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No Easy Math to Plot A Green Path

Any fleet thinking of going green should think long and hard about what it expects to gain by switching to alternative power.

September 2015, TruckingInfo.com - Cover Story

by David Cullen, Executive Editor - Also by this author

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Drew Cullen, Penske’s senior vice president of Fuels and Facilities Services, reports that natural gas is “the leading option” for customers converting to alternative power for heavy-duty trucks. Photo: Penske
Drew Cullen, Penske’s senior vice president of Fuels and Facilities Services, reports that natural gas is “the leading option” for customers converting to alternative power for heavy-duty trucks. Photo: Penske

Going green is no easy thing. It starts with deciding why a conversion to alternative power should be made in the first place. Then comes determining which equipment to implement and how to fuel and maintain it. And then there’s calculating various long-term cost factors.

Not long ago, the rationale for many fleets to convert from diesel to natural gas or propane or electricity was pretty simple: They had to because they operated in a clean air non-attainment area.

But now trucking companies of all types are switching for other reasons. These range from wanting to escape the grip of historically high and volatile diesel fuel prices to addressing their own sustainability goals and/or those of existing or prospective customers.

To be sure, the calculus differs for those seeking to save green by burning less diesel or gasoline and those wanting to be green to hit corporate targets or score with customers. That’s not to say the latter are immune to saving fuel bucks. But as they’re banking on the further greening of American commerce, they’re likely to stay the conversion course no matter where the price of diesel or gasoline heads.

“Fleets that have converted to alternative fuels are staying with their plans,” says Scott Perry, Ryder’s vice president of supply management and global fuel products. “Natural gas is the number-one alternative, and those that switched to [compressed natural gas] or [liquefied natural gas] 18 months ago found the per-gallon price differential made for an easy payback calculation. Now that those numbers are not as robust, some fleets have decided it may be best to wait for that value proposition to change.”

Of course, the price of conventional fuels is way down of late and is expected to stay low or drop more for some time. Experts expect the price of diesel won’t rise markedly until 2016. Then they see it increasing only to an average well below what it rose to in 2014. That’s thanks to a sharp and lingering drop in world oil prices.

Drew Cullen, Penske’s senior vice president of fuels and facilities services, regards natural gas as the leading option among the lessor’s customers converting heavy-duty trucks. But when it comes to medium and light vehicles, he says fleets are adopting propane autogas as well as hybrid-drive and electric power. “We have experience with all these alternatives — 500 vehicles now — and have customers operating each type.

“The majority opt for CNG due to the availability of that fuel vs. LNG at this time,” he continues. “As for propane, it offers a pretty easy fueling solution, and the capital investment needed for on-site fueling is not as large as for CNG. On the electric side, there is a capital investment to consider as well as the downtime involved in recharging batteries based on range and battery size. Trucks can be idle for a fairly long time as they recharge. With hybrids, though, the battery is recharged as the truck is operated.”

Partnerships with natural gas fuel providers and sharing facilities with other fleets can defray investments in on-site fueling. Photo: NGV America
Partnerships with natural gas fuel providers and sharing facilities with other fleets can defray investments in on-site fueling. Photo: NGV America

While CNG together with LNG by all accounts add up to the preferred alternative for heavy-duty trucks, LPG, or propane, is making inroads across the GVW range. “Propane autogas provides a low total cost of ownership, making it an economical solution for any operation,” says Michael Taylor, director of autogas business development for the Propane Education & Research Council. “And with the growing number of propane-autogas-powered vehicle options available, it’s becoming an increasingly competitive fuel in the medium- and heavy-duty fleet markets.”

While it may seem there are as many advocates for green trucks as blades of grass, that’s not to say every fleet should switch from conventional fuels, according to John Flynn, CEO of Fleet Advantage, Fort Lauderdale, Fla., which provides equipment financing and lifecycle-cost management to large private fleets.

“Currently, there is no compelling reason to change to alternative fuels,” Flynn says. “Diesel is still the most efficient method of powering Class 8 vehicles available.” Still, he doesn’t entirely dismiss the value of going green. “Some companies may benefit from byproducts of the manufacturing of their product. A large agriculture or dairy operation may generate methane gas. If the production volume exists for the generation of methane and eventual processing into a fuel-delivery system, then that fuel could be used to power a fleet at a lower cost per diesel gallon equivalent.” 

