmation that it’s cleaner and better for the environment than regular gasoline; and a cheaper price. “In that order,” O’Brien says. “Plain and simple: ‘Just tell me it’s OK for my car.’ Then,

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they’re willing to listen and believe the fact that it is a little bit better for the environment, it burns a little bit cleaner and has fewer tailpipe emissions, and those things mattered once the consumer understood that everything is going to be fine for their car.” With all that in mind, “What’s the best way to present it to the consumer at the location?” O’Brien says. Trey Binford, North America dispensers product manager for fuel pump manufacturer Wayne Fueling Systems, says consistency in labeling and graphics at the pump would be a huge benefit. “You’ve seen a lot of different market names for E15. I think people would like to see that consistency. I think it would help drive recognition.” O’Brien agrees. Consistency in branding is crucial, he says, and is part of Growth Energy’s push. That branding effort includes a name, colors, graphics, and the amount of information to communicate

MARKETING IN THE MEDIA: From left: Russell Redding, Pennsylvania agriculture secretary; Emily Skor, CEO of Growth Energy; and Mike Lorenz, executive vice president of petroleum supply at Sheetz. Lorenz is pumping E15 at a press conference in Middletown, Pennsylvania, celebrating the successful joint effort to complete higher-blend infrastructure in the state. PHOTO: GROWTH ENERGY

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MARKETING

to consumers at the pump. “We don’t have much time,” he says. Binford points out that consistency in offerings makes a big difference, too. It’s ideal for all the pumps at a given station to offer the same options, so consumers aren’t forced to a certain pump to purchase an ethanol blend. If one offers five grades and blends, they all should, giving the consumer a “consistent experience,” Binford says. “E15, or E85, or E30 or E25—if these fuels are part of your strategy, presenting it consistently at every fueling point is to your advantage.”

Pumps: Design and Blending

In 2016, Wayne Fueling Systems increased its standard UL listing to E25. The new pump design allows easy upgrade to

higher blends in the future, and has been a big success, Binford says. “When you’re offering a better standard to the market, you’re future-proofing dispensers.” Binford says pump design and presentation are crucial to attract customers. “We allow retailers to decide, based on their fuel strategy, what dispenser they want to use.” He says he sees two distinct trends in fuel sale strategies: blender dispensers, and multi-hose dispensers. At the multi-hose dispensers, a retailer would have separate hoses for E85, E15, regular, mid-grade and premium. “Those retailers’ strategy is to present as many fuels as possible to a customer.” Blender dispensers allow the retailer to sell different blends of ethanol without changing the pump or infrastructure. “They’ve had a lot of success with that

In the past year, E15 and E85 sales at Bosselman Enterprises locations have grown by an astonishing 300 percent. and they’ve done really well,” Binford says. “Maybe they want to do E15 today, maybe they want to do E25 later, maybe they want to do E30 later. On these blender dispensers that we build, it’s just a graphic change and a blend ratio setting. It doesn’t require ripping things out and tearing things out of the ground.” Bosselman Enterprises took advantage of federal and state government grants, as well as some trade group funding opportunities, to install blender pumps at 15 of its locations. “That’s what got us into this,” Bosselman says of selling high volumes of E15. He adds that he would replace all his pumps at all locations with blender pumps, if it were feasible. In the past year, E15 and E85 sales at Bosselman Enterprises locations have grown by an astonishing 300 percent, Gard says. He and Bosselman attribute that growth to blender pumps, as well as the relationship the company has with the ethanol producers it buys from. That relationship, they say, isn’t common enough. “I think a lot of ethanol’s been stifled through the current relationship structure with a wholesaler in the middle,” Bosselman says. “I think it might be better for producers to go to the retailer directly.”

