Total Cost Converting to CNG with CNG Station
Many fleets and municipalities are not making a commitment to use natural gas as a transportation fuel because the fleet managers do not have enough information to accurately estimate the total cost converting to CNG including CNG vehicle conversion, CNG fueling station development and all other tasks and costs associated with the process. An article below does a great job painting a big picture and we are glad to share it with you, our customers and subscribers. Please do not hesitate to contact us for a feasibility study applicable for your particular fleet.
Total cost converting to CNG
April 2013, Government Fleet – Cover Story
By Shelley Mika
|At a GlanceIn addition to vehicle conversions and fueling facility construction, the costs of switching to compressed natural gas (CNG) include:
Converting vehicles to run on compressed natural gas (CNG) has some clear and immediate benefits. From the beginning, fleets that rely on CNG can expect lower fuel costs, cleaner running engines, lower maintenance costs, and fewer emissions.
For these benefits, however, fleets pay a price. At first, the costs of CNG conversion seem just as clear as the benefits: purchasing new vehicles, converting old ones, and building fueling stations. But as fleets dig into the planning and implementation of a CNG program, other costs emerge. Five industry professionals share their experiences and shed light on the total costs of converting to CNG — and how to avoid budgetary surprises.
Unexpected Capital Costs
The true costs of CNG can be broken down into two categories: capital expenses and operating expenses. Beyond the purchase or conversion of fleet units and the building of fueling stations, capital expenses include modifications to maintenance facilities, backup fueling stations, and station upgrades.
■ Modifications to Maintenance Facilities: Fleets that service their own vehicles need to make modifications to maintenance facilities — and before CNG vehicles come on board. Specific code requirements exist for facilities that service natural gas vehicles. If your maintenance facility is old or outdated this effort can add few bucks to the total cost of converting to CNG.
“The National Fire Protection Association (NFPA) outlines some requirements for maintenance upgrades, but local building codes might be even more restrictive in regards to maintenance facilities,” said Steve Riley, automotive director, City of Coral Gables, Fla. “A lot of the building upgrades would be required right away, before you start working on CNG vehicles — or any vehicle that runs on lighter-than-air fuel.”
In order to safely accommodate lighter-than-air fuel, maintenance facility upgrades include pressure gauges, leak-detection equipment, and proper ventilation. Without modifications, the CNG fuel system can’t be maintained or repaired inside the maintenance facility.
“Costs for the facility upgrades will vary dramatically, depending on the size of the facility, its age, and its current configuration,” said Richard Drake, P.E., vice president — engineering, ET Environmental, a CNG design and construction services provider.
Modifications to maintenance facilities will also require updates to the ventilation system. CNG exhaust systems are considered “high temperature,” which are more expensive than older, low-temperature systems. For a basic hose drop system, including the fan, ducting, hose, and installation, fleets can expect to pay approximately $5,000 per bay (i.e., one exhaust drop for one vehicle).
“These high-temperature systems require stainless steel equipment, with special high-temperature resistant parts and hoses. Therefore, the syste
ms are more expensive than older, low-temperature systems,” said Rich Cunningham, national sales manager for Masterduct, a manufacturer of technical hoses for industrial applications. “It is important to have an expert to engineer a proper system for the maintenance facility. This system can be designed for low-cost operation and long-term operation, which improves the return on investment (ROI).”
■ Backup Fueling: Although many fleets have converted to CNG, fueling stations are yet to be widely accessible. That means fleets must have a strategy in place in the event of a power failure or equipment malfunction adding to the total cost of converting to CNG.
“CNG is not like liquid fuels that can actually be pumped with a hand-operated crank when the power goes out,” Drake said. “To avoid downtime, it’s important to have a workable contingency plan in place early.”
A nearby public fueling station can be used as a backup. “We can fuel our fleet more efficiently by having our own station, but the public stations offer redundancy for us, should our system be unavailable,” said Elizabeth Relford, Weld County, Colo., transportation planner.
