Month: August 2021

How Stir Foods is leveraging market-based incentives to electrify its operations

Stir Foods logo

Stir Foods logo

Like a finely crafted recipe, a business’s operations, investments, and revenue streams must come together just so to build a successful enterprise. For Stir Foods, a Southern California food production company, these ingredients are key to its rapid growth. Since merging with two other food manufacturers in 2018, the company has made significant investments to become a premier provider of quality food products for large-scale food producers, retailers, and restaurants.

Part of its investment has gone toward building state-of-the-art production facilities that can scale along with its growth projections. The company began electrifying its facilities and fleet in 2016. Beyond streamlining production, transitioning to electric and low carbon vehicles has the added benefits of eliminating facility emissions, improving air quality, and helping to meet California’s strict health and safety standards.

Though hugely beneficial, the cost of these upgrades are significant and can be prohibitive. Fortunately, various incentive programs have been created to help improve the economics of EV infrastructure installation and total cost of ownership considerations related to EV purchasing. One of the most lucrative of these programs is California’s Low Carbon Fuel Standard (LCFS), a market-based incentive program that focuses on reducing the emissions intensity of the transportation fuel pool. Entities using low-carbon fuels can generate credits which are sold to deficit generators (primarily fossil fuel producers), with the credit generator receiving revenue for those credits. Based on the way the program is structured, electric forklifts are especially well-suited to generate credits and revenue that help organizations finance the electrification of their cargo handling vehicle fleet.

Challenges

The financial upside of participating in the LCFS is clear for electric forklift owners and lessees, however for small-to-mid tier organizations, accessing the market, managing the program’s reporting requirements, maximizing the credit value (via the use of renewable energy) and garnering favorable rates for the relatively small number of credits they generate can be challenging. The LCFS crediting process can be complex and onerous.

Managing the pathway validation process, filing quarterly utilization data, monetizing credits, and conducting annual reporting is time-consuming and requires a great deal of scrutiny, and that can mean a significant time investment from operations and facilities employees that already have their plates full with mission-critical daily tasks. Stir Foods understood that in order to focus on its core business and meet the demands of its growing customer base, it needed to outsource the LCFS credit generation and sale process to a trusted partner that allowed them to access program revenues while retaining the vast majority of the tens of thousands of dollars in credit value to which they are entitled every quarter.

How we helped

LCFS icon

Provided LCFS education and market insight

Business icon

Managed the pathway validation process

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Maximized credit via renewable energy pairing, and aggregating credit sales.

LCFS icon

Provided LCFS education and market insight

Business icon

Managed the pathway validation process

Certificate icon

Maximized credit via renewable energy pairing, and aggregating credit sales.

3Degrees worked closely with Stir Foods to provide education and market insight, so the company could understand the full value of the opportunity available through the LCFS. After assessing all of Stir Foods’ eligible facilities and helping them understand the compelling revenue generation opportunity available from credit generation and sales, 3Degrees collected relevant equipment and vehicle data and managed the LCFS registration process. This step included the re-registration of equipment that Electric Vehicle Supply Equipment (EVSE) vendors were claiming for themselves.

With registration complete, 3Degrees helped Stir Foods recognize the maximum value for its credit generation. By pairing their credits with renewable energy directly originated by 3Degrees and aggregating supply, 3Degrees was able to avoid additional brokerage fees and build economies of scale resulting in a vastly more competitive rate than if Stir Foods had monetized LCFS credits through an existing partner rebate program or independently. 3Degrees continues to remit the vast majority of the credit value to Stir, in contrast to many other market participants who often return a much smaller fraction of the credit value to customers.

“We were grateful for 3Degrees bringing this revenue opportunity to our attention, for their transparency in illustrating the full value of LCFS credits, and their ability to help us seamlessly tap into an incentive program that funds our electric vehicle fleet now and in the future.”

— Pablo Gallo Llorente, CFO, Stir Foods

Results

After having taken part in the program for over a year, Stir Foods has found the initial LCFS financial models provided by 3Degrees to be precise. Working with 3Degrees has helped Stir Foods uncover and capture an entirely new revenue stream while avoiding a significant portion of the administrative burden that would have made participation otherwise unworkable. After the initial steps in data collection and set up, the program is now on auto-pilot. The revenue generated quarterly from the sale of its LCFS credits can now help finance the fueling, operations, and maintenance of their existing fleet and support additional electrification and lower carbon vehicle activities.

