Lines for dirty old gasoline could start getting a little shorter at Shell and ExxonMobil stations on the crunchy West Coast. Propel Fuels, a Sacramento, Calif.-based startup setting up a network of biofuel stations, said Wednesday it has raised $20 million to expand its network. The financing comes a week after the U.S. Environmental Protection Agency set a new renewable fuel standard, calling for 8.25% of the country's gasoline and diesel sales to be comprised of alternative fuels. The new mandate is likely to drive more biofuel investment in the future.The deal, which represents Propel's third round of funding, includes $12 million in equity investment from Craton Equity Partners, Nth Power and @Ventures, where Propel CEO Matt Horton is also a principal, as well as $8 million in debt financing. Propel already operates 11 biofuel stations, including five in California and six in Washington state. It says its new cash will allow it to expand into all major markets across California.
New Renewable Fuel Standard To Drive Investment
The new renewable fuel standard actually loosened the previous 2008 standard that required a greater amount -- 10.21% -- of fuel sales to be renewable. But on the plus side, it ended uncertainty about how biofuels would fare under the Obama administration. That's likely to raise investor confidence and drive more biofuel investment, industry insiders say.
Niche alternative-fuel applications, such as natural gas for vehicles, are already gaining investment dollars on the public markets, says John Quealy, an analyst at investment bank Canaccord Adams. "Those stocks have held up very well," he says.
The new standard is a "shot in the arm" for the biofuel industry, says Dallas Kachan, managing director of the Cleantech Group, a research and consulting firm that tracks venture-capital spending in green technology. "We believe [the standard] will be the catalyst to freeing up more private capital for biofuels," he says.
Investors Focus on 'Enabling Technologies'
But don't expect to see the $100 million deals that characterized the height of the cleantech-investment boom in 2008. "Very few investors in any cleantech sector are going to be investing the amounts of capital we saw at the height in 2008," when venture capitalists were investing in production facilities, Kachan says. "Investors have learned that venture's best applied to early stage science than late-stage commercialization."
Instead of focusing on capital-intensive biofuel production, Quealy said investors are favoring enabling technologies and services like Propel's. "These enabling technologies are getting a lot of attention," he says. "We're certainly not seeing a lot of attention on refineries, given the overhang and nightmare we've all lived through in the last eight months."
The biofuel industry saw a series of factory closures and bankruptcies after fuel prices -- and demand for biofuels -- fell while prices for the materials used to make biofuels, such as corn and soybeans, remained relatively high.
Adding Pumps At Exxon And Shell Stations
Founded in 2004, Propel partners with fuel retailers to set up biofuel pumps at existing gas stations. The company builds, owns and operates those pumps, making money by selling fuel. It's already won over six Shell stations, as well as one Exxon station and one 76 station.
The company also has developed software called CleanDrive, which delivers personalized emission reduction reports, based on customers' biofuel use, that consumers can share with friends and family, and that businesses can share with their customers.
Rick Kment, biofuels analyst at DTN Research, says Propel has real potential to brand itself as the premier player in a niche market and attract loyal customers. But it's unclear whether Propel will be able to differentiate itself in the long term, he adds. After all, fuel is a highly competitive and low-margin business.
If Propel makes money, it will likely attract copy cats -- or competition from already established oil companies that want to expand into the same market themselves, he said. The threat of coming competition raises the pressure for Propel to grow quickly to establish itself as a key biofuel provider now, and its new funding is evidence that the company is working to do just that.
A Biofuel Station Coming to a Town Near You