Producer-Retailer Relationship icminc.com |

26 | Ethanol Producer Magazine | FEBRUARY 2018

Bosselman Enterprises does use a wholesaler in its ethanol purchase transactions, but reaches out directly to the pro-

MARKETING

ducer to negotiate price and determine how the RINs will be monetized. “We reach out to the producer, but we don’t see producers reaching back to us,” Bosselman says. Gard adds, “We just simply think there’s a better way.” Negotiating prices directly with the retailer can lead to savings. “We can pass that on to the consumer, which will drive demand.” And to attract consumers to ethanol blends, the prices of those blends must be lower than the other options, Gard says. “It can’t be priced the same; it has to be cheaper,” Bosselman adds. “We have grabbed the bull by the horns to do that.” Ethanol producers pay trade groups and other organizations to help educate the public on ethanol’s benefits, but some of that money might be better spent on supporting retailers, who will then get the message out to consumers right at the pump, Bosselman says. Producers could help retailers install blender pumps, or educate them about RINs and how they function. “There are still a lot of multi-unit operations that still don’t understand what a RIN is and how it works. They could use some help.” Wholesalers do serve a purpose, Gard and Bosselman agree, but the lack of relationship between producers and retailers negatively impacts ethanol sales. “It just seems to me that there has been little relationship building and communication between producers and retailers,” Bosselman says. “And it’s caused stagnation.” Gard points to the company’s 300 percent sales increase as proof. “You can’t argue with the numbers.”

Pointing the Ship

Growth Energy’s Prime the Pump initiative offers incentives for retailers to sell and market E15. The money has been used to help install on-site blending infrastructure, along with other projects. Growth Energy also is monitoring sales at about 25 co-promotion retail sites

offering E15 next to regular 87 and premium 93, and the results show E15 constitutes easily more than 50 percent of sales at those locations, O’Brien says. “Our intent is to duplicate that success as much as we can, everywhere we can with the retailers we’re working with.” Growth Energy’s retail promotion partners represent about 15 percent of the total gas supply in the U.S., and about 9,300 stations. The intention is to build a strong network of retailers that would move the market, O’Brien says. “It’s in our best interest and their best interest to figure out the best way to market and sell E15, so they get the maximum competitive advantage and we, of course, get all the benefits of the higher volume.” Retailers know that selling fuel for 3 to 5 cents less per gallon is a huge competitive

advantage, he says, and E15 typically retails between 3 and 10 cents per gallon less than 87 regular. “These retailers realize that they have a pretty compelling, competitive advantage with E15, so the question now is, ‘How do we jointly take advantage of it and build our businesses together?’” That’s the point Bosselman makes. “I think the market’s wide open,” he says. “There’s so much upside. We need to get together and point the ship in the right direction. We could expand it dramatically.” Author: Lisa Gibson Managing Editor, Ethanol Producer Magazine 701.738.4920 lgibson@bbiinternational.com

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REGULATION

FIRST UP: First to generate D3 RINs for kernel fiber-to-ethanol, Quad County Corn Processors in Galva, Iowa, has generated more than 7 million RINs. PHOTO: QUAD COUNTY CORN PROCESSORS

30 | Ethanol Producer Magazine | FEBRUARY 2018

REGULATION

A Straighter, SHORTER PATHWAY

Confidence builds in overcoming the hurdles slowing corn kernel fiber-to-ethanol approvals. By Susanne Retka Schill

Seven years after the U.S. EPA published the final rule for administering the Renewable Fuel Standard, the path to getting corn kernel fiber-to-ethanol approvals appears to be getting much shorter. Edeniq CEO Brian Thome

reports it now takes six weeks from the time the data is submitted to the EPA to the time approval is granted to generate D3 RINs (renewable identification numbers). For those plants with efficient producer status, an amended petition process will take another six weeks. That’s a far cry from the nearly three years it took for the first two companies, Quad County Corn Processors and Edeniq, to get corn kernel fiber approved as a feedstock. The EPA finalized the rule to implement the RFS in 2010. The following year, QCCP began working with EPA on the corn kernel fiber clarification and Edeniq filed its petition. Thome says the delay was partially a result of others approaching EPA with feedstock questions in 2012. “EPA said, ‘Hang on, time out. We’re going through a formal and full rulemaking process around what feedstocks qualify.’”

FEBRUARY 2018 | Ethanol Producer Magazine | 31

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In mid-2014, EPA came out with its rule that defined corn kernel fiber as a crop residue, clearing the way for QCCP and Edeniq customers’ registrations. It also established the rules for cellulosic biofuel from biogas, discussed other issues with crop residue feedstocks and made corrections and modifications to the 2010 rule. On its page of approved pathways, Edeniq’s Pathway approval goes directly to that rule.

