There have been several reasons proposed to explain the paucity of ethanol stations in the U.S. Petroleum conglomerates refused to let franchisees put pumps under the shaded canopy. Gas stations owners are against it. The cars don't exist and customers won't fill up, et cetera (see At Biodiesel Show Freeway Plantations, Chinese Tallow and Algae Anger).
But the real reasons – or at least the one that prevents us from finding out how strong and legitimate those others reasons listed above are – are money and land, says Rob Elam, CEO of Propel Biofuels which wants install ethanol, biodiesel and other types of alt-fuel pumps in existing gas stations.
Putting in ethanol tanks and pumps costs about $100,000 to $150,000 (see Ethanol Margins Suffer). And since 95 percent of gas stations are independently owned, the owners either don't have the money or would rather put it into something with a quick payoff, like new snack racks.
"The major barrier is economics. There is no visibility into how many customers you will get," he said. "It just doesn't make sense and that is why existing gas station owners don't want to do it. They don't necessarily have anything against alt fuels."
And the land problem? Only a small percentage of gas stations can actually accommodate a new tank. Zoning regulations typically require that tanks be located 15 feet or so away from neighboring property lines. In a way, these are the same problems facing many solar developers.
To get around these issues, Propel is offering to build and pay for ethanol pumps itself. It leases space from the gas station owner and in some situation may also share some revenue with the station owner. Ideally, Propel's investment will pay for itself in about three years. The leases can go for eight to 12 years. Last year, Propel raised $4.75 million from, among others, Nth Power and @Ventures.
For a gas station owner, it's an almost no-lose situation, Elam argued. The station gets a new pump and all the public relations that come with having an ethanol pump. It also gets to lease land that probably wasn't used to its productive maximum: it may have had a wiper blade dispenser or rack filled with old copies of the Auto Trader parked on it before. The station might well draw new customers too, particularly those people who've never tried E85 in their flex fuel vehicles or have been filling up that old Mercedes with regular diesel.
The big risk for Propel, of course, is waking those drivers up to the fact that they can drive on ethanol. There are only an estimated 1,500 or so ethanol filling stations in the U.S. although there are over seven million flex fuel cars in the U.S, according to various estimates. GM has estimated it will require 15,000 to 17,000 before we have an ethanol economy.
To reduce its risks, Propel studies demographic data before planting a cluster of stations, similar to the way Starbucks has historically plotted its expansion. (Propel actually works with some of the people who crafted Starbucks "locationing" strategies.). The company looks for a growing population, traffic patterns, the existence of other stations, and even the local car population.
It recently opened five stations in Sacramento, the somewhat large capital of California with sprawl-style commuting where trucks and SUVs are popular, and two more are on the way. Sacramento also happens to be home to lobbyists, regulators and the head of various transportation agencies. Propel will open a hydrogen station in a few weeks. Don't laugh: the local water utility already has hydrogen cars.
Next it may expand to Los Angeles, Riverside County, or the Bay Area.
Locationing isn't perfect. Propel started in Washington state, where trucks, greenery, and eco-promo governments co-exist. But in three years, no one from the city government of Seattle has filled up at the Propel pumps in the area.
Within two weeks in Sacramento, Calif. the company was getting business from the local agencies.