■ Station Upgrades: An agency may decide to expand its CNG fleet, but if fueling stations aren’t built with future growth in mind, station upgrades will be required to keep up with the fueling requirements of the larger CNG fleet. These likely include the purchase of CNG compressors, a dryer, additional storage spheres, CNG hookup, electrical hookup, engineering fees, dispenser upgrades, and assorted other minimal costs.
“We had outgrown our old station and through American Recovery and Reinvestment Act (ARRA) grant funds, were able to upgrade. We already had the existing site, major electrical work, and dispensers in place,” said Mark Stevens, fleet manager, City of Asheville, N.C. “Since we had an existing station initially installed in 2005, the overall cost to upgrade our station was approximately $350,000. The cost to start from scratch and install a station would have [been] approximately $500,000.”
■ Compressor Replacement: Unfortunately, CNG compressors don’t last forever, but they should have a predefined life cycle. As such, it’s important to plan ahead for those costs. “When calculating your true operating expenses, you need to consider the long-term capital equipment replacement costs,” Riley commented. “Prorate those costs via the straight line depreciation method and put that money away for when you need it. The last thing you need is to have a large portion of your vehicles running on CNG while trying to fuel the fleet with an old and unreliable compressor station.”
Unexpected Operating Expenses
In addition to unexpected capital costs are unforeseen operating expenses that can also effect your organization’s total cost of converting to CNG. In some instances, a CNG fleet has requirements a traditionally fueled fleet doesn’t. These include:
■ Training: CNG fueling systems are complex — which means an investment in training for fleet technicians is a must. “It’s important to set up the training immediately and have it completed before implementing your CNG equipment purchasing or conversion program,” Riley said.
Training won’t cost as much as capital expenses, but it’s not a small expense. “Proper training is a major cost,” Stevens said. “The costs can vary based on in-house training or paying an outside specialist for training.”
■ Equipment Operation and Maintenance: When a fleet owner installs the fleet’s own fueling infrastructure, it’s important to account for the costs to operate, maintain, and eventually replace the equipment.
“Like any other equipment, the compressors require preventive and corrective maintenance,” Drake said. “The maintenance may be performed by [fleet] staff or by a third-party service provider — either way, the cost should be accounted for in the early analysis.”
Compression equipment operating costs include electrical, CNG gas to run the compressor, and associated maintenance costs such as parts, oil, and filters. Riley said he was once quoted roughly $1,500 per month to service and repair a fast-fill compressor station with 20-foot cylinders.
Riley said maintenance costs should be figured into the budget as well. “Because the engine-driven compressors run so often to fuel vehicles, you have to service them a lot more frequently than a standard fueling station,” he said. “You’re going to have some unique maintenance costs too, for things like safety cut-offs, gauges, and warning lights.”
While it may be another expense, taking good care of stations will prevent larger costs from popping up in the future. “Fleets must generate a comprehensive inspection and preventive maintenance program for the station equipment,” Stevens said. “It is critical to the CNG program you have adopted to make sure you have the fuel available for your fleet.”
■ Tank Inspection and Replacement: Tank inspection and replacement is another expense that, while relatively nominal, can’t be omitted. “All fuel cells have an expiration date stamped on the tank. It has a defined lifecycle,” Riley said. “So when it expires, you have to prepare for the costs of replacing it — you can’t continue to operate it past the expiration date.”
Tanks are required to be inspected every three years by a certified tank inspector. Relford said Weld County pays $150 for the inspection and approximately $600 for an 8 gasoline gallon equivalent (GGE) Class 4 replacement tank. A Class 4 tank has a life expectancy of 15-25 years before needing replacement. An immediate tank inspection is also required if the vehicle is involved in a car accident.
Controlling the Costs
Even though there can be unexpected costs associated with CNG, there are ways to better anticipate — and even control — them.