But it was QCCP that was first out of the gate. Delayne Johnson, CEO, says the plant was generating D3 RINs by October 2014. Edeniq’s first Pathway licensee, Pacific Ethanol-Stockton, California, didn’t get its approval until September 2016. The big difference is that QCCP’s cellulosic process occurs in a separate system, making the cellulosic ethanol measurement straightforward. Edeniq’s Pathway involves coprocessing, with the cellulases added to

REGULATION

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the starch fermentation tank. Though it consists of a simple addition of enzymes, the intellectual property is in the protocols and tests to quantify the cellulosic lift. “It took years and millions of dollars for our scientists to come up with a very precise and accurate way to measure what’s happening with those conversions,” Thome says. Pacific Ethanol-Stockton was the first to implement the technology, and Thome says it was seven months from the time the plant sent its registration to EPA before it got approval to generate D3 RINs. He adds that while the Edeniq Pathway registration process appears settled, every company’s technology will need separate approval and there will be unforeseen issues that could cause delays.

LSCP’s Journey

In January 2017, Little Sioux Corn Processors became the third plant to be approved for D3 RINs under the Edeniq Pathway, but it ran into one of those unforeseen issues that took most of the year—until late November—to iron out. LSCP was in the first batch of ethanol plants to be approved for generating D6

RINs above its grandfathered volume in EPA’s Efficient Producer Petition Process (EP3). Not only did LSCP’s EP3 approval letter specify corn starch, which needed to be amended, but the agency had to determine how to handle the coprocessed cellulosic ethanol volume in the required 365day rolling average greenhouse gas (GHG) reduction spreadsheet. Every efficient producer plugs in the bushels of corn crushed, the gallons of ethanol produced and the energy consumed as electricity and natural gas to demonstrate a 20 percent GHG reduction relative to the baseline gasoline for all gallons above the grandfathered volume. The compliance monitoring plan that’s part of that process is quite detailed, down to the serial numbers of the equipment being used to measure ethanol production and daily corn grind. LSCP’s approval letter for its updated petition goes into detail about EPA’s decision on how the agency plans to handle the cellulosic gallons. All the upstream lifecycle GHG emissions associated with the corn feedstock is to be used in the corn starch ethanol GHG reduction calculation, as is all the energy used in the process. The

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REGULATION

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cellulosic gallons are to be subtracted from the total volume. In its updated guidance document, “How to Prepare an Efficient Producer Petition Version 1.2,” EPA says it has added a category for starch producers who coproduce cellulosic ethanol from corn kernel fiber, with the requirement that the Part 80 D3 RIN registration be completed first. The methods for measuring the volumes of cellulosic ethanol must be established in the D3 registration process before the formulas used in the EP3 spreadsheet calculating the 365-day rolling average can be properly applied, the agency explains. LSCP has been using cellulase enzymes for a couple of years, working with Archer Daniels Midland Co. on trials for ADM’s Clintozyme, says Steve Roe LSCP’s general manager. The cellulase enzyme boosted ethanol yields to better than 2.9 gallons per bushel, Roe says, and improved corn oil yield. Then the company decided to go after the cellulosic ethanol gain. It licensed the Edeniq Pathway, and worked with Edeniq to establish the cellulosic lift. Once EPA decided how to handle the D3 gallons in the EP3 reporting, Roe says, the remaining compliance plan approval was straightforward, partly because much of it had been determined in the earlier steps. Compliance requirements are more stringent for coprocessed D3 and D6 RINs, he adds. In early December, LSCP was preparing to redo its baseline without the cellulases, a voluntary step, he stresses. Edeniq will be back when the cellulases are reintroduced to collect the samples and run through its proprietary testing protocols. The results must also be validated by an independent engineer. EPA says that for every 500,000 gallons—or at least annually—the cellulosic lift must be recertified, Roe says. Participating in a

REGULATION

RIN quality assurance plan also is likely to be a market requirement.

