Pay now or pay later.
That is the dilemma beverage distributors face when confronting the higher price of alternative fuel vehicles. While there is a price differential for natural gas or propane trucks, the distributors will more than make up for it over time in reduced fuel costs.
“That is usually an easy argument, but in this day and age, sometimes that capital expenditure is hard to come by,” says Brian Carney, director of marketing, Roush CleanTech.
This payback depends on the efficiency of the vehicles and the mileage a company puts on its regular gasoline fuel truck fleet. The lower the efficiency and the higher the mileage, there will be a quicker return on investment, industry experts told Beverage World. With a high efficiency vehicle that runs low miles, the payback will be longer.
“It becomes a function of how many miles you drive and how many gallons you use,” says Matt Most, vice president of commercial, Encana Natural Gas. “There are trucking fleets out there that are getting very attractive paybacks on these investments, and that is why they are doing it.”
On the lower end of the payback equation, “companies that are making this adoption either are achieving the payback that they are looking for already, or they are using it as a way to evaluate how to get the best payback that they can,” Most says.
Natural gas storage is the most expensive component of a natural gas system, says Rich Kolodziej, president, NGVAmerica. “If you want to put a lot of range on, it is going to cost you more. Less range is going to cost you less,” he says.
The majority of fleet managers are looking for a payback of less than three years, notes Tucker Perkins, chief business development officer, Propane Education & Research Council. “In mostly all of the systems we install, we see payback generally within a 24-month period.”
No One Answer
Calculating industry-wide payback on the alternative fuel up-charge for vehicles operated by different companies is very difficult, says Jeffry Swertfeger, director of marketing, TruStar Energy. “There’s no one answer that is going to fit everybody.”
The up-charge will depend on the size of the vehicle, and will range from $35,000 to $40,000 for CNG, says Swertfeger. Meanwhile CNG fuel is about $2 a gallon, while diesel is $4 a gallon, with some companies getting their fuel for less because of volume related deals. Using 10,000 gallons a year per truck as a basis, he sees a three-year payback, and if a company owns the truck for 20 years, like many do, “that’s 17 years of free cash,” he says.
Scott Magnus, director of marketing, Trillium CNG, notes that Class 6, 7 and 8 vehicles are the largest consumers of foreign oil in the United States. “On average, CNG costs $2.20 per DGE (diesel gallon equivalent) vs. $3.86 per DGE for diesel. Any fleet running 100,000 miles or more will have a major cost savings by running CNG trucks. We are seeing total operating cost-per-mile savings in excess of 15 cents per mile for Class 8 trucks,” he says.
“Regarding ROI, it has been our experience that customers with Class 6, 7 or 8 fleets can achieve a payback in 18–24 months. A conservative example would be as follows: A 10-truck fleet driving an average of 85,000 miles per year getting 5 mpg will use approximately 170,000 DGE of fuel per year. Based on a retail price savings of $1.50 (CNG vs. diesel), that equates to $255,000 in annual fuel savings. Assuming the incremental cost of a CNG truck is $50,000 that equates to payback of 23.5 months, Magnus says.
Compared with gasoline powered vehicles, the incremental costs to convert to propane start at about $10,000, and goes up with the size of the vehicle “maxing out at about $15,000-$18,000 of incremental cost, Carney says. Beyond the cost savings of propane fuel, there are also service and maintenance savings, such as not having to get the tanks inspected and less frequent spark plug changes.
“That capital expenditure is the biggest thing that people need to see beyond, and look at the life cycle costs of the vehicle. After paying off that $10,000 incremental cost, we can show customers an additional savings of $15,000-$25,000 in operating costs over the life of their vehicle. We are essentially asking them to invest $10,000 to make $30,000,” he says.
In fuel costs, propane is roughly half the price of diesel, which can be around $4, although propane users will see a slightly lower economy.
“With propane, these companies just want to sell gallons, and they’ll take on the cost of the infrastructure to get that fuel contract, and then sell that fuel for $1.80 a gallon,” Carney says.
With a manufacturer’s suggested retail price of $22,000 for the fuel system on a larger Class 6 vehicle getting 5 mpg on gasoline or 4.35 mpg on propane, there will be a $69,000 savings over the life of the vehicle, Carney says. So that will save about $47,000 after paying off the incremental cost of $22,000.
At PERC, Perkins cites a wider range of up-charges. “The price differential for our systems may range from a low of $5,000 to a high of approximately $20,000. The median is probably $8-10,000, and that certainly gives us an initial advantage over most other alternative fuels. To the fleet manager, what matters is cost per mile, or payback periods, and we can demonstrate fast savings in cost per mile, and usually a payback period inside of 24 months,” he says.
“We deliver the same performance as gasoline, while lowering emissions, operating on a domestically produced fuel, and cutting operating costs by 50 percent or more,” Carney says. “We call it “the zero compromise” alternative fuel solution.”