Deciding to invest in any alternative fuel should start with really knowing the reasons for doing so, according to Ryder’s Perry. “A fleet looking at alternatives to embrace sustainability for shareholders or customers may look at the decision differently than one looking at it for purely financial reasons,” he points out. “Beyond that, there should be further discovery around the vehicle technology that will support the strategy and the costs of deployment — including training technicians and ensuring driver acceptance as well as determining fuel needs and securing infrastructure.”

“Offsite infrastructure is limited and on-site fueling resources are extremely expensive,” contends John Flynn, CEO of Fleet Advantage. “Although it is a substantial investment, if volume is high enough on-site fueling may make sense.” 
“Offsite infrastructure is limited and on-site fueling resources are extremely expensive,” contends John Flynn, CEO of Fleet Advantage. “Although it is a substantial investment, if volume is high enough on-site fueling may make sense.”

Penske’s Cullen says that a fleet’s sustainability goals or “whether they are positioning themselves as ‘green’ for customers or to meet specific expectations” should be part of the strategic equation. Not only do alternative-fueled vehicles carry a price premiums, he says, “on top of that, right now natural-gas engines are not as fuel-efficient as diesels. And the cost of fueling, especially when out of route, and the time it takes to fuel must be factored in as well.”

On-the-road fuel availability is usually an operational consideration, says Ryder’s Perry. “Unless a sizeable number of vehicles is converting or there is enough local demand, it can be difficult for a supplier to build a dedicated fueling site for one fleet.”

Fleet Advantage’s Flynn, talking about natural gas, says “offsite infrastructure is limited and on-site fueling resources are extremely expensive. Infrastructure will improve over time, but capacity for over-the-road fueling is limited.” The costs for on-site fueling facilities vary depending on whether you’re using CNG or LNG, fast fill or slow fill, size and location, but they can be significant.

“Although it is a substantial investment, if volume is high enough, on-site fueling may make sense,” Flynn says. “But as the cost spread between natural gas and clean diesel becomes closer in price, it becomes difficult to support this investment.”

As natural gas goes, CNG remains much more widely available than LNG as a vehicle fuel for heavy-duty trucks. Photo: Gain Clean Fuel
As natural gas goes, CNG remains much more widely available than LNG as a vehicle fuel for heavy-duty trucks. Photo: Gain Clean Fuel

“Propane fueling stations can be installed in areas where other fuels cannot due to lack of available physical space or issues with environmental compliance or permitting,” says PERC’s Taylor. “Propane autogas refueling stations are the most affordable to install, service and maintain of any fuel. Public refueling stations may be available. Where they don’t exist, a local propane provider may create one if a fleet — or multiple fleets — in the area can provide the fuel consumption required to support the facility.”

He notes that a standard private LPG station requires “only a minimum 1,000-gallon capacity tank and a single dispenser, which easily supports 25 or more vehicles based on a fleet’s requirements. In some cases, providers maintain ownership of the infrastructure and only request the fleet pay for site preparation and electrical supply. On average, a fleet pays about $1,500 to $5,000 for site preparation.”

Ryder’s Perry recommends calculating how to offset higher vehicle-acquisition costs with such variables as fuel-cost savings, tax breaks and other incentives, possible reliability “uptime” gains (many alt-fuel vehicles don’t need the emissions aftertreatment that many fleets have found problematic) and future equipment residual value.

“They need to know going in how they will recover their upfront costs,” he says, “unless their focus is strictly on advancing sustainability or running greener trucks as a value-added offering or for purely marketing purposes. And a fleet may want to minimize the risk of converting by working with a truck lessor to leverage their expertise and service/fueling networks.” Perry notes that Ryder’s customer base has a strong focus on CNG and LNG and that the company has racked up over 40 million miles of service with natural-gas trucks.

Flynn regards the purchase-cost differential between diesel-fired equipment and those fueled with natural gas as excessive. “It recently cost a client $43,000 to upfit a tractor to CNG, not including some minor ancillary upgrades. Economically, the key driver of specifying a natural gas vehicle is the cost of fuel. Since that spread has significantly narrowed, the payback period of a natural gas vehicle is beyond the vehicle’s useful life.”

In addition to reduced savings from cheaper fuel, Flynn points out that diesel trucks are becoming ever more fuel efficient. “The GHG Phase 2 proposed mandates offer huge benefits in the form of ever-increasing diesel mpg and CO2 reductions for years to come. Phase 1 resulted in annual mpg improvement of 2.5%. Phase 2 is designed to do the same. Diesel vehicles placed in-service today are achieving a 7.2 driving mpg. This suggests that by 2027, diesel fuel economy will exceed 10 mpg.”

