Business Case for E85 Fuel Retailers

Competition is tough for gasoline retailers. They sell a product that's judged primarily on price and location. Consumers have a lot of choices when it comes to fueling stations. With grocery and discount stores offering conveniently located fuel at a discount, retailers have been cutting their prices to keep up. In fact, increasing competition has resulted in gross margins decreasing by more than a half cent per year during the past decade. The gross margin is the price consumers pay for gasoline minus the price the retailer pays for it. It is the industry's prime indicator of profitability.

Retailers' innovation and resilience in this competitive market has kept them in business. They have reconfigured their stores to capitalize on higher-margin goods, such as food and car washes. They have also positioned themselves to capitalize on growing markets like E85 instead of committing their refueling equipment to the shrinking market of mid-grade and premium gasoline.

Selling E85 not only has the potential to increase customers and differentiate a station; it can be a profitable investment. These topics are explored in E85 Retail Business Case: When and Why to Sell E85, a technical report developed by the National Renewable Energy Laboratory (NREL). The document identifies seven variables that can make E85 profitable and weighs their influence using a model NREL created based on a discounted cash flow analysis. These variables include:

• E85 equipment configuration
• E85 throughput
• Equipment costs
• Return on investment
• Maintenance and operation costs
• Base taxable income
• Annual throughput of mid-grade and premium

The U.S. Environmental Protection Agency developed ranges for E85 retail station costs during rulemaking for the federal Renewable Fuel Standard. The costs for installing a new E85 dispenser are estimated at $23,000 with an additional $102,000 for installation of a new tank to store E85, if necessary. Details are available in the rule in Section 4.2.1.1.9 on page 781.

Guidance on adding E85 to a new or existing station my be available through the Clean Cities Technical Assistance Project.