Excerpt from the 2008 publication, Exploring Sustainable Biodiesel (courtesy Schiffer Publishing and author Amy Townsend)
(click image below for information from Powell's Books)
Case Study: Yokayo Biofuels, Ukiah, CA
Yokayo Biofuels is an “S” corporation that began as a partnership in October 2001. Initially, the founders considered starting as a cooperative but decided against it. As founder Kumar Plocher states, “Not everyone is cut out for do-it-yourself projects like making fuel.” In his experience, cooperatives might have many enthusiastic members who do not necessarily have the right skill set. He suggested that a biodiesel cooperative has to be very well run in order to be successful. Instead, Kumar found that having a corporation helps him to deal with the regulatory and other issues that his company faces.
Initially, Yokayo Biofuels intended to market and distribute biodiesel but not to produce it. In the fall of 2001, Kumar found a way to get a load of biodiesel from Connecticut-based World Energy to his area in northern California. Since that time, the company has grown to 10 employees and 45 shareholders. And it produces biodiesel using waste oil collected from about 500 area restaurants.
In California, the collection of used fryer oil is regulated by the California Department of Food and Agriculture (CDFA). At regular intervals, CDFA sends a Meat and Poultry Inspector out to Yokayo Biofuels’ production plant to make sure that it continues to operate within the confines of its Inedible Kitchen Grease Transport License as well as its Rendering License (which allows the company to process the oil). A big hurdle for most people that would want to collect oil from restaurants legitimately is the $2 million liability insurance requirement (in addition to vehicle insurance). Other than that, Kumar says, it is pretty basic. Surprisingly, it is a felony to collect grease without a license.
Yokayo’s business model relies on almost a closed loop biodiesel life cycle since the company controls collection, production, and distribution. The company makes about 300,000 gallons of biodiesel annually, which it sells to its 100-200 customers. Kumar says that the company delivers the biodiesel itself using a 2,000 gallon delivery tanker and that it will add a 1,500 gallon delivery truck soon. It also sells through several retail pumps although most of its business is not pump-based. Households also are encouraged to bring their waste cooking oil to Yokayo for use in biodiesel production.
Kumar states that the company has done well but faces challenges in the area of financing. It has shied away from venture capitalists because, he says, they tend to infiltrate the business plan and want to see unending growth. However, this does not reflect Yokaya Biofuel’s vision and business model. The company’s vision is to establish a successful business model for decentralized, local fuel production and distribution. Kumar does not plan to continuously grow the company in a centralized fashion. The company is likely to max out production at one to three million gallons per year. Unless another, sustainable oil source comes along, it is not likely to be able to produce much more than that. Once it has achieved success, the company can franchise this model out and copy it in other places or let others do it.
Kumar states that there is no reason that a locality should ever neglect to make full use of its regional resources. Unfortunately, that is exactly what is happening all over our society. An example of this can be seen in agricultural subsidies that encourage mono-cropping. Another example is found in petroleum subsidies that encourage an addiction to oil that gets shipped from around the world. His vision is pretty simple: find what the community can sustainably supply as a feedstock (source oil) for biodiesel and, then, work with it to create a local economy that fuels itself – independent of outside influences. Ideally, every ingredient and input for the fuel is produced locally, including labor and investment dollars. The money generated by this local fuel economy is kept in the community, so the community thrives. Additionally, there is no longer a need to worry about rising oil prices affecting the life and livelihood of the community's inhabitants. People become empowered.
Because biodiesel can be made from an almost infinite number of feedstocks, it stands to reason that any region should have an ideal feedstock – all we need to do is find out what it is. In California, the ideal "starter" feedstock is clearly used fryer oil, or “UFO” as Kumar’s father calls it. It is plentiful and typically is processed with other byproducts to make low-grade animal feed. A substitute for petroleum diesel is clearly a much more value-added application. However, because restaurants have been conditioned to pay renderers for the service of used oil removal, they are more than happy to have their oil taken for free by a biodiesel company while at the same time gaining the public relations benefits of doing something politically correct and environmentally correct.
