E85 Sales Have Room for Growth… If Certain Conditions Exist

Fuels Institute Press Release | November 12, 2014

​​ALEXANDRIA, VA – There are opportunities to grow the E85 market — but only if E85 prices remain significantly below those of regular grade gasoline and the automobile industry continues to produce flex-fuel vehicles at historic rates, according to a new report released today by the Fuels Institute.

Depending upon the likelihood of various scenarios, E85 sales will, at a minimum, double by 2023 — but could experience a 20-fold increase in sales over the same time period, according to the 40-page report, “E85: A Market Performance Analysis and Forecast.”

The report was commissioned to examine the current performance of E85 in the market and the prospects for its expansion. Researchers evalutated the performance of more than 300 stores that sell E85 and developed forecasts taking into account a variety of factors that could ultimately affect sales. Factoring in past retail sales data, consumer trends, vehicles sales and a variety of possible scenarios, the Fuels Institute projects that E85 sales will increase from 196 million gallons in 2013 to between 400 million and 4.4 billion gallons in 2023.

“This report is essential reading for federal regulators who are considering strategies to meet the goals of the Renewable Fuel Standard and for fuel marketers seeking options to diversify their product offer,” said Fuels Institute Executive Director John Eichberger. “It presents an objective analysis of the overall market for E85, including actual retail sales data, and represents a collective effort to identify opportunities and challenges facing this alternative fuel — without taking a position of advocacy.”

Biofuels have experienced remarkable growth over the past 12 years, from 1.75 billion gallons sold in 2001 to 14.54 billion gallons sold in 2013. The vast majority of this growth is from ethanol, particularly E10 fuel that is ubiquitous in most of the country. However, additional E10 sales are constrained by the size of the gasoline market, which has declined since 2007. Therefore, future biofuels sales growth will be highly dependent upon increasing the sale of higher grades of ethanol like E85, a blend of gasoline with 51 to 83% ethanol.

The growth of E85, also know as flex fuel, is heavily dependant upon increasing both the number of fueling stations providing E85 and the number of flex-fuel vehicles on the road. The report found that there is room for growth on both fronts.

One of the factors currently restricting E85 consumption is its relatively limited availability at retail. Only 2% of retail fueling locations offer E85 and 60% of these are located in just 10 states. In examining both vehicle registrations and station counts, the report found that there are 5,289 flex-fuel vehicles per E85 station, compared to just 1,466 light-duty vehicles per retail fueling station, indicating great potential for E85 retailers.

“Increasing the E85 station count would improve the potential for additional E85 sales and introduce additional competition to the market. But several other factors — including the relative price of E85 compared to unleaded gasoline and the number of vehicles on the road that can operate on E85 — must also be evaluated to determine the potential E85 market, especially because flex-fuel vehicles can operate on either E85 or gasoline,” said Eichberger.

The price that E85 is sold relative to gasoline will play a significant role in flex fuel’s growth. Because E85 contains approximately 23% less energy per gallon than regular grade gasoline, consumer demand will be heavily dependent upon E85’s price discount relative to gasoline. The report found that consumers seem to be much more concerned about absolute price differential than the percent differential, with 60 cents per gallon being the optimum price differential to encourage flex fuel vehicle consumers to shift their purchases from unleaded to E85.

Further growth could be possible if the automobile industry continues to increase flex-fuel vehicle production at current rates, thereby generating increased potential demand.

Currently, flex fuel vehicles represent 6% of all light-duty vehicle registrations in the United States. The growth in flex-fuel vehicle production was significantly aided by credits given to automakers for producing these vehicles. However, under the new Corporate Average Fuel Economy (CAFE) regulations, this credit is set to expire. It remains to be seen if the automobile manufacturers continue producing flex-fuel vehicles at the current rate in the absence of this credit. It is likely that consumers will have to demonstrate their demand for flex-fuel vehicles to convince manfacturers to sustain or increase production levels.

“We developed this report in direct response to requests from multiple congressional committees to provide a comprehensive source for information about the market for E85. This objective analysis of E85 in the market and the range of its market potential is essential to provide guidance regarding the potential for E85 to meet the goals of the Renewable Fuel Standard,” said Eichberger.

The report is available for download at www.fuelsinstitute.org. The Institute will continue to regularly publish additional reports about transportation fuels.

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Founded in 1961 as the National Association of Convenience Stores, NACS is the international association for convenience and fuel retailing. The U.S. convenience store industry, with more than 151,000 stores across the country, posted $696 billion in total sales in 2013, of which $491 billion were motor fuels sales. NACS has 2,100 retail and 1,600 supplier member companies, which do business in nearly 50 countries.

The Fuels Institute, founded by NACS in 2013, is a non-profit research-oriented think tank dedicated to evaluating market issues related to vehicles and the fuels that power them. Led by a Board of Directors and driven by a Board of Advisors, the Fuels Institute incorporates the perspective of interested stakeholders affected by this market, including fuel retailers, fuel producers and refiners, alternative and renewable fuel producers, automobile manufacturers, environmental advocates, consumer organizations, academics, government entities and other stakeholders with expertise in the fuels and automotive industries.