Technical Report

NREL/TP-7A2-47919

June 2010

Business Case for Compressed 

Natural Gas in Municipal Fleets

Caley Johnson 
National Renewable Energy Laboratory

1617 Cole Boulevard, Golden, Colorado 80401-3393

303-275-3000 • www.nrel.gov

NREL is a national laboratory of the U.S. Department of Energy

Office of Energy Efficiency and Renewable Energy

Operated by the Alliance for Sustainable Energy, LLC

Contract No. DE-AC36-08-GO28308

Technical Report

NREL/TP-7A2-47919

June 2010

Business Case for Compressed 

Natural Gas in Municipal Fleets

Caley Johnson

Prepared under Task No. FC08.0032 
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iii

Acknowledgements 

Funding for this report came from the Clean Cities activity within the U.S. Department of 

Energy Vehicle Technologies Program. 

This report has greatly benefitted from the time and insight shared through personal 

communications with various fleet operators and industry specialists as indicated in the 

bibliography. 

The author owes a particular gratitude to Rob Adams with Marathon Technical Services. Rob 

shared his extensive knowledge of building and operating compressed natural gas refueling 

stations by patiently answering numerous questions, sharing his station cost calculator, and 

reviewing multiple drafts.

All assumptions and any inaccuracies are the responsibility of the author and not the experts 

acknowledged above. 
iv

Introduction

Compressed natural gas (CNG) vehicle projects can be highly profitable, or they can lose money, 

depending on numerous aspects of the fleet and station. To assist fleets and businesses in 

evaluating the profitability of potential CNG projects, the National Renewable Energy 

Laboratory (NREL) built the CNG Vehicle and Infrastructure Cash-Flow Evaluation (VICE) 

model. The VICE model demonstrates the relationship between project profitability and fleet 

operating parameters. This report describes how NREL used the VICE model to establish 

guidance for fleets making decisions about using CNG. 

The first section establishes a base-case scenario for three fleets that commonly use CNG—

transit buses, school buses, and refuse trucks. This base-case tries to represent the average or 

most-common parameters affecting the CNG project's profitability for average fleets of each 

type. 

The second section uses the model to show how specific project parameters (such as station cost 

or price of fuel) change profitability from the base-case. The section then prioritizes these 

parameters to help fleet operators understand the most important factors affecting the business 

case of the project. Through a question-and-answer format, this section presents common CNGrelated questions answered by NREL using the VICE model. 

The business case targets municipal governments, which operate fleets suited well for CNG 

vehicles because they drive circular routes that enable refueling at the same station. These fleets 

are transit buses, school buses, and refuse trucks. Municipal governments are also targeted

because their primary goal is to improve their residents' quality of life. This goal allows the 

government to utilize all the advantages of CNG, including long-term cost-effectiveness, moreconsistent operational costs, increased energy security, reduced greenhouse gas emissions, 

reduced local air pollution, and reduced noise pollution. A forthcoming report will focus on 

private fleets that are suited well for CNG, such as taxi cabs and delivery trucks. 
v 

Table of Contents

Acknowledgements ................................................................................................................................... iii

Introduction ................................................................................................................................................ iv

VICE Model Baseline Parameters.............................................................................................................. 1

CNG Station Cost ......................................................................................................................1

Fleet Scenarios ...........................................................................................................................3

Transit Buses ........................................................................................................................4

School Buses ........................................................................................................................4

Refuse Trucks ......................................................................................................................4

Maintenance and Operation Costs .............................................................................................4

Vehicle M&O .......................................................................................................................5

CNG Station M&O ..............................................................................................................5

Fuel Price and Rate of Increase .................................................................................................7

Taxes and Incentives ..................................................................................................................8

Refueling Station .................................................................................................................8

Vehicles................................................................................................................................8

Fuel ......................................................................................................................................9

Financing....................................................................................................................................9

Garage Cost ................................................................................................................................9

Project Life and Salvage Value..................................................................................................9

CNG Project Q&A...................................................................................................................................... 10

How do I know if a CNG project makes financial sense? .......................................................10

Base-Case Results ....................................................................................................................11

What will my payback period be? .....................................................................................11

What will my ROR be? ......................................................................................................12

What is the NPV of my investment? ..................................................................................13

What is the minimum number of vehicles required to break even? ..................................14

Variations in Fuel Expenditures ...............................................................................................14

How many miles per year do I need to drive my vehicles to break even? ........................15

What will a change in diesel prices do to my payback period? .........................................16

What does the composition of my fleet do to my project economics? ..............................17

What happens as my vehicle efficiency changes? .............................................................18

What if the $0.55/DGE, 80% vehicle incremental cost, or $50,000 station tax credit is 

taken away or not passed along? ..................................................................................19

What if I have to pay fuel excise taxes on diesel but not CNG? .......................................19

How does vehicle life affect my project economics? ........................................................19

Changes in Upfront Costs ........................................................................................................20

What happens if the price of my station changes? .............................................................20

What happens as my vehicle incremental cost changes? ...................................................21

What if I receive a grant from the Federal Transit Administration? ..................................22

What happens as I have more or less time to refuel? .........................................................22

What if I have to upgrade my garage? ...............................................................................23

Changes in Operating Costs .....................................................................................................24

What happens if my vehicle maintenance costs change? ..................................................24

What if I have to hire a hostler or attendant? .....................................................................25

What if I open my refueling station to the public? ............................................................26
vi 

How do electricity prices change my project economics? .................................................27

How do station maintenance costs change my project economics? ..................................27

Conclusions............................................................................................................................................... 27

References................................................................................................................................................. 30

Glossary and Acronyms........................................................................................................................... 32
1 

VICE Model Baseline Parameters

This analysis uses multiple input variables to simulate the financial circumstances faced by 

municipal fleets. In this section, average or common values are used to establish a baseline 

scenario for common operating circumstances. This scenario provides a snapshot from which we 

can test the sensitivity of CNG project economics to changes in various parameters. 