2 More on the Path

Two other companies expect to petition EPA in the coming year for their corn kernel fiber-to-cellulosic ethanol technologies: ICM and D3Max LLC. ICM’s Gen 1.5 Grain Fiber to Cellulosic Ethanol Technology is built on its Fiber Separation Technology. Steve Hartig, ICM’s vice president for technology development, says the first installation of Gen 1.5 will be colocated with the 70 MMgy corn starch ethanol plant, trademarked as Element, under development next to ICM’s Colwich, Kansas, headquarters. Engineering and financing is nearing completion and groundbreaking is expected in early 2018. Gen 1.5 sends the fiber stream from FST through a separate process where it is pretreated and fermented. The fiber fermentation broth is then combined back into the existing ethanol plant’s larger fermenter to complete fermentation. Hartig reports the company is working internally and with others, including the National Renewable Energy Laboratory, to develop open industry standard methods for all processes to use for cellulosic ethanol tests. “ICM thinks this is important for the credibility of this industry,” he says. “ICM will be doing test method validation and third-party engineering review during the course of 2018 and then submit for actual approval immediately after start up.” ICM expects its approval process to move quickly. “From our discussions with the EPA, ICM believes they have made positive steps in pathway approvals and they have assured us of a speedy process,” Hartig says. D3Max also will be going through the regulatory process this year. The company’s patented pretreatment and fermentation process for wet cake occurs in a separate reactor and fermenter. According to Mark Yancey, D3Max’s chief technology officer, the technology’s commercial design and associated front-

end loading (FEL), completed in January, defined the scope and cost of a large-scale installation. At press time, the company’s pilot testing partner, ACE Ethanol LLC, in Stanley, Wisconsin, was still analyzing the FEL and related builder estimates, while signifying in early January that a commercial-scale project was likely. With construction expected to begin this spring, Yancey expects the permit modifications

to be straightforward. “The same goes for the EPA registration and quality assurance plan,” he says. “We have about a year to get that done. Other companies have blazed the trail and gotten approval, and I don’t see EPA registration being a problem.” Author: Susanne Retka Schill Freelance Journalist retkaschill@yahoo.com

FEBRUARY 2018 | Ethanol Producer Magazine | 35

ADVOCACY

The Fundamentals of FLY-INS The Washington, D.C., events provide opportunities for constituents to meet with lawmakers and help influence biofuels policy. By Keith Loria

Getting the ear of members of Congress, state legislators or regulatory bodies is not always easy. So many of the ethanol industry’s top groups and organizations participate in Washington, D.C., fly-ins, which provide an opportunity to engage lawmakers and regulators directly. “All lawmakers need to have a good understanding of what the biofuels industry is and the important role it plays in America’s overall economy,” says John Fuher, senior director of government affairs for Growth Energy. “It is up to our industry to make sure that lawmakers are well educated on policies and legislation because their vote and position on the issue can greatly influence the outcome of a bill.” Shannon Gustafson, senior director of operations and programming at the American Coalition for Ethanol, is charged with organizing the group’s annual Washington, D.C., fly-in. She says the event is vital. “Personal stories go a long way on Capitol Hill,” she says. “Members of Congress and staff will take note of a visitor who travels the

36 | Ethanol Producer Magazine | FEBRUARY 2018

'CAPITOL' E: Ethanol industry fly-ins give advocates a chance to speak with legislators about biofuels and the importance of friendly policies. PHOTO: ISTOCK

FEBRUARY 2018 | Ethanol Producer Magazine | 37

ADVOCACY

long distance to Washington, contributing personal time and expense to a cause. These events develop relationships between Hill staff and fly-in participants, so when a bill comes up in the future, the staff will know where to go for accurate information.” Those invited to fly-ins range from representatives from ethanol plants, biofuels associations, corn grower associations, businesses that provide the equipment and supplies for ethanol plants, and more. Essentially, anybody who supports the biofuels industry is invited to attend.

‘Awesome Opportunity’

MEETING OF THE MINDS: Growth Energy’s South Dakota delegation meets with Rep. Kristi Noem, R-S.D., (right foreground) on Capitol Hill in Washington, D.C., on Sept. 13, 2017. PHOTO: LIZ LYNCH, GROWTH ENERGY

At its fly-in, an organization first gathers all its members and participants to review the top legislative priorities, then chooses a variety of speakers who have expertise in certain issues, says Roger Berry, director of market development for the Nebraska Corn Board.

