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Valero Energy Corporation Message Board

  • bluecheese4u bluecheese4u Jun 19, 2013 3:03 PM Flag

    E85 consumption remains the same despite incentives

    E85 consumption remains the same despite incentives

    Scott Irwin and Darrel Good, University of Illinois | Updated: 06/19/2013

    In a recent post we examined price relationships that would allow E85 to be priced equal to its energy equivalent value relative to that of E10. We concluded that retail E10 prices, wholesale ethanol prices, corn prices, and D6 RINs prices at the end of the first week of June were conducive for competitive pricing of E85 at the pump. A continuation of favorable price relationships could result in an increase in E85 consumption and help fill part of the gap between the RFS mandate for renewable biofuels and the E10 blend wall in 2013 and 2014. Here we examine recent trends to determine if there is evidence that E85 consumption is actually increasing or likely to increase in the near future. We examine the following trends in search of that evidence: Retail prices of E85 relative to the cost of E85, Retail prices of E85 relative to its breakeven energy equivalent value with E10, E85 consumption, and Total domestic ethanol consumption. Figure 1 shows the relationship between the weekly Midwest retail price of E85 and our calculation of the cost of E85 for the period from February 8, 2007 through June 13, 2013. Our model for the retail cost of E85 is calculated as: [(0.74 X (the wholesale price of ethanol - blenders credit) + 0.26 X the wholesale price of CBOB) + $0.75]. click image to zoom As in our other recent posts on E85 we assume that E85, on average, consists of 74 percent E100 and 26 percent CBOB. We also subtract the ethanol blenders' tax credit from the price of ethanol when the credit was in effect over the sample period, which is based on the assumption of full pass-through of the credit from blenders to ethanol producers. Without this assumption the retail cost of E85 is well-above the market price of E85 much of the time. Finally, we assume that the wholesale-retail spread for E85 is $0.75 per gallon. Figure 1 reveals that the

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