■ Research: Take a global look at all that goes into a CNG program. Gather data first, then begin to estimate costs. Drake suggests looking at vehicle counts, expected fuel usage, gas and power availability, as well as site factors dictated by the municipality. Relford suggests asking the following key questions as well, to determine the scope of the project:
● What is the fleet’s ultimate goal?
● Would slow-fill or fast-fill fueling systems better suit your needs? (Fast-fill stations are more expensive to operate, but slow-fill stations can only fuel vehicles outside regular hours of operation, as it takes several hours to complete fueling.)
● How many vehicles are realistically eligible for conversion?
● Do you want to replace older units with new CNG vehicles as part of your fleet replacement program? (This can result in a $6,000-$13,000 increase per vehicle).
Future costs should be considered, too. “Like any budget process, make sure you have anticipated future costs of the equipment and covered all aspects of installing a station,” Stevens said. “The purchase of the equipment, compressors, storage vessels, dryers, dispensers, installation costs, permit fees, electrical drawings signed and sealed by a professional engineer, electrical contractor, CNG plumbing costs including the stainless steel lines, site preparation and concrete pad installation, proper security and fencing, overhead protective structure, and more should all be considered. Make sure to include a contingency amount, too, as there will be unexpected costs, as with all construction projects.”
Once the costs are well understood, calculate the ROI to determine the true feasibility of the program.
Despite all these costs, Drake said a close look at fuel costs can help determine if it’s worthwhile. “The single greatest operational expense our clients incur is fuel — when they can cut these costs by 30-40% or more, they find the capital expenditure returned in most cases under four years, and often much sooner, depending on the size of the fleet,” he said.
■ Calculate Conversion Costs: As part of the ROI analysis, fleets should take a close look at what the wiser investment would be: conversion or buying new. If considering conversion, it’s important to evaluate whether the vehicle’s lifecycle will be long enough to see the value of conversion.
“Make sure those vehicles aren’t aged to a point where you won’t realize an advantage to the conversion,” Riley said. “There is a point at which time the lower costs of CNG will break even over the life expectancy of the operational use of the vehicle, depending on how many miles it travels a day, per month, per year. When you compare that to the costs of the equipment to the cost of regular gasoline — the offset between those two, you start to calculate ROI.”
However, Relford underscores how it isn’t difficult to get value out of converted vehicles.
“The EPA only certifies vehicles within the last two years. So unless you are completely rebuilding a diesel engine, you would not be able to convert vehicles older than 2010, which is why there is value in considering CNG as part of a fleet replacement program,” she said. “With CNG, you will realize an extended vehicle maintenance life, so you could replace these vehicles years beyond gasoline vehicles due to improved maintenance. By extending the vehicle life by even just one year, you will see cost savings in your program.”
Resale of CNG vehicles should be considered, too. If no infrastructure exists for public use, Riley says you’ll be hard-pressed to sell the vehicle — or get the resale value desired.
■ Talk to Others: Part and parcel to doing your homework is talking to others and learning from their experiences.
“Due diligence of contacting agencies already utilizing CNG is a great start to understand all facets of what was expected and unexpected during their installation and startup along with the vehicle conversion process,” Stevens said. “Contact other governmental agencies that have installed stations, and talk with the necessary personnel to find out what their costs, problems, and solutions were in the installation process. Contact CNG station manufacturers and automobile and truck manufacturers to get estimates.”
Fleets can benefit from working with a construction partner experienced in designing and building CNG systems — and who knows how to avoid unexpected costs. Communication with an exhaust system manufacturer can also help provide realistic costs.
■ Plan for the Long Term: Because the size of storage tanks determines how many vehicles can be fueled, it’s important to plan for the number of CNG units you’ll have in the long term, not the short term, when building a fueling station. “The worst thing you can do is undersize your station and not properly anticipate the demand and usage of your product,” Stevens said.
One method is to think about where the program will be in 10 years — then build infrastructure that supports that goal. “If you want 10% of the fleet to be CNG in 10 years, you need to size the compressor to support that plan,” Riley explained. “Otherwise you’ll have people sitting around waiting to fill their cars, wasting time and money.”
