San Francisco City Government Takes A Step Closer To Using Biodiesel: Lessons From Municipal Biodiesel Contracting

I have been a biodiesel advocate for a number of years now. I would characterize myself as one of those who could not understand why more fleets, and why more government fleets in particular, were not switching to biodiesel blends. I generally attributed it to one of two things, price or institutional resistance to change. Price is still an issue in some markets, like Northern California, but has been eliminated, or at least reduced, as an issue in other markets.

I have been working with the City of San Francisco the past few months on their fuel purchasing contract. The City is incorporating biodiesel into the fuel contract for the first time. Here is a link to the contract.

This experience has forced me to revisit my thoughts about institutional resistance to change. MUNI, San Francisco's public transportation agency, has a particularly challenging environment. MUNI consumes around 6 million gallons of diesel fuel each year. They have several yards, each with their own fuel tanks. Buses can start any given day at one yard and end the day in another. So the idea of starting some buses on biodiesel is impractical, as it is very difficult to know where any given bus will be on any given day.

Further complicating matters, MUNI has a policy that all fuel tanks must be at least 75% full at all times. This is San Francisco after all and we do have earthquakes, so the City must be prepared at all times with reserve fuel. This policy has a few implications. First, in the ideal world, you would empty and clean a tank prior to switching over to biodiesel. If you have to maintain the tank at least 75% full at all times, you can never empty and clean a tank. Second, biodiesel is still a young industry. Supply is not consistent enough to guarantee that you will be able to maintain tanks at least 75% full at all times. Accordingly, provision must be made to supplement with diesel when biodiesel is not available as delivery must be made every day to maintain the required fuel level.

The largest tank farm is comprised of four 20,000 gallon below ground tanks. These four tanks are interconnected, creating in essence one 80,000 gallon tank. It is very likely that the tank contains sediment. Cleaning out the sediment prior to switching to biodiesel will obviously be a challenge. Doable, but a challenge.

Then there is the topic of politics. I will grant you that San Francisco is a more political City than most, but I believe the lessons learned here are generally applicable elsewhere. The push to use biodiesel has been both a bottom-up and a top-down phenomenon. From the bottom-up have been the people running the alternative fuels program and the local biodiesel community. From the top-down have been the Mayor and his Department of the Environment. What has been missing is support from those on the front line, the fuel managers, mechanics, drivers and their immediate bosses. Without the support of these front line implementers, biodiesel will go nowhere. I have learned that taking the time to educate everyone involved is essential and that one should start early. City agencies will fight tooth and nail if they are not consulted early and often. They need to feel ownership of the program. The goal of these front line employees is to keep the buses running after all, not to clean them up. That is the job of the biodiesel advocates and the politicians who support them. Our job is to bring the front line employees to our side, patiently and respectfully. Biodiesel is a great fuel after all, but that does not mean that you can short-cut the process of change that switching to biodiesel represents. While biodiesel is a "drop-in" fuel, the reality on the ground when mananging large fleets is that every precaution must be taken.

The Fire Department, MUNI, the Parks Department and the Zoo have all expressed interest in using biodiesel. Now that the City's fuel contract will include biodiesel procurement for the first time, they should be able to begin their pilot programs and eventually move to more widespread biodiesel use. They will likely start with B20 and increase the percentage in the blend over time. Another exciting biodiesel journey has begun.

If anyone feels like responding to the City's biodiesel fuel contract, please let me know. We are working hard to ensure that several quality biodiesel bids come in.

Platts Conference Part II

Here are the rest of the presentations given at Platts.

http://www.platts.com/Events/PB540X/presentations_index.html

Platts Biodiesel Investor Conference, Chicago

I just returned from the Platts Biodiesel Investor Conference in Chicago. It was a good conference, informative presentations and many good people in attendance. My presentation on biodiesel incentives can be found here. The slides from the other presenters will be made available soon and when they are I will post the link in a follow-up piece.

A few observations coming out of the conference:

First, biodiesel still is and will be for the next couple of years a soy oil play. All the talk of alternative feedstocks (broadly defined for this purpose as anything other than soy or canola/rape) is encouraging, but such feedstocks will have a limited roll in the US biodiesel industry in the near term. Animal fats will have a roll to play, but the technology for converting these feedstocks to consistent high quality biodiesel is still fairly new, which is resulting in smaller plant sizes (1-5 mgpy) compared to the new virgin oil plants (30-50 mpgy). Accordingly, virgin oil biodiesel will continue to dominate in the marketplace. Well designed and thought out animal fat biodiesel plants should be able to survive in this environment, but need to have a strategy to survive in the industry long term as the trend towards larger plants continues. Imported oils such as palm may also have a roll to play, but their roll in the near term is fairly limited.

Second, there is lots of excitement in the biodiesel industry, but business models still need sharpening. I met many eager biodiesel developers, folks with plants currently in the early stages of development. I wish each of these folks well, but my working hypothesis that most of these plants will never get built remains. The risk has not been sufficiently taken out of these deals to attract serious investors. A few of these folks will get there with the right guidance, but sadly, I fear that many will not make the long slog from conception to production.

Third, the trend of power plant developers getting interested in biodiesel continues. These folks are looking to transfer their power project development expertise into the biodiesel industry. This should benefit the industry as it continues to professionalize and grow beyond its agriculture and rendering/WVO roots. The big question that comes along with this phenomenon is how sustainable is an independant biodiesel producer. If petroleum prices remain high and government support for biodiesel remains strong, I believe the independent biodiesel producers can thrive. On the other hand, should the price of oil drop below $35 or $40 dollars a barrel and/or government support for biodiesel falter, the independent biodiesel producer could quickly find themselves in troubled waters.

Fourth, if the three most important factors in the restaurant business are location, location, location, then the three most important factors in the biodiesel business are quality, quality, and quality. This is not new, but is worthy of note because it has several implications. (More on that later. Out of time at the moment. Sorry.)