In the U.S., UPS runs trucks fueled by CNG, LNG and LPG and others powered with electricity and via hydraulic hybrid drives.
In the U.S., UPS runs trucks fueled by CNG, LNG and LPG and others powered with electricity and via hydraulic hybrid drives.

However, Cullen says Penske “considers it a little early to tell the impact of the new GHG rules. They may open up more opportunities for alternative fuels. We’ll be watching it very closely for any potential impact on our diesel and alt-fuel portfolio.”

Despite any argument for diesel’s efficiency, if going green is still your plan there is much else to weigh. “For instance,” says Flynn, “if you’re considering natural gas, you need to know the properties of LNG vs CNG, which vehicles and fueling infrastructure are more costly, and the availability of each type of fuel.” On top of vehicle and fueling infrastructure costs, he says fleets need to consider the costs of facility modifications to be in compliance with state and local regulations, implementing safety policies for refueling, and developing maintenance training and guidelines and a driver-training program.

Roll it all up and “the cost will be $2,000 to $3,000 more per year or 0.03 per mile higher for a natural-gas vs. a clean diesel vehicle over a 100,000 miles annual utilization,” says Flynn. “These costs and the time it takes to develop the programs must all be factored.”

As for the specific costs of maintaining alternative-fueled vs. diesel trucks, Penske’s Cullen says the jury is still out. “At this point, it’s anecdotal in our fleet, especially with Class 8 natural-gas trucks as they are relatively young. And based on our 24/7 road-service reports, we’re not seeing any major engine problems — other than some drivers early on going too far and running out of fuel.” He adds that Penske considers the cost of training technicians and retrofitting its facilities to handle green trucks as “minimal.”

PERC’s Taylor says that depending on vehicle class, model and fuel system, and whether a truck is purchased from an OEM or converted via an aftermarket system, the incremental cost to add LPG vehicles “will fluctuate.”

But he says that regardless of vehicle acquisition cost, fleets typically see a return on investment with LPG in two years or less, thanks to propane’s reduced total cost of ownership derived from lower fuel and maintenance costs as well as fewer repairs.

“Some fleets report an even quicker payback period with an increase in annual miles driven or by negotiating fuel cost with their propane autogas provider.” Taylor says that, on average, fleets are reducing fuel costs with propane by up to 50%. He adds that “propane autogas engines are less complex and easier to maintain than diesel engines and they use a clean fuel that does not require additional emissions-reduction technologies or additives.”

As for what tax breaks and other governmental incentives exist to offset conversions costs, it takes some digging to figure out which ones may apply to a given fleet’s situation. The hottest news is a provision that would tax LNG equally with diesel fuel, which was passed in July as part of the Senate’s three-month extension of the highway bill.

“The LNG fuel tax change will provide a 22 cent per gallon benefit for fleets that have switched from diesel,” says Ryder’s Perry. However, Fleet Advantage’s Flynn says some lawmakers don’t think the tax fix will end up part of a final highway bill.

As for incentives, Flynn says few states offer them for natural-gas vehicles of model years 2014 and newer. PERC’s Taylor says numerous state and local government agencies provide tax breaks and other incentives to fleets operating propane autogas vehicles for installing propane infrastructure. “These incentives can significantly reduce a fleet’s initial upfront costs, and in turn provide a lower total cost of ownership.”

“We’ve attained almost $5 million in alt-fuel grants for our customers,” says Penske’s Cullen. “They key is to look into all the programs and their specific requirements across the grant landscape, which includes federal, state and even local level.”

Information on incentives available for all types of alternative fuels, including examples of local incentives, can be found on the U.S. Energy Department’s Alternative Fuel Data Center’s website.

Comments

  1. 1. João Reis Simões [ October 07, 2015 @ 03:32AM ]

    Diesel engines are more fuel efficient than Otto engines; in urban areas they are much more efficient due to frequent speed changes.
    CNG vehicles imply higher investment and less load capacity due to the weight of the tanks that have to support 200 bar pressure. LNG eliminates some of those problems.
    The use of alternative fuel should only be dealt with when vehicles are to be replaced at its economic lifetime.

    The diference in prices for diesel and NG should be taken

 

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