■ Know the Drivable Range: For CNG vehicles, Drake offers the important reminder: measurements of diesel gallon equivalents (DGEs) or gasoline gallon equivalents (GGEs) may not be exact. And, fuel economy is often slightly less on a CNG vehicle than on a diesel one. So where a vehicle may have driven 8 miles per gallon when powered by diesel, it may only drive 7.5 miles per gallon once converted to CNG.
However, Relford added, “Fortunately, when evaluating the drivable range of CNG compared to gasoline, it can be seen as a more equivalent comparison. In a passenger vehicle, for example, if you get 30 miles to the gallon, you will get the comparable mile equivalent on CNG.”
These factors could ultimately alter the drivable range of the vehicle — and for the purposes of route planning and infrastructure development, it’s very important to know the drivable range.
“Fleets should carefully consider the logistics of fueling their vehicles and how fueling with CNG will differ from their current fueling methods,” Drake said. “For instance, the mileage range for a CNG vehicle may differ from their existing fleet vehicles. This situation may dictate that regular routes be altered to avoid vehicles running out of fuel.”
Riley also suggests using vehicles’ drivable range to develop an infrastructure strategy. “When you choose where to place a station…it’s important to make sure it’s an acceptable range from the area of operation compared to the CNG vehicles’ range, and make sure vehicles stay in close proximity to your infrastructure,” he said. “If you’re in a large city, you don’t want to put infrastructure in areas you know are prone to traffic jams. Spread out CNG stations so drivers have more than one option to choose from. Remember, if you build only one centralized station, then everyone has to come in from outlying areas to get fuel. In essence you’re spending CNG to get CNG.”
To avoid problems related to the drivable range of the vehicle, Riley suggests only converting/purchasing vehicles that remain and operate within the local area. Vehicles that remain on a set route, like garbage trucks or parking enforcement cars, make good candidates for CNG use.
Another option is to opt for bi-fuel vehicles. “Drivers of dedicated CNG vehicles have to be more mindful of fueling locations, as dedicated vehicles run solely on natural gas,” Relford said. “But bi-fuel vehicles can run on both gasoline and CNG. Therefore, you’ve just increased your range by adding CNG to your vehicle.”
The Benefits Pay Off
Even though the costs of converting to and operating CNG vehicles are a reality, fleets continue to see benefits, both in terms of budget and the environment.
“As far as I am concerned, the benefits absolutely outweigh the costs, especially when looking at savings of the cost of fuel itself,” Stevens said. “We are also proud of the fact that our City Council mandates a 4% reduction in our carbon footprint, and this is just one way to achieve that goal. The more [CNG] vehicles we operate, the cleaner our environment is and the more we save on fuel costs.”
Relford says fleets that put a greater number of miles on their vehicles have the most to gain. “They will recoup the upfront costs quicker,” she said. “On average if you put 30,000 miles a year on your half-ton, you could pay off the conversion in less than three years … quicker if you have federal or state incentives.”
Beyond the budgetary and environmental benefits, fleets will also likely see the benefit of expanded CNG programs in the future. As the popularity of CNG grows, accessibility to fueling sites and access to more advanced technology will grow, too.
“CNG is not new,” Drake said. “Its popularity fluctuates with the price of petroleum fuels in the U.S. today; however, the expected, sustained price differential seems to assure longevity. In addition, CNG-fueled engine technology has advanced. All these factors mean CNG is here to stay. With proper planning and an experienced partner, [managers] of small, medium, and large fleets can all take advantage of the cost savings that CNG has to offer.”
● Rich Cunningham, national sales manager, Masterduct
● Richard Drake, P.E., vice president – engineering, ET Environmental
● Elizabeth Relford, transportation planner, Weld County, Colo.
● Steve Riley, automotive director, City of Coral Gables, Fla.
● Mark Stevens, fleet manager, City of Asheville, N.C.