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“After this orientation period, the participants break into smaller groups and make visits to the members on the Hill,” he says. “In my opinion, this is the best part of a D.C. fly-in. We have an awesome opportunity and responsibility to make sure our lawmakers are hearing all sides of the issues they will be debating and voting on.” After the Hill visits, participants gather again to learn about other topics pertinent to the ethanol industry and to explore future issues and goals. In September, the National Farmers Union hosted more than 300 of its 200,000 members at its annual fall fly-in, advocating for expanded use of ethanol. “They came in to engage with members of the administration, and to meet with their members of Congress to talk about the state of the farm economy, expanding use of ethanol and advanced biofuels, and health care,” says Roger Johnson, NFU president. “With respect

POWER BY PEOPLE: Shannon Gustafson, senior director of operations and programming for the American Coalition for Ethanol, reviews meeting logistics and agendas before an ACE fly-in. PHOTO: CINDY ZIMMERMAN, AGWIRED AND ZIMMCOMM NEW MEDIA

ADVOCACY

IN STRIDE: Growth Energyâ&#x20AC;&#x2122;s South Dakota delegation walks the Capitol grounds during a September 2017 fly-in. Foreground, from left: Terry Schmidt, Glacial Lakes Energy LLC; Gene Hammond, Association Motor Club Marketing; Naomi Smith, Growth Energy. Background, from left: Rich Peterson, Advanced BioEnergy LLC; Christine Schumann, Advanced BioEnergy LLC; Jaron Anderson, Association Motor Club Marketing. PHOTO: LIZ LYNCH, GROWTH ENERGY

to Congress, our members asked lawmakers to continue to support a strong RFS and to eliminate current barriers to use of higherblended ethanol in gasoline.â&#x20AC;?

Fuher and Gustafson say topics during Capitol Hill meetings during a fly-in could include the Renewable Fuel Standard, Reid vapor pressure, octane, low carbon benefits

of ethanol, benefits to rural economies and success stories of retailers who offer blends higher than E10. â&#x20AC;&#x153;We also walk participants through the logistics of attending Hill meetings, getting around Congressional offices, how to approach a meeting with staff or a member of Congress, and how to divide the work among team members,â&#x20AC;? Gustafson says. â&#x20AC;&#x153;We invite speakers from the regulatory side of thingsâ&#x20AC;&#x201D;someone from EPA, for exampleâ&#x20AC;&#x201D;to come meet with our group because so many of our priority issues are being handled by the executive branch.â&#x20AC;?

Ripple Effect

While Growth Energy always has its members meet with lawmakers from their home states, the group also requests that they meet with lawmakers who might not be familiar with the biofuels industry and its

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priority issues. â&#x20AC;&#x153;Every lawmaker can benefit from hearing from our members, because their vote and support, along with our Congressional champions, can go a long way and make a huge difference in passing beneficial legislation for our industry,â&#x20AC;? Fuher says. Bob Hemesath, past president of the Iowa Corn Growers Association, regularly attends lobbying meetings and was at Growth Energyâ&#x20AC;&#x2122;s fly-in in September. â&#x20AC;&#x153;We spend a lot of time with noncorn-state legislatures and let them know what weâ&#x20AC;&#x2122;re after and the reasons behind it. Itâ&#x20AC;&#x2122;s also important to see what questions they have and need more clarification on.â&#x20AC;? Even states outside the Corn Belt benefit directly from policies such as the RFS, or RVP relief. â&#x20AC;&#x153;Consumers across the country benefit from lower prices at the pump, a lessened

reliance on fossil fuels, and from breathing cleaner air,â&#x20AC;? Gustafson says. â&#x20AC;&#x153;Itâ&#x20AC;&#x2122;s important for lawmakers to understand the ripple effects policies like the RFS have across the country because we simply donâ&#x20AC;&#x2122;t have enough votes by relying upon the Corn Belt alone.â&#x20AC;? Lawmakers need to hear from their constituents, Johnson says, and there is no better way to do that than face-to-face interaction. â&#x20AC;&#x153;They learn, as we all do, from stories and experiences, and messages straight from the farmer go a long way in moving the needle, if the needle is able to be moved,â&#x20AC;? he says. â&#x20AC;&#x153;Iâ&#x20AC;&#x2122;m not sure itâ&#x20AC;&#x2122;s much different from educating consumers, as both have very limited amounts of time to take in and retain information. If there is a difference, it is that lawmakers are more influenced by public perception. If you can demonstrate farmers and ranchers