This situation will not last. Eventually, all of the used fryer oil will be accounted for by biodiesel companies, either directly or indirectly, and restaurants will be charging for its pickup. At that point, a more suitable local feedstock will need to be found if the local fuel economy is to grow further. In Yokayo’s case, the company is committing research and development resources to various oil “super crops,” including Chinese Tallow Tree, Jatropha, and various microalgae species. The goal is to find something that will grow well in the company’s area and yield at least ten times the paltry amount of oil that you get from an acre of soybeans, which is 50 gallons per acre. At 500 gallons an acre, it begins to look possible to supply all of a community's diesel needs with biodiesel. Kumar says that the Chinese Tallow Tree generally is regarded as yielding between 500-1000 gallons per acre, Jatropha often times is placed anywhere between 200 and 1000 gallons per acre, and microalgaes can be all over the map, with some varieties yielding about 900 gallons per acre and other yielding as much as 10,000 gallons per acre.
Yokayo Biofuels does not run into many regulatory challenges at the state and federal levels but finds itself working to comply with county issues at its new site. Being a small company, Kumar says that he is working with the county regulators, who have both created some regulatory hurdles for the company and been very supportive.
At a roundtable meeting with the local fire district, Environmental Health, and Building and Planning, Kumar asked for more information on a particular topic. The fire chief threw his arms in the air and remarked, “We've never had a biodiesel producer in this area before.” It was a way of saying, “I don't know.” Kumar says that his company frequently hears that from local regulators. On the one hand, the regulators know that Yokayo Biofuels is a chemical plant because making biodiesel is a chemical mixing process. On the other hand, the regulators also can see that the company is much smaller and, in many ways more benign, than just about any type of chemical plant in operation. Yokayo Biofuels uses only three ingredients (mostly vegetable oil, with smaller quantities of methanol and potassium hydroxide), and its product is non-hazardous and non-toxic. Everything is done at low temperature and pressure. It is all much simpler than a refinery or glue factory or water treatment plant or whatever it is they are conditioned to see.
However, Kumar understands the value of regulation. He says that all of the regulators can sense that there are both dangerous and benign aspects to our business, but they do not always know where to look or what it is they are seeing. From his perspective, Kumar wants to ensure that his company ends up with a production plant that he can show off, eventually with tours open to the public. Such a scenario requires a set of best practices, and that is what the company is working to create with the local regulatory authorities. There is a lot of trust involved. He trusts that they will not view him as a miniature petroleum refinery and try to shut him down, and they trust that he will give them honest information about what exactly it is Yokayo Biofuels does.
The company is strict about the quality of its product, testing every batch of biodiesel for compliance with the ASTM standard and sending samples weekly to a third party for testing. It is a big proponent of fuel quality testing and wishes that there was federal enforcement of biodiesel quality so that the auto manufacturers would feel comfortable with biodiesel use.
Safety also is a concern, and Yokayo has developed policies that others – particularly homebrewers and small-scale producers – might face. For example, after witnessing firsthand fires created through the spontaneous combustion of oil-soaked rags, the company has employed numerous special containers for rags and other oil-soaked items.
Yokayo Biofuels does not receive much financial support. In order to qualify for the federal tax credit, its sells B99.9 biodiesel. This tax incentive provides 50 cents per gallon sold. “That’s the one bit of financial help that we get,” Kumar says. Yet, biodiesel producers using waste oil are at a disadvantage because producers who use virgin soy oil get 99.9 cents per gallon of fuel sold despite the potential environmental preferability of waste oil-based biodiesel. Kumar attributes this to the power of the soy lobby.
Finally, Kumar says, “I see a lot of starry-eyed people who think that they can save the world and become rich at the same time. I’ve been doing this for 6 years, and I’m making the same $15/hour that my employees are making.” He adds, “If you’re doing it right, if you’re doing it according to ideals, you’re up against a lot…. If you’re serious and you’re in this for idealistic reasons, there’s not much help.”