LCFS Credits revenue:

  • Helps finance fueling, operations and maintenance of existing fleet
  • Supports additional electrification
  • Supports other lower carbon vehicle activities
  • Helps finance fueling, operations and maintenance of existing fleet
  • Supports additional electrification
  • Supports other lower carbon vehicle activities

Driving the transition to net zero emissions

Across the OEM motor vehicle aftersales space, transportation is a significant spend – approximately 7-8%(1) of sales. Further, the transportation sector has now surpassed the power sector as the largest emitter of greenhouse gases (GHGs) in the United States, responsible for over 29%(2) of total emissions within the U.S., and 24%(3) globally. This trend largely is driven by the growth of e-commerce, international and domestic shipping, and other activities related to globalization.

Many of the OEMs participating in Carlisle’s North American Parts Benchmark have released corporate statements committing themselves to reducing their climate impact, yet many organizations are early in the development of plans to address the greenhouse gas emissions associated with their transportation footprint. Fortunately, meaningful pathways to reduce transportation emissions are taking hold.

Where to begin?

We’ve laid out our perspectives on how to pluck lower hanging fruit and to either start or accelerate the journey towards decarbonizing transportation-related emissions.

  1. Calculating an Organization’s Greenhouse Gas Emissions Profile
    Calculating an organization’s greenhouse gas emissions profile or “carbon footprint” circumscribes an organization’s emissions and creates a heat map for understanding where and in what size emissions are occurring. It is like tracking a person’s caloric intake over time for the purpose of designing a diet that gets results while minimizing disruption to their lifestyle. Ice cream every night or just on weekends?

  2. Decarbonizing the Warehouse
    Decarbonizing the warehousecan be a fertile ground for quick wins. Tried and true onsite energy minimization efforts — such as LED lighting, onsite solar installation, high efficiency space heating and cooling, or being paid to reduce energy use during periods of peak grid congestion — can offer attractive financial return profiles while providing greenhouse gas reduction benefits. When paired with backup battery storage systems, these efforts can also increase the energy resiliency of warehouse operations.

    More recently, an increasing number of companies are deploying Material Handling Equipment (MHE) powered by lower carbon fuels, such as electric or hydrogen powered forklifts, and other non-road cargo equipment. Leveraging various sources of public funding for these vehicles, such as the Low Carbon Fuels Standards incentive regimes in California, Oregon, and a growing list of other states, can deliver attractive additional revenue streams. These funds can further enhance total cost of ownership economics and help support more rapid electric vehicle deployment that lowers the GHG emissions of owned or leased mobile sources.

  3. Transitioning to Low Carbon Shipping Fuels
    The global transportation sector has begun integrating low carbon shipping fuels at an accelerated rate, in large part focused on last mile delivery and supported by decision tools that identify economically attractive alternatives to internal combustion engine (ICE) transport. Natural vehicle replacement cycles — both within and outside the warehouse — present good opportunities for organizations to begin to pilot electric, hydrogen, CNG, and other lower carbon fueled vehicles, again, especially for California and Oregon operations.

  4. Targeting the Remaining Unavoidable Greenhouse Gas Emissions
    Many companies mitigate the impact of the remaining unavoidable greenhouse gas emissions through the purchase of high-caliber verified carbon emissions reductions, otherwise known as carbon credits or carbon offsets, as a stepping-stone to complement, rather than replace, existing decarbonization strategies throughout their own operations.

  5. Reducing the Need to Move Materials and People
    Having said this, the best way to reduce greenhouse gas emissions in transportation is by reducing the need to move materials and people. A comprehensive review of your supply chain – including buildings, material flow, transportation modes, inventory deployment strategies, referral patterns, etc. will allow you to understand not only the cost/service trade-offs, but the environmental tradeoffs as well. For example, increasing forward-deployed safety stock may increase inventory costs, but may also reduce parcel/air referrals. Ideally, this should be a positive financial trade-off. But if not, is your organization willing to pay for reduced carbon emissions?

Takeaways:

Combined with policy advocacy, vendor negotiation, and peer collaboration, the above strategies can represent a comprehensive approach to reduce the largest source of emissions globally.

Carlisle and its decarbonization partner, 3Degrees, have helped clients ranging from Rivian to Proterra understand and address the impact of their transportation-related emissions with a range of solutions customized to meet their unique business needs and sustainability goals.

 


Harry Hollenberg, Managing Director of Carlisle & Company

Carlisle & Company is the leader in aftersales strategy and insights, partnering with a range of highly engineered clients to solve their most complex business problems, drive growth, and create value.

 

 

Dan Kalafatas, Chairman of 3Degrees and former Carlisle & Company Manager

Dan serves as the chairman of 3Degrees’ board of directors, focusing on the company’s long-term corporate strategy and strategic initiatives.