care enough to take time out of their busy schedules to fly or drive to Washington, they are going to take the time to visit the ballot box in November.â&#x20AC;? Fuher says lawmakers value hearing directly from their constituents about certain policies and legislation that are either harmful or beneficial to their businesses or communities back home. â&#x20AC;&#x153;A meeting between a lawmaker and the constituents they represent is far more impactful and effective than hearing from an everyday lobbyist in Washington,â&#x20AC;? he says. â&#x20AC;&#x153;Advocating for policies that are in the best interest of our businesses, communities and states is a critical part of the political process.â&#x20AC;? Author: Keith Loria Freelance Journalist freelancekeith@gmail.com

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44 | Ethanol Producer Magazine | FEBRUARY 2018

PRICING

UNEXPTECTED

INCENTIVE RIN values do affect fuel prices, but Ron Lamberty, senior vice president of the American Coalition for Ethanol, says it’s not the effect many assume. By Lisa Gibson

A common argument among opponents of ethanol is that renewable identification numbers (RIN) can drive fuel prices higher for consumers. A higher RIN, they say, increases the price of fuel blended with ethanol.

Ron Lamberty, senior vice president of the American Coalition for Ethanol, has a different theory. To back it up, he points to lower net prices of higher ethanol blends at the pump, in the face of RIN value spikes. Back in October, when the U.S. EPA rejected petitions to move the point of obligation, and rejected requests to allow RINs on exported gallons, RIN values increased. But instead of prices at the pump increasing, prices of higher ethanol blends at many stations sank. Why? Put simply, ethanol producers were reducing the prices on the RINless ethanol they sold, allowing retailers to pass along those savings to their customers. Glacial Lakes Energy in South Dakota, Lamberty cites, sold its RINless denatured ethanol for just 30 cents per gallon, and Absolute Energy in Iowa was offering RINless E85 for 55 cents. When ethanol is sold RINless, the RIN is retained by the blender and its value is subtracted, leaving a low net fuel price. “There are a growing number of retailers buying RINless ethanol directly from producers like Absolute Energy and GLE,” Lamberty says. “The idea that small, independent station owners can’t benefit from RINs just isn’t true. Owners of single stores and small chains are the primary buyers of RINless ethanol and E85.” SIGN OF THE TIMES: Ron Lamberty, senior vice president of the American Coalition for Ethanol, says, contrary to popular belief, high RIN values actually drive down the price of higher ethanol blends, such as E85. PHOTO: LISA GIBSON, ETHANOL PRODUCER MAGAZINE

FEBRUARY 2018 | Ethanol Producer Magazine | 45

PRICING

ROLLING BACK RINLESS: Glacial Lakes Energy in Watertown, South Dakota, sold RINless ethanol at only 30 cents per gallon back in October 2017, when RIN values spiked. PHOTO: LISA GIBSON, ETHANOL PRODUCER MAGAZINE

The Price

Brad Schultz, director of commodities and risk management for Glacial Lakes Energy, confirms that GLE’s RINless gallons go to local retailers, and higher RIN values decrease GLE’s price on those gallons. The 30-cent price tag in October is the lowest one GLE has ever attached to its RINless gallons, he says.

