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June 1 (Bloomberg BusinessWeek) -- Matt Horton wants to solve a problem that makes alternative-fuel vehicles unappealing to would-be buyers: lack of convenient places to refuel. Last month, the chief executive officer of Propel Fuels opened the country’s first station where drivers can pump gasoline, ethanol, and biodiesel, cyclists can get tune-ups, and commuters can find public transit schedules. Backed by more than $19 million in venture capital and nearly $12 million in grants from the U.S. Department of Energy and the California Energy Commission, the 23-person Redwood City (Calif.) startup received yesterday an additional, $10.1 million grant from the commission to help build 100 stations around the state in the next four years.
With its alternative-fuel pumps at about two dozen other stations, Propel is laying the foundation for what the 37-year-old Horton calls the “slow, but exciting” transformation of the U.S. automotive industry. Despite increased consciousness about their benefits, roughly only 3,100 of the 160,000 filling stations across the country sell alternative fuels, according to the Department of Energy. “The gasoline stations don’t want a competitor but the alternative fuels industry is dependent on its largest competitor as a pathway to the market,” says Geoff Cooper, vice president of research and analysis at the Renewable Fuels Association. “In many cases, you aren’t going to see a retailer take a gasoline pump out of commission to put in a product that competes with gasoline.”
Four-year-old Propel, which Horton says had more than $10 million in revenue last year and has been averaging 300 percent growth since 2010, is removing that obstacle by selling directly to drivers. It’s using its experience pioneering the model across California and software it built to choose locations. The new filling station, near Anaheim, is in “one of the top 10 trade areas [in California] for alternative fuels, based on the customer demographics, vehicle counts, and traffic patterns,” Horton says. “In this business, the vehicle drives everything. You can have all the infrastructure in the world, but if there aren’t any vehicles around that use it, it’s not going to make any difference.”
Propel provides information about alternative fuels at its pumps, since studies have shown that more than one-third of drivers of flex-fuel cars don’t realize their cars can run on something other than gasoline. And it encourages customers to sign up for a system that tracks their carbon emissions. They can then log on to Propel’s website for customized reports about the benefits they’re getting from avoiding imported fuel.
Propel is “a remarkable company, like the Apple Store of the alternative energy market,” says Jim Lane, editor and publisher of BiofuelsDigest , a daily online publication. “We have these transformative fuel products that are being sold as commodities, like computers used to be sold. But Apple really showed that if you start thinking about customer experience you can change people’s minds and get them thinking about something in a whole new way.” Being first to market is a risk, Lane acknowledges. “There are not a lot of companies that are trying this. But 10 years ago, they called them crazy in Cupertino, too.”
Horton is an environmentalist who spends his free time climbing rocks and 200-foot California redwood trees, but says he’s also a results-oriented pragmatist. “I believe strongly in the power of business and the American consumer to drive change. A company like Propel moves us in a more sustainable direction, rather than relying on regulation and government mandates.”
In 2006, he was a venture capitalist working in the Silicon Valley office of Boston-based @Ventures, when he got an unsolicited business plan from Propel’s Seattle-based founders. He and his team at @Ventures spent a year tweaking the plan, which initially focused on selling high-blend biodiesel, and repositioned the company as an alternative platform offering multiple fuels. @Ventures took part in Propel’s first institutional investment of $4.75 million in August 2007; Horton took over as CEO in 2009.
Propel relocated from Seattle in 2010, and Horton says it will benefit from California’s landmark 2007 Low Carbon Fuel Standard. That standard, aimed at reducing fuel carbon intensity by 10 percent by 2020, is currently under legal challenge. Horton says his company has filed letters of support in federal court but has not based its financial models around the standard. “California has the largest number of flex-fuel vehicles and is almost dead last in terms of number of flex-fuel pumps,” he says.
Horton is following sales of natural gas-fueled and electric vehicles closely, and is considering adding natural gas pumps and battery recharging to his stations in the future when the market matures. “The energy industry is ripe for disruption,” he says, noting 10,000 people have already signed up for Propel’s carbon emissions tracking program. They’re using cleaner fuels that cost less than traditional gasoline, says Horton. “We’re trying not to ask people to pay more to do the right thing.”