CNG Station Cost

Station cost is derived by a cost calculator constructed by Rob Adams with Marathon Technical 

Services (Marathon). The calculator replicates a buffered fast-fill station, which is best suited for 

quickly fueling large numbers of heavy-duty, high-fuel-capacity vehicles. It is recognized that 

under scenarios with low throughput and large refueling windows, a time-fill station might be 

preferred. However, under these scenarios, the calculator takes into account the reduction in 

equipment needed by reducing the overall cost of the station close to that of a comparable timefill station. Therefore, the cost estimate is realistic over a wide range of station sizes. 

Constants in the calculator are as follows:

• Spare ratio is 10%. This means that 10% of the fleet is expected to not refuel on any 

given day. 

• Station inlet pressure is 100 pound-force per square inch gauge (psig) 

• Compressor package is a fully enclosed electric drive

• Dryer consists of a single manual tower for stations dispensing fewer than 30,000 dieselgallon equivalents (DGE) per month (depending on fleet type) and a fully automatic twin 

tower for stations dispensing more than 30,000 DGEs per month. 

• The system is designed to store CNG at 5500 psig 

• Installation costs are assumed to be 50% of the equipment costs based on numerous 

Marathon projects of a variety of sizes. 

Variables in the station cost calculator are throughput (amount of fuel dispensed per month), 

refueling window (number of hours per day when vehicles are available to refuel), and peak 

capacity (flow required to keep the fleet fueled). These parameters affect the size and number of 

tanks, compressors, and supporting equipment. Throughput is calculated from the VICE model

by dividing the number of vehicles by the average fuel economy of the fleet. The refueling 

window is fleet-dependent, and the following scenarios were used for the calculator: 

• Transit bus fleets were assumed to have a refueling window of 6 hours based on 

significant Marathon industry project experience.

• School bus fleets were assumed to have a refueling window of 12 hours. This figure 

comes from interviewing school fleet managers (Andre 2009 and Linder 2009). 

• Refuse truck fleets were assumed to have a refueling window of 12 hours. This figure 

comes from the director of numerous refuse fleets (Lemmons 2009).
2 

• Combining two fleets allows them to keep the larger of the two refueling windows. This 

assumption is conservative; in actuality, it would probably expand the refueling window 

and lower station requirements further for a given number of vehicles. We used a 

conservative assumption because we do not know of anybody who has optimized this 

refueling window (by staggering their fleets) to date. 

• The scenario where three fleet types share a central refueling station assumes the 

refueling window is 12 hours a day. This is a conservative assumption when the 

schedules of all three fleets are taken into account, but it is used because it retains 

flexibility for the fleets to refuel at more-convenient times. 

Test runs were then done with the calculator, and the results were plotted to establish a 

relationship between the size of the station and its cost. A linear trendline was then fitted to these 

lines, and equations were derived to represent the best relationship between a station's size and 

cost. The trendlines are shown in Figure 1, and their matching equations were entered in the 

VICE model to derive station cost. 

It should be noted that the school station is less expensive for the practical range of a school 

fleet, yet its costs rise at a steeper rate than the others because it uses equipment that cannot be 

scaled up as efficiently. The school station is only charted up to 65,000 DGEs per month because 

school fleets use less fuel, so no scenarios were modeled that involved a school fleet using more 

than this amount of fuel. Refuse stations achieve greater economies of scale than transit 

stations—presumably because their larger refueling window allows for greater increase of 

throughput without a corresponding increase in equipment.
3 

Figure 1. The relationship between the size of a CNG station and its cost. It should be noted that 

the upper end of the station throughput range (300,000 DGE) is uncommon.

Fleet Scenarios

The VICE model considers seven different fleets with the following parameters:

Table 1. Seven Modeled Fleets and Their Parameters

Scenario Fleet Type Avg. 

VMT

FE Diesel

(mpg)

FE CNG 

(mpDGE)

Incremental 

Cost

Vehicle 

Life

1 Transit Buses 35,286 3.27 3.02 $50,502 15 

2 School Buses 12,000 7.00 6.13 $31,376 15

3 Refuse Trucks 25,000 2.80 2.51 $30,295 12 

4 1/2 Transit, 1/2 School 23,643 5.14 4.57 $40,939 15

5 1/2 Transit, 1/2 Refuse 30,143 3.04 2.76 $40,399 14 

6 1/2 School, 1/2 Refuse 18,500 4.90 4.32 $30,836 14 

7 1/3 Each 24,095 4.36 3.88 $37,391 14 

The parameters for the combination fleets (scenarios 4 through 7) are weighted averages 

according to their composition by the first three fleets. Parameters for the first three fleets are 

listed below. 