If ethanol is selling at $1.35 per gallon and a RIN is worth 85 cents, that RINless price becomes 50 cents. When 50-cent ethanol is blended into gasoline priced at $1.75 per gallon to produce E85, “You can knock the price of fuel down pretty fast,” Lamberty says. At that price, a gallon of E85 consists of about 27 cents worth of gas and 43 cents of etha-

nol. With freight and taxes, the wholesale on that gallon would be $1.25 to $1.30. “Compare that to gas being sold at $2.25 to $2.30. … If you’re getting a lower price for product, use that lower price to catch people’s attention and get them to try a higher ethanol blend.” Schultz says GLE has been selling RINless ethanol for about three years. “After numerous discussions with local retailers, what we found out was it was difficult for retailers to pass the full value of the RIN on to the consumer because they had a very hard time marketing their RINs. … We came up with a program where we would sell ethanol to local retailers and keep the RIN, and that would allow us to sell RINless ethanol as cheap as 30 cents a gallon.” Retailers struggled to manage the risk in the market on RINs, Schultz says. “If a RIN were worth 70 cents, they weren’t always comfortable valuing their ethanol and the RIN within that 70 cents. They didn’t want to take the risk that they would be able to get it sold at 70. The ethanol producer is better positioned to aggregate the RINs from a variety of retail-

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PRICING ers in the area, and it’s easy for us to manage that risk and get them marketed.” Schultz says he agrees with Lamberty’s analysis. “A higher RIN price can result in cheaper RINless ethanol, which would certainly make the higher blends more competitively priced.” The RINless ethanol market’s ability to lower net prices on higher blends is fairly regional, though, Lamberty says. “Because the ethanol producers, which are mostly Midwest located, are the ones that are driving it.” It’s not about making more money, he says. “It’s kind of philanthropic on their side.” Indeed, Schultz says selling cheap RINless gallons helps encourage ethanol use. “It’s part of doing our share to promote higher blends.”

Blending In

If a refiner doesn’t blend ethanol into gasoline on its own, it must pay someone else to do it. For retailers, Lamberty says, blending for refiners is an opportunity for new equipment. “Because some refiners either can’t or

won’t blend their own fuel, this market has emerged of independent retailers and wholesalers who will blend the fuel and then sell the RINs, directly or indirectly, to those refiners who need them to comply with the Renewable Fuel Standard.” That extra margin reduces the price of the fuel so more can be sold. “Retailers usually make a little more margin on the ethanol blends and that helps them pay for the equipment they need to sell it.” Most terminals will sell product with or without RINs, but the price is often the same as gallons with RINs, Lamberty says. “Refiners don’t want it to be attractive, necessarily, because if people are blending their own ethanol, refiners aren’t getting the RINs and that just makes it more difficult for them. They are blending and passing on some of the RIN value at some terminals, but not enough.” More ethanol being sold means more available RINs, which would decrease the RIN value, Lamberty says. “The ironic thing is if oil companies who are short of RINs really wanted to fix things, what they would do is encourage people to use E15 or E85 to sell more

ethanol because then there would be excess RINs, and when there’s excess RINs in the market, people don’t have to pay very much for them.” A main goal of ACE has been to reach out to wholesalers and retailers to talk about the math surrounding RINs, Lamberty says. “It’s an opportunity for them if they understand how RINs work. “Our focus has always been to explain to retailers how they can make more money selling our product. In the long run, you can do all kinds of programs; you can buy them pumps. … But the guys who are going to sell your product long term and promote it themselves are going to be the people who realize that they’ve got a niche, that they’ve got a product that they’re going to use to make more money and get more volume. That’s what we’re able to do with RINs.” Author: Lisa Gibson Managing Editor, Ethanol Producer Magazine 701.738.4920 lgibson@bbiinternational.com

FEBRUARY 2018 | Ethanol Producer Magazine | 47

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FOR GENERATIONS: Ethanol plants are considering combined-heat-and-power projects to increase efficiency and revenue. But before any energy is generated on-site, a few factors should be addressed. STOCK PHOTO

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CONTRIBUTION: The claims and statements made in this article belong exclusively to the author(s) and do not necessarily reflect the views of Ethanol Producer Magazine or its advertisers. All questions pertaining to this article should be directed to the author(s).

