Consulting team aims to increase biodiesel producer profits

By Luke Geiver | June 08, 2011

For Wayne Lee, principal owner of Lee Enterprises, and the rest of the partners who’ve formed Diesels LLC, a company designed to assist both biodiesel producers and purchasers in buying and selling biodiesel, “the people with the risk should be the people getting the profit.” Under current conditions, Lee told Biodiesel Magazine, the producer is not getting the full benefit of the RIN system or the tax credit. “He is the one with all the investment, the person that bought the plant, has the big note and all the equipment.” Diesels hopes to change that.

The idea, Lee explained, is based on a very common occurrence within the biodiesel industry today. Many times, he said, a producer only wants to sell his product for the highest price and on the purchasing side, the purchaser simply wants to buy the cheapest, highest quality biodiesel available, without going through the paperwork necessary to validate RINs or earn a dollar tax credit. “It would be nice if the producer could say to that person, since you don’t want the RIN and since you don’t want the dollar tax credit, I’ll just keep it. Unfortunately,” Lee points out, “it’s not that simple.”

But, that doesn’t mean it can’t be done. Diesels, which formed in 2009 and has been steadily working to solve the problem since, has done it. “We have put our attorneys to work on it, and we have worked with the EPA to make sure [the system works],” Lee said. Now, after a large amount of paperwork and special filings are completed by the team at Diesels, the situation of a producer selling his biodiesel at a higher price than the current average and a purchaser buying biodiesel without worrying about the presence of RINs or a tax credit can happen.

Under the system, Diesels will match up a producer with a purchaser. The system will ensure the quality of the product based on a number of quality assurance tests within the stipulations of the system. Diesels will locate the right place and the right time to blend the fuel, and the buyer will be able to purchase the fuel below the rack rate for diesel. “What you are seeing right now is that some of the larger purchasers of biodiesel are going to the producers and saying I will give you this price for your biodiesel and that is it, and, if you don’t sell it to me for that price somebody else will,” Lee said. But, through the work of Diesels, he added, that will change once a producer can see that other producers are making up to 60 cents a gallon more when matched up with the right purchaser. The overall system is based on the premise that a producer can get more for their product when selling to a purchaser that doesn’t want to spend time or money on the paperwork in relation to the RINs and the tax credit. The purchaser won’t get the benefits of the tax credit, for instance, but they will still get a cheaper biodiesel. And, on the flipside, Lee said, the producer will get a higher price for the product.

How much will the fees run to work with Diesels? Lee said that initially his team thought that it would be fair to go in to a biodiesel producer and charge based on a percentage (half) of the fuel his team sold that was over the starting price the producer originally was selling the product for. “The problem with that is, if we do that we are no different than the guys that are hurting them now.” So, he said, “we set a flat fee per gallon, a small cents-per-gallon fee, and we are going to stick with that fee.” It isn’t right, he said, to take half of the producer’s profits “just for showing him the system.”

The team will start taking clients this week, something that Lee doesn’t think will be a problem. “What happens if you are getting a price for your biodiesel now and you find that the guy down the street is getting 60 cents a gallon more for the biodiesel using Diesels,” Lee pointed out. “Then, you are going to come over here too.” 


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