$0

$1

$2

$3

$4

$5

$6

$7

0 50 100 150 200 250 300

Station Cost (Million Dollars)

Station Size (Monthly Throughput in Thousand DGEs)

Cost/Size Relationship for CNG Stations

Transit Station

School Station

Refuse Station
4 

Transit Buses

• The average vehicle-miles traveled (VMT) of transit buses is 35,286 miles/year derived 

from tables 8 and 9 in American Public Transit Association (APTA) 2009. 

• The average fuel economy of diesel buses in the United States is 3.27 mpg, which is 

calculated from tables 8, 9, and 12 in APTA 2009. 

• The average fuel economy of CNG buses is 3.02 miles per DGE (mpDGE), which is 

calculated from tables 8, 9, and 15 in APTA 2009. 

• Incremental cost ($50,502) is an average of the incremental costs found in Chandler et al. 

2006 (Table 6 adjusted for inflation) and from an interview with Bob Antila (Antila 

2009). 

• Bus lifetime (15 years) is the average retirement age of buses as reported in table ES-2 in 

the Federal Transit Administration's study on the useful life of buses (FTA 2007). 

School Buses

• Average VMT of a school bus is 12,000 miles/year (American School Bus Council 

2009). 

• Average fuel economy of a diesel school bus is 7 mpg (American School Bus Council 

2009 and Andre 2009). 

• Fuel economy of a CNG bus is 6.13 mpDGE, which is calculated as a 12.5% reduction in 

efficiency from diesel school buses (Linder 2009). 

• Incremental cost is $31,376 (average of four sources—Linder 2009, Leonard et al. 2001, 

Cohen 2005, and USCS 2003—where the latter three sources have been adjusted for 

inflation). 

• Bus lifetime (15 years) is taken from School Bus Fleet Magazine's 2009 Maintenance 

Survey. 

Refuse Trucks

• Average VMT of a refuse truck is 25,000 miles/year (Gordon et al. 2003). 

• Fuel economy of a diesel refuse truck is 2.8 mpg (Gordon et al. 2003). 

• Fuel economy of a CNG refuse truck is 2.51 mpDGE, which is calculated as a 10.5% 

reduction in efficiency from diesel refuse trucks (Gordon et al. 2003). 

• Incremental cost of a CNG refuse truck is $30,295 (average of three sources: Lemmons 

2009, Andrews 2009, and San Antonio 2009). 

• Useful life of a refuse truck is 12 years (Gordon et. al. 2003 and Lemmons 2009). 

Maintenance and Operation Costs 

This section describes some maintenance and operation (M&O) costs associated with vehicles 

and CNG stations. 
5 

Vehicle M&O

Maintenance and operation costs for a CNG bus are considered the same as those for a diesel bus 

because evidence supports both a cost decrease (Chandler et. al 2006) and a cost increase (CVEF 

2010) when switching from CNG to diesel. The unclear cost signal portrayed in these studies 

represents a factor that is in flux due to maintenance learning curves, new diesel emissions 

equipment, a sub-competitive CNG parts market, and other factors. This cost parity for CNG 

buses is assumed to apply to CNG refuse trucks as well, which is supported by Engle (2010). 

CNG Station M&O

The VICE model assumes that M&O costs for a diesel refueling station are wrapped into the 

retail price of diesel fuel because the fuel retailer needs to cover these costs to stay in business.

Natural gas prices, on the other hand, do not include CNG station costs because most natural gas 

is sold to the non-transportation market. Therefore, all M&O costs for the CNG station are 

incremental.

Maintenance costs of a CNG station include the cost of parts, consumables, labor, breakdowns, 

and on-call staff to keep a station functioning properly. The labor is generally provided by a 

technician that is "on call" for a number of stations in a given area. The estimated annual 

maintenance costs used in the model are 5% of the upfront cost of a large station, rising to 8% of 

the upfront costs of a small station. This assumption came from Rob Adams, who uses this as a 

rule of thumb when bidding on maintenance contracts. A rule-of-thumb estimate was needed 

because maintenance costs vary so widely according to station, and the rule of thumb takes most 

of these variations into account. This estimation technique is based on the idea that when more 

money is spent on equipment, more money must be spent to keep up and replace the equipment. 

It also takes into account economies of scale. 

Rob Adams' estimation technique was chosen not only for its logic and simplicity, but because it 

splits the difference between two other maintenance estimates that we received from other 

sources. Figure 2 compares the three estimates on a monthly cost-per-station-size scale. It is not 

surprising that the three estimates are so different because the contractors rely heavily on stationspecific circumstances that were not available for these general estimates. Given the choice 

between three qualified industry experts, we selected the middle estimate.

Next, the "8% to 5%" was distilled into an equation so it could be inserted into the model. As 

shown in Figure 2, a polynomial equation fit the line very well for the range from 0 to 300,000 

DGE throughput. After that, it was set to rise 0.06% per DGE. The polynomial equation used in 

the model is: 

7,014.3+0.1257X+X 10*-2.225=Y -7 2

 
6 

Figure 2. Three M&O contractors' estimates at maintenance costs according to station size with

the equation used in the VICE model 

Electricity is the primary operation cost considered in the base-case scenario. "Commercial" 

electricity clients in most states pay both an energy charge and a capacity charge (often called 

demand charge) for electricity. The capacity charge reflects how much electricity the utility 

needs to be prepared to produce for you and therefore depends on how quickly you draw 

electricity from the grid, which is especially important for CNG stations because they can have a 

very large ampere draw. The model assumes the energy charge to be $0.10/kWh, which is 

between the mid-peak and on-peak prices in California in January 2009. The assumed capacity 

charge is $12/kW/month for the same reasons. The combined electricity charges result in 

different monthly electricity prices for the three fleets based on throughput, as seen in Figure 3. 

