Palo Alto Weekly

Cover Story - April 15, 2011

Flexing at the pump

Redwood City-based Propel puts alternative fuels in conventional gas stations

by Sue Dremann

One big hurdle to the expansion of biofuels is getting that fuel into the gas tanks of drivers.

Propel, a Redwood City company, has taken on that challenge, with plans to build hundreds of fueling stations that would be within a 10-minute drive of 75 to 80 percent of all California residents, CEO Matt Horton said.

A new location in Palo Alto, at Stanford Avenue and El Camino Real, is pending approval from the city, he said.

Propel opened its first station in Southern California last August. Twenty-two stations are currently operational from Sacramento to Southern California and 25 more are completing their permits, he said.

The company will build 75 stations this year, with funding from the U.S. Department of Energy and the California Energy Commission offsetting $10.9 million in infrastructure costs.

"With just the 75-station project, we will reduce close to 40 million gallons of petrol each year. That is a lot of fuel," he said.

Horton has spent 10 years in venture capital, investing in clean-energy companies. He started as a Propel investor and then became its CEO.

"I've always loved building companies. I believe it's one of the most important investments I have made. People are hungry for change, and we're bringing that to them," he said.

Propel offers two types of biofuel: biodiesel, which is made from vegetable oil and can work in any diesel engine; and E85, a "flex" fuel that is 85 percent ethanol and 15 percent gasoline. Only vehicles with engines tooled to accept flex fuel can take the product. There are dozens of makes and models, from Chevrolet Suburbans to some Mercedes Benzes and Toyotas, and the engines can take both flex fuel and regular gasoline. Propel lists the models on its website and on its lime-green-and-white pumps.

Horton said he views the pump locations as a platform that can adapt to whatever renewable fuel becomes dominant, whether it is flex fuel, ethanol, biodiesel or biobutanol or something else.

"We believe in a portfolio approach. We'll need all of those things" to get beyond oil, he said.

The ability to get alternative fuel to consumers has been helped by the federal Energy Independence and Security Act of 2007, which prohibits a franchisor (oil company) from restricting a franchisee, or retail gas station, from installing E85 infrastructure through a franchise agreement.

About 95 percent of retail gas stations are not owned by the oil companies, Horton said. Propel is working out agreements to add pumps and canopies or islands at stations that sell name-brand gasolines.

Chuck Brassfield, owner of Capitol Premier Chevron Car Wash in San Jose, said the Propel pumps are working out well. He started looking into alternative fuels a couple of years ago and talked to Capitol Expressway Auto Mall dealers. Ford and GMC had an extensive line of flex-fuel vehicles, he said.

"The first question out of people's mouths was 'Where could I get the fuel?'" he said.

Horton hopes to capitalize on the increasing numbers of flex-fuel vehicles, with the belief that if you build it, they will come.

There are 10 million flex-fuel vehicles on the road nationwide, with up to 50 percent of domestic autos to be flex-fuel vehicles this model year, according to Horton.

"There will be two times as many flex-fuel vehicles sold this year than there were Prius vehicles sold in its first 10 years in the U.S.," he said.

Brassfield said since the Propel pumps opened in July 2010, sales have been ramping up significantly. In February, he sold 15,000 gallons of E85; in March, the number was close to 20,000 gallons, he said.

"I talk to a lot of customers. The price is the No. 1 thing. It's one of the reasons they bought that kind of vehicle," he said.

Among Propel clients filling up in early April was an employee with the VA Palo Alto Health Care System.

Michael Hill-Jackson, a spokesman for the Palo Alto VA, said the hospital is rapidly increasing the use of E85.

"We have 175 vehicles and 85 percent are E85 capable," he said. "We have an E85 station in Menlo Park, and one coming in Palo Alto within the next 12 months."

The VA also has a pilot electric-vehicle program, Hill-Jackson said.

Horton's approach is broader than just biofuel, however, he said, and he'll adapt to whatever becomes the dominant fuel source. For the next 15 years, he thinks flex fuel will be the logical successor to gasoline, especially considering the cost of electric vehicles and the need for a different infrastructure. A Chevrolet Volt is $43,000, according to a local dealer.

Propel's E85 appeals to an array of drivers, from kids with souped-up cars to clean-energy-conscious drivers and government fleets, according to Brassfield. Propel's E85 is 105 octane, the equivalent of a high-performance fuel.

"They go darting in here and go right for that ethanol. They say, 'Oh, man it's the best,'" he said.

However, the miles-per-gallon ratio is lower than gasoline. Brassfield estimated on average, cars travel 25 percent fewer miles per gallon. A Chevy Avalanche filling up at the pump got 12.8 mpg compared to 15 for gasoline, its owner said.

But Brassfield and Horton said they don't think that's much of a downside.

On April 1, E85 sold for $3.49 a gallon; at the adjacent pump, Chevron regular gas cost $4.15 per gallon and supreme sold for $4.39. That's a 66-cent and 90-cent per gallon advantage for Propel. And Propel's biodiesel was equivalent to Chevron's at $4.33 per gallon.

"Gas went up three cents last night. I think it will go up to $4.25 before it levels out," Brassfield said.

"I think the future for alternative fuels is really good. It's not going to go away at all."

— Sue Dremann

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