50 | Ethanol Producer Magazine | FEBRUARY 2018

ON-SITE ENERGY With the recent explosion turn of the century. But, as with all new inherent and long-standing of plant expansion projects technologies, advantages of the status quo must be comin the ethanol industry, many bated to expand CHP implementation. producers likely are considRate ering construction of com- TheOne major obstacle is securing a rate bined-heat-and-power (CHP) for the electricity generated, which can projects and other alternative create a revenue source if the electricity forms of power generation to will be sold to the power utility. The Public Utility Regulatory Policies Act of 1978 supplement the steam available was passed, in part, to encourage energy at their plants. Interest is high in cogeneration—electricity generated at or CHP projects in particular, as they provide the most direct benefits to ethanol producers. Current regulatory regimes, however, present several obstacles. CHP facilities use natural gas to fire a turbine, which generates electricity. The byproduct of this process is heat, which can be used to create steam for an industrial facility, such as an ethanol plant. According to the U.S. Department of Energy, separately producing heat and power has an efficiency of about 45 percent, while CHP can operate at 80 percent or greater, offsetting fuel and utility emissions, while lowering the carbon intensity score and saving money. This renewable energy generation also can continue to support energy independence, which has been a hallmark of the ethanol industry since the

near the location where it’s used. PURPA requires large utilities to purchase electricity generated by cogeneration plants at the utility’s avoided cost rate—the additional costs the electric utility would incur if it generated the required power itself or could purchase the power from another source. The full avoided cost of energy is not intended to simply be an analysis of the utility’s marginal cost to generate power. Instead, the avoided cost should focus on all the utility’s costs avoided by the additional power generation, including transportation and delivery of power, along with other services provided by the utility to its customers. The complexity of determining these avoided costs increases with all the factors PURPA requires utilities to consider. As a result, the avoided

cost rates in most states fail to adequately capture the full avoided cost, which results in CHP and other alternative sources of power generation being less competitive in the market. Enforcement authority under PURPA has been granted to the states, so each state has its own authority to evaluate the utility’s avoided cost rate. As a result, CHP projects are feasible and profitable in some states, but not in others. Utilities are monopolies, so each state has a framework in place to level the competitive playing field between the utilities and their customers. But this playing field is not always sufficiently leveled by the states, and utilities are not interested in losing market share by allowing their customers to generate power. The utilities also benefit from the method they use to establish avoided cost rates. The process relies on the states to make complicated calculations and decide whether the avoided cost rates are accurate, making judgment calls along the way. So electrical users and those who operate CHP facilities need to be involved and advocate for higher avoided cost rates. For example, in the past three years in Iowa, the avoided cost rate published by one utility has been cut in half. This reduction came at a time when the utility was

FEBRUARY 2018 | Ethanol Producer Magazine | 51

ON-SITE ENERGY building its own alternative energy projects for a cost significantly higher than its published avoided cost rate. Another obstacle to PURPA is the fact that the rates of rural electric cooperatives (REC), which provide electricity in many areas where ethanol plants are located, are not subject to state regulatory authority. These RECs generally have higher electricity costs, and, while they have a purchase obligation under PURPA, they generally set their own avoided cost rates, which might also be quite low. To challenge avoided cost rates established by RECs, utility customers must file an action with the Federal Energy Regulatory Commission. The process is time consuming and costly, so REC customers often decide not to challenge, resulting in good projects not being constructed.

Micro-Grid

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To avoid some of the obstacles to a CHP project, an ethanol plant could create a micro-grid. Depending on the size of the CHP facility, the ethanol plant might be able to disconnect completely from the electrical grid, allowing it to produce its own electricity and steam. This structure avoids many of the issues related to selling power to the utility, but the avoided cost rate could still come into play in the event the ethanol plant generates more electricity than it can use, thereby requiring the ethanol plant to sell the electricity back to the utility. Micro-grids also allow a facility to avoid risks inherent to the electrical distribution system, including profit loss from weather disruptions on the electrical grid. Many large power usersâ&#x20AC;&#x201D;including industrial operations, military bases and data centersâ&#x20AC;&#x201D;are avoiding this risk by creating micro-grids. We are living in a time where the power market is changing. Gone are the days when our electricity is solely generated by coal-fired power plants owned by power utilities. With the emergence of alternative forms of power generation, including solar, wind and CHP, a number of opportunities to expand our power portfolio are out there. These alternatives allow us to improve reliability of the electrical grid, anticipate and react to changing fuel costs and improve the environmental impact of power generation. But the rules are changing to accommodate the changing market, and if we stay on the sideline, they likely will be changed in favor of the utilities. Author: Joe Leo Attorney, BrownWinick Law Firm leo@brownwinick.com

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