The two trendlines were converted to equations and inserted into the model. It should be noted 

that the transit station's electric costs start higher than the refuse and school's cost because its

smaller refueling window requires larger compressors, which leads to higher electric capacity 

requirements. This demand charge represents a fixed cost portion of the electric bill. This 

difference is minimized as throughput increases because the variable cost portion of the electrical 

bill (the energy charge) becomes more pronounced, which decreases the previous advantage that 

these stations had over the transit station.

$0

$5

$10

$15

$20

$25

$30

$35

$40

0 50 100 150 200 250 300

Thousand Dollars per Month

Station Size (KDGEs Throughput per Month)

Maintenance Costs for CNG Station

Contractor A

Contractor B

8% to 5%

equation
7 

Figure 3. Electrical costs per DGE by station size 

Labor for hostlers (people who refuel, clean, and maintain fleets) is not considered an additional 

cost in the base case because diesel vehicles need them also. Furthermore, hostlers are not an 

additional cost because it is generally more economical to use a hostler than to have drivers or 

other staff refuel the vehicles. Even though they are not included in the base case, additional 

hostlers will be considered in the sensitivity analysis.

Fuel Price and Rate of Increase

The VICE model's diesel fuel price of $2.563/gal is the average of the most recent 12 months 

(ending February 2010) listed by EIA (2010a). The natural gas price of $1.183/DGE is taken as 

the commercial price listed by EIA (2010b) and converted from cubic feet to DGEs using EIA's 

conversion factor of 1,028 Btu per cubic foot. Both diesel and natural gas fuel prices are 

averaged over the most recent 12 months to take into account seasonal changes.

It should be noted that fleet operators frequently purchase their natural gas for less than the 

commercial price mentioned above. They can do this by purchasing from a gas marketer in 

deregulated markets, from a commodities market, or from a middle man that purchases from the 

market and sells a contract to provide fuel and optional services for a given amount of time. 

These other purchasing avenues are not used in the model because they are less common and 

have no common price that can be tracked and forecasted.

$0.00

$0.02

$0.04

$0.06

$0.08

$0.10

$0.12

$0.14

$0.16

$0.18

$0.20

0 50 100 150 200 250 300

Electricity Costs per DGE

Station Size (in monthly KDGE Throughput)

Electricity Costs per DGE by Station Size

Transit

Refuse & School
8 

Diesel fuel is projected to increase at a linear rate of 5.6% per year, and natural gas is projected 

to increase at 1.6% per year. These are the rates that EIA projected for the 15 years between 

2010 and 2025 (EIA 2010c), as shown in Figure 4 below. 

Figure 4. EIA fuel price projections 

Taxes and Incentives

The federal government taxes fuel use and provides incentives for CNG use through tax credits. 

These credits are intended to reduce the overall cost of installing the CNG refueling station, to 

purchase the CNG vehicles, and to purchase CNG. The incentives have been crafted so taxexempt entities such as municipal governments can pass the credits to suppliers and therefore 

take advantage of the tax credits.

Refueling Station

The Alternative Fuel Infrastructure Tax Credit is available to reimburse 50% of the cost of 

installing a CNG station, up to $50,000. Tax-exempt entities are allowed to pass this credit onto 

the company that is building the station. The VICE baseline assumes that the builder reduces the 

purchase price by an amount equal to this tax credit. 

Vehicles

The Alternative Motor Vehicle Credit provides a tax credit equal to 80% of the incremental cost 

of a CNG vehicle, to a maximum of $32,000 per vehicle. The VICE model assumes that this tax 

credit is fully capitalized on by passing to the vehicle manufacturer in exchange for a lower 

purchase price.

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$ per diesel-gallon equivalent

EIA Fuel Price Projections

Diesel

NatGas
9 

Fuel

The VICE model assumes CNG and diesel are taxed at the same level, which treats tax-exempt 

and non-exempt fleets the same. To do this, we had to subtract the $0.183 federal or $0.20 

average state motor fuels excise tax on diesel or CNG fuel (IFTA 2008) from the projected retail 

price of diesel, which included these motor fuel taxes. 

The SAFETEA-LU Act of 2005, the Tax Extenders Act of 2009, and the two NAT GAS Acts 

currently under consideration provide a $0.50 motor fuels excise tax credit for each gasolinegallon equivalent (GGE) (or $0.55 per DGE) of CNG purchased. This credit is applicable to both 

taxable and tax-exempt fleets through a rebate provision in the Act (NGVAmerica 2008) and is 

applied to both in the VICE model. 

Financing

The analysis assumes that municipal governments will fund the CNG project through their 

annual budgets without taking a loan or issuing bonds. This assumption is supported by the 

experience of a number of Clean Cities coordinators whereby an ordinance was passed one year 

and the funds allocated for a CNG project the following fiscal year. 

When looking at the payback period and net present value (NPV) of a CNG project, we need to 

consider the discount rate. The discount rate is considered 6%—the upper limit for a key 

municipal bond index since 1997 (WM Financial 2009). This rate is assumed because it is the 

upper end of the cost of capital for municipal governments. 

