For more than a decade, the federal government has had a program in place that savvy fuel retailers can take advantage of to sell fuel at a lower price and realize greater margins on sales.
This program, known as the Renewable Fuel Standard (RFS), obligates every fuel refiner and importer to generate a certain volume of renewable fuel annually. These “obligated parties” must attain a particular number of renewable fuel credits, known as “RINs” (which stands for “renewable identification numbers”) to show that they are in compliance with the RFS program. RINs are essentially an artificial commodity that can be bought and sold in an open market…
Many obligated parties are unable to directly generate their mandatory volume of renewable fuel. In these instances, they rely on others to introduce renewable fuel into commerce for them. This is where savvy retailers come in.
For truckstop operators, the predominant renewable fuel that they can sell to take advantage of the RFS is biomass-based diesel, including biodiesel. Essentially, biodiesel producers generate a biodiesel RIN for every gallon of biodiesel they produce. As with any commodity, these RINs can take on a value of their own, generally reflecting the economics of blending biodiesel with diesel fuel. Biodiesel producers can in turn sell biodiesel to biodiesel “blenders,” who ultimately blend it with diesel fuel before it is sold to the motoring public.
The question becomes, “what happens to the RIN?” Because every gallon of biodiesel has a valuable “RIN” associated with it, the value of the RIN creates sufficient value to make biodiesel cheaper than clear diesel. Upon blending biodiesel with diesel, a blender can separate the RINs from the associated physical gallon of biodiesel and then sell those RINs to obligated parties that need them in order to meet their RFS mandates. The money generated from these sales can enable retailers to pass savings on to their customers in the form of lower prices at the pump, yet make more money on account of the RIN sales.
Alternatively, if a retailer is not inclined to blend biodiesel with diesel, a retailer may instead buy product that is already blended by the seller. In this case, although the retailer may not own the RIN associated with the blended gallons, the fact that the seller keeps the RIN should enable the retailer to purchase that product at a discount. In other words, the value of the RIN should be baked into the price of the product that the retailer purchases.
Opportunities with RINS
During 2016, Jeff Hove, vice president of the RIN Alliance, spoke with operators about how they can utilize the RFS program to maximize their profits. Hove noted that the program is really designed for retailers to play an integral role. If refiners and importers had to purchase wet gallons of biodiesel in order to get a RIN, they would need sufficient storage and capacity at the terminal level. This is an extra step that many obligated parties would prefer to avoid, thereby creating opportunities for truckstop and travel plaza operators.
“They’d rather come to our marketers who are blending and getting the RIN,” Hove said, adding that it can be more economical for obligated parties to purchase RINs directly from marketers than having to purchase biodiesel themselves. RIN Alliance can help facilitate marketers’ presence in the RIN market by assisting with the various regulatory obligations associated with biodiesel blending, as well as by directly purchasing RINs from marketers and aggregating them with others’ RINs to sell them to obligated parties.
Getting Started
Hove said the first thing operators who want to begin blending should do is get registered with the EPA. “That can take four to six weeks. Then also contact the IRS” to get the requisite license, Hove said.
Next they should look into the logistics of sourcing the renewable fuels and reach out to biodiesel suppliers. “They have to actually take possession of the B100,” Hove said, referring to 100 percent biodiesel.
If needed, operators can contact a terminal to identify storage for the product. “You need a [IRS] license to be operating inside the terminal,” Hove said.
Photo Credit: Darren Schulte/NATSO
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