Garage Cost

The facility upgrade costs associated with upgrading a fleet from diesel to CNG are considered 

zero. This is in agreement with the fact that the incremental cost of making a new garage and 

maintenance facility compatible with CNG is minimal (Marathon 2006). Therefore, the model 

implicitly assumes the fleet already has well-ventilated facilities or that they are building new 

facilities that would be the same cost regardless of fuel type. However, garage upgrade costs will 

be modeled in part two of this analysis to explore their effects on the economics of a CNG 

project. 

Project Life and Salvage Value

The project life, or investment period, is the same duration as the vehicle's useful life. As 

discussed above, this is 15 years for transit and school buses, 12 years for refuse trucks, and 14 

years for any fleet that combines refuse trucks with buses. 

The station is assumed to be used throughout the entire project period (vehicle life) and then 

salvaged at the end of that period. The salvage value of the station is assumed to be 20% 

regardless of how many years (12, 14, or 15) it has been in service. This number is static 

throughout time because the value is more a function of demand for components than it is the 

age of the components. The 20% value was chosen after interviewing two CNG station 

technicians that have overseen dozens of projects.

The difference between diesel and CNG salvage values of all three vehicle types is considered

zero (Linder 2009 and Lemmons 2009). This means that at the end of the vehicle's life, a CNG 

vehicle is worth no more than a diesel vehicle.
10 

CNG Project Q&A

The base case represents an average or common CNG project. Every project deviates from this 

base case, which is why fleet operators question the specific parameters of their projects. The 

questions and answers in this section are organized to first give fleet managers their bearings and 

show how profitable the base-case project is. The following questions go on to address changes 

in fuel expenditures, changes in operating costs, and changes in upfront costs. 

How do I know if a CNG project makes financial sense?

Most investors use three indicators of financial viability, which all stem from a discounted cashflow analysis performed by models such as the VICE model. These indicators are:

1. Net Present Value (NPV). This is the total present value of a CNG project, including the 

cost of CNG equipment purchased now along with future costs and cost savings from fuel 

and operations throughout the lifetime of the project. These costs and cost savings are 

called "cash flow," with costs being a negative cash flow and savings being a positive 

cash flow. Please see the baseline parameters section (pp. 1–9) for all cash flows that are 

included in the VICE model. All future cash flows are discounted at a "discount rate" to 

compensate for the fact that money is worth more today than it is in the future because it 

can be invested today and increased. If the NPV of the project is positive or zero at the 

desired discount rate, the project makes financial sense. The NPV of the hypothetical 

investment in Figure 5 is $7.2 million, where cumulative cash flows stop increasing at the 

end of the project life.

2. Rate of Return (ROR). The ROR is the desired annual return on investment. When 

choosing a target ROR, many companies compare it to what they could make if they 

invested their money in another project with similar risk. Ten percent is often considered 

a good baseline in the private sector because that is what the stock market has averaged 

over the long term. In municipal governments, 6% is generally considered the baseline 

because that is what it costs a government to raise money through bonds. ROR is also the 

discount rate on money if one sets the NPV to equal zero. 

3. Payback Period. This lets an investor know when the investment has broken even and is 

starting to turn profits. At this point, an investment no longer carries the risk of losing 

money. When assessing the payback period, the investor uses the same discount rate as 

used when looking at the NPV. In Figure 5, it takes the fleet manager 4 years to pay back 

the initial investment of $2.6 million. Stable, progressive fleets can have a target payback 

of 7 years while more risk-adverse fleets can require a 3-year payback. The payback 

period seems to be the metric of choice for fleet managers despite its drawback of not 

being able to quantify losses on a bad investment. 
11 

Figure 5. Cumulative cash flow of an example CNG project, by year

Base-Case Results

This section answers three questions about the base-case results.

What will my payback period be? 

NREL ran the VICE model under a base-case or most-probable scenario for a transit fleet, school 

fleet, and refuse fleet (as described in Section 1). The results of this run show that the payback 

periods depend largely on fleet size and fleet type (Figure 6). Transit and refuse projects have a 

precipitous drop in payback period at around 30 vehicles. Any fleet larger than this will have a 

payback period of less than 7 years. 

School bus fleets need to be larger than the other two fleets for a given payback period because 

each school bus uses less fuel. A fleet of 250 school buses pays back in about 7 years, but there 

is no clear dropoff the way there is for the other two fleets. Please note that the maximum 

payback period for a refuse truck is 12 years because that is the average life of these trucks while 

transit buses and school buses have an expected 15-year life.
12 

Figure 6. Payback period by fleet size

What will my ROR be? 

Base-case refuse and transit projects look very profitable when judged on the basis of ROR. With 

fleets as small as 25 buses, they can provide returns that are deemed acceptable by any 

organization, and large fleets yield extraordinary returns. Refuse projects become more 

profitable than transit projects as the fleet size increases—probably because the larger refueling 

window allows increased vehicle usage without increasing fueling capacity. 

School bus projects require large fleets to provide a good ROR. The ROR surpasses 6% with a 

75-vehicle fleet and 10% with a 100-vehicle fleet. It then maxes out at 21% ROR, which is quite

a good investment for a municipal government. 

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

0 50 100 150 200 250 300

Payback Period (Years)

Number of Vehicles

Payback Period by Fleet Size

Transit Buses

School Buses

Refuse Trucks
13 

Figure 7. Rate of return for various fleet sizes and types

What is the NPV of my investment?

Transit buses are the best fleets to convert when judged by the NPV metric because they use 

more fuel than the other fleets, which results in greater fuel savings by the end of the project's 

life. The reason why transit fleets are more profitable than refuse fleets when looking at NPV but 

less profitable when looking at ROR is that they require a larger upfront investment. As shown in 

Figure 8, a 300-transit-bus fleet, which requires an initial investment of $11.8 million, has an 

NPV of $55 million. The NPV for transit fleets turns positive at 11 buses, for refuse fleets at 14

trucks, and at 68 school buses.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0 50 100 150 200 250 300

Rate of Return

Number of Buses

Rate of Return for Various Fleet Sizes and Types

Refuse Trucks

Transit Buses

School Buses
14 

Figure 8. Net present value by fleet size

What is the minimum number of vehicles required to break even? 

The minimum goal of an investor is to break even when taking into account the cost of tying his 

money up for the life of the project. This is the point in Figure 8 where the NPV of a project 

crosses from negative to positive, and it is also the point in Figure 7 where the ROR reaches 6% 

(the discount rate for municipal governments). Table 2 summarizes the minimum number of 

vehicles to break even for the three main municipal fleets and various combinations where 

vehicles of different types share municipal infrastructure. 

Table 2. Minimum Number of Vehicles to Have a Positive NPV or 6% ROR

Type of Vehicle # of Vehicles

Transit Buses 11

School Buses 68

Refuse Trucks 14

1/2 Transit, 1/2 School 26

1/2 Transit, 1/2 Refuse 12

1/2 School, 1/2 Refuse 32

1/3 Each 22

Variations in Fuel Expenditures

The base case has already shown that project profitability is very dependent on fleet size. This is 

one factor affecting the fuel expenditures of a project. Fuel expenditures are very influential on 

project profitability because upfront costs are largely paid for by a reduction in CNG 

-$10

$0

$10

$20

$30

$40

$50

$60

0 50 100 150 200 250 300

NPV (Million $)

Number of Vehicles

NPV by Fleet Size

Transit Buses

Refuse Trucks

School Buses
15 

expenditures below those of diesel. Therefore, to achieve maximum benefit from the use of 

CNG, negotiating and securing low long-term natural gas prices is critical. Other questions that 

explore fuel expenditures follow. 

How many miles per year do I need to drive my vehicles to break even? 

Fuel costs are dependent on both the price of the fuel and the number of miles driven by the fleet. 

Because natural gas is generally less expensive than diesel, the greater the number of miles a 

vehicle drives, the more savings a fleet will see compared to conventional fuel. Figure 9 shows 

the relationship between average VMT and the number of vehicles needed to pay off a CNG 

investment. The area above the curve is profitable for the fleet, and the area below the curve is 

not profitable. 

Figure 9. Project break-even points by VMT

The most noteworthy part about Figure 9 is how steep the transit and refuse fleet lines drop 

between 2,500 and 10,000 VMT and how flat they are after 10,000 VMT. The point of transition 

is labeled as the inflection point. The inflection of the school bus fleet is less pronounced than 

the other two but still there. The profitability of any point above the inflection point is more 

sensitive to the VMT changes, and any point to the right of the inflection point is more sensitive 

to changes in the number of vehicles. Given where the average VMTs of transit and refuse fleets 
16 

fall, their economics are much more sensitive to their vehicle number than VMT. Average school 

fleets are barely above the inflection point, so they should be only slightly more concerned with 

their VMT than the number of vehicles when considering a CNG project. Keep in mind that any 

VMT-vehicle combination to the right or above the curves is considered a profitable project. 

What will a change in diesel prices do to my payback period?

Diesel prices are highly variable. Over the past two years, they have varied 0.8 standard 

deviations from the mean, as opposed to 0.2 for CNG (Laughlin 2010). Therefore, it is very 

important to find out what effect a change in diesel price will have on project economics. To 

answer this question, NREL compared the baseline price of natural gas at $1.18/DGE against 

different diesel prices. Both CNG and diesel were set to increase 3% per year to keep up with 

inflation. The effect that diesel price has on payback period is shown in Figure 10 for the three 

municipal fleets at 50 and 100 vehicles each.

Figure 10. Relationship between diesel prices and payback period 

Figure 10 reiterates that the economics for a school bus fleet under the base-case scenario are 

very dependent on the size of the fleet. A school bus project appears to achieve only a reasonable 

payback once diesel prices approach $4/gallon for 100-bus fleets and $5/gal for 50-bus fleets.

The main observations when considering fluctuating diesel prices (shown in Figure 10) for

refuse and transit fleets are:

0

2

4

6

8

10

12

14

16

$- $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 

Payback Period (Years)

Price of Diesel ($/gal)

Relationship Between Diesel Prices and Payback 

Period

50 School Buses

100 School Buses

50 Transit Buses

50 Refuse Trucks

100 Transit Buses

100 Refuse Trucks
17 

1. Project economics look strong for transit and refuse fleets of either size if the price of 

diesel is $2.50 or greater. This responds to a payback period between 3 and 6 years, 

depending on fleet type and size. 

2. As the price of diesel increases past $2.50, the size and fleet type (transit or refuse) 

become increasingly irrelevant. For prices below $2.50, larger fleets are favored, and 

refuse fleets are favored over transit.

3. Recent diesel price of $2.56 is on the inflection point of this graph. If diesel prices rise, 

project economics look very good, and if they fall to $2.00, they do not look very good. 

What does the composition of my fleet do to my project economics?

Some municipal governments have a unique capability to fuel multiple fleets/vehicle types from 

one CNG station. This offers the primary advantage of staggering refueling times and expanding 

the station's refueling window because different fleet types can refuel at different times of the 

day. NREL modeled combination fleets by taking the weighted average of the vehicle attributes 

such as VMT, fuel economy, efficiency penalty, and incremental cost. NREL then assumed these 

fleets would use a refuse-style CNG station because of its 12-hour refueling window and ability 

to be scaled up in a cost-efficient manner. Multi-purpose fleets used the transit fleet electricity 

cost assumptions if there were any transit buses involved (because they raise the capacity 

charges), and non-transit combinations used the refuse-school electricity charge assumptions. 

The payback periods for these combined fleets are shown in figure 11. 

Figure 11. Payback period by fleet size for main and combination fleets

0

2

4

6

8

10

12

14

16

0 50 100 150 200 250 300

Payback Period (Years)

Number of Vehicles

Payback Period by Fleet Size

School Buses

1/2 Transit, 1/2 School

1/2 School, 1/2 Refuse

1/3 Each

Transit Buses

1/2 Transit, 1/2 Refuse

Refuse Trucks
18 

The most conspicuous feature of Figure 11 is how much a school bus fleet's economics improve 

by combining with a transit or refuse fleet. The payback for a fleet of 100 is 2.9 years if a school 

has combined with a refuse fleet, compared to 11.5 years if they don't combine. 

A second important point to be learned from Figure 11 is that the combined fleets' payback 

periods are always less than the midpoint between the two fleets. This means that combining the 

fleets tends to capitalize on the relative economic advantages of each fleet while minimizing 

each fleet's disadvantages. This advantage holds for the fleet that combines all three vehicle 

types and has payback periods well below the weighted average of the three individual fleets.

What happens as my vehicle efficiency changes? 

CNG vehicles are generally less efficient than diesel vehicles when compared on a BTU (or 

DGE) basis. However, this drop in efficiency varies widely, depending on the specific engines 

and vehicles being compared. Furthermore, this drop is being reduced as CNG technology 

improves and as diesel engines strive to comply with new emissions standards. It is plausible, but 

unlikely, that some fleets could compare vehicles where the CNG vehicle is more efficient than 

its diesel counterpart.

To test the effect of this efficiency change in CNG fleets, NREL ran the VICE model with 

varying assumptions in the diesel-to-CNG efficiency change. The results are shown in Figure 12, 

where a negative efficiency change means that the CNG vehicle is less efficient than the diesel 

vehicle. This efficiency change was found to not have much effect on the transit and refuse 

fleets—on average, a 10% improvement in relative efficiency reduced the payback period by 

0.43 years. Efficiency change had more of an effect on 100-school bus fleets, where a 10% 

increase in efficiency subtracted 1.2 years off the payback period. The change had no effect on 

50-school bus fleets because none of them had a payback period of less than the project life. 

Figure 12. Effects of a change in diesel/CNG vehicle efficiency

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

-25% -15% -5% 5% Payback Period (Years)

Change in Vehicle Efficiency on a BTU Basis

Effects of Change in Diesel/CNG Vehicle 

Efficiency

50 School

100 School

50 Transit

50 Refuse

100 Transit

100 Refuse
19 

What if the $0.55/DGE, 80% vehicle incremental cost, or $50,000 station tax credit 

is taken away or not passed along?

The base case takes into account government subsidies that encourage the use of CNG. These 

include a $0.50 credit for every GGE ($0.55 per DGE) purchased, a credit to cover 80% of the 

incremental cost of a CNG vehicle, and a credit of $50,000 for installing a CNG station. These 

are tax credits that, as discussed in the model parameters section of this report, are supposed to 

be made accessible to tax-exempt entities through certificates and pass-alongs. However, they 

are often not made available to the fleet. Table 3 shows what happens if these credits are not 

made available.

Table 3. Payback Period (Years) with Various Tax Credits Missing

Fleet (100 

Vehicles) All Credits No Fuel Credit

No Vehicle 

Credit

No Station 

Credit

No 

Credits

Transit Buses 3.6 5.9 5.5 3.6 9.1

School Buses 11.5 ≥15.0 ≥15.0 11.8 ≥15.0

Refuse Trucks 2.6 4.6 4.8 2.7 7.8

Note that taking away the two tax credits from the transit (or refuse) scenario only increases 

payback period 4.2 (2.3 + 1.9 + 0.0) years independently, yet they increase 5.5 years combined.

Therefore, there are synergies between the three tax credits that result in additional benefits, 

making it important to consider the relationships between tax incentives when evaluating the 

benefits of them. It is also important to note that taking either one of the first two tax credits 

away makes school projects not pay off. 

What if I have to pay fuel excise taxes on diesel but not CNG? 

The base case assumes that a fleet pays the same excise tax on diesel as on CNG. However, this 

is not always the case. Fleets might refuel at various private diesel stations where they have to 

pay excise taxes while their future CNG station would be tax-free. There are also cases where a 

tax-paying entity (such as a contractor) gets state tax breaks for CNG but not diesel. Table 4 

shows how this lopsided taxation decreases the payback period for CNG projects by over 20% 

for all three fleets.

Table 4. Payback Period for 100-Vehicle Fleet

Fleet Type Both Fuels Exempt Only CNG Exempt % Reduction

Transit Buses 3.6 years 2.8 years 22%

School Buses 11.5 years 9.0 years 22%

Refuse Trucks 2.6 years 2.0 years 23%

How does vehicle life affect my project economics? 

The VICE model sets project duration to the same length as vehicle life, so a change in vehicle 

life essentially influences how much fuel is used over the course of a project. The model found, 

however, that a change in vehicle life had only a small effect on project profitability. As vehicle 

life changed from 10 years to 20 years, the ROR for 50-vehicle transit and refuse fleets increased 

less than 4%. A 50-vehicle school fleet showed the greatest improvement with an 11% increase 

in ROR over the same range of vehicle life.
20 

Changes in Upfront Costs

Many profitability questions focus on upfront costs because these are the costs that need to be 

paid back for the ROI, NPV, or payback period to be acceptable to the fleet manager. 

What happens if the price of my station changes?

Station prices vary widely depending on location, specific fleet requirements, lot characteristics, 

and many other factors. To test the effect of this variation on project economics, NREL modeled 

three CNG projects with baseline cost, baseline +50%, and baseline -50%. The school and refuse 

stations are shown in Figure 13; transit is not shown because it was so similar to refuse that it 

obscured the curves. 

Figure 13 reveals the effects of changing the station cost, such as:

• The influences of increasing/decreasing 50% are symmetrical. Increasing the station cost 

50% has an equal and opposite effect on payback years as decreasing it 50%.

• The school bus fleet is much more sensitive to changes in station cost than the other 

fleets. A 50% reduction in cost reduces payback by 4.9 years in a 75-bus fleet and 1.7 

years in a 300-bus fleet.

• In the refuse fleet, a 50% reduction in cost reduces the payback period by less than a year 

if the fleet is over 100 buses. It can make up to a 4-year difference in very small (20-

truck) fleets.

Figure 13. Payback period by station cost 

0

2

4

6

8

10

12

14

16

0 50 100 150 200 250 300

Payback Period (Years)

Number of Vehicles

Payback Period by Station Cost

School 150%

School 100%

School 50%

Refuse 150%

Refuse 100%

Refuse 50%
21 

What happens as my vehicle incremental cost changes? 

There is a distinct possibility that manufacturing efficiencies will decrease the cost of a CNG 

vehicle or that 2010 emissions requirements will increase the cost of a diesel vehicle. Either of 

these events would reduce the incremental cost of a CNG vehicle (over a diesel vehicle). There is 

also a possibility that the CNG vehicle purchased by your fleet has a higher incremental cost than 

the averages used in the base case. To explore the impact of these scenarios on project 

profitability, NREL modeled one case where the incremental cost of a CNG vehicle is zero, one 

scenario where it is at the baseline, and one where it is double the baseline. The results are shown 

in Figure 14. 

For both fleets shown in Figure 14, the base-case line is much closer to the zero-incremental-cost 

line than it is to the double-incremental-cost line. This is largely due to the fact that incremental 

costs are displaced by the tax incentive up to approximately the base incremental cost. Beyond 

the base incremental cost, the government's incentive helps very little because it caps out when 

the incremental cost is greater than $40,000. 

The doubling of incremental costs is particularly damaging to the school bus fleet for two 

reasons. Foremost, each bus uses less fuel over its lifetime, so there is less opportunity for fuel 

cost savings to make up for this cost. Secondly, the baseline incremental cost is slightly more 

expensive for a school bus than for a refuse hauler. 

Figure 14. Payback period by vehicle incremental cost 

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

0 50 100 150 200 250 300

Payback Period (Years)

Number of Vehicles

Payback Period by Vehicle Incremental Cost

School double

School base

School zero

Refuse double

Refuse base

Refuse zero
22 

What if I receive a grant from the Federal Transit Administration?

The Federal Transit Administration (FTA) offered grants for transit buses in urban areas through 

its Urbanized Area Formula Program and Clean Fuels Grant Program. The funding for these 

programs has recently expired but is expected to resume through upcoming legislation. The 

grants are expected to pay for 80% of the cost of a diesel bus and 83% of the cost of a CNG bus 

to those eligible recipients. This funding scenario results in the CNG buses actually being $2,700 

less than the diesel buses in the VICE model. FTA grants nullify the previously mentioned 

vehicle tax credit, so those were not factored into the cost. When this scenario was modeled, it 

reduced the payback period for transit buses by approximately 1.6 years for all fleet sizes over 10 

vehicles, as shown in Figure 15. 

Figure 15. Payback period of a transit bus with and without FTA funding 

What happens as I have more or less time to refuel? 

A fleet's refueling window (the time in which vehicles are available to refuel) increases if the 

fleet's schedule is more relaxed or staggered. This staggering usually increases as the station's 

fleet is diversified by serving different types of vehicles or by opening to the public. 

To test the impact of an increased refueling window, NREL ran the VICE model with identical 

fleets of refuse trucks being refueled by stations with a 6-hour and 12-hour refueling window.

The stations were automatically sized, equipped, and priced to accommodate their respective 

refueling windows. As shown in Figure 16, the CNG project with the 12-hour refueling window 

provided an increasingly larger ROR as the fleet size increased. 

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

0 50 100 150 200 250 300

Payback Period (Years)

Number of Vehicles

Transit Bus Payback Period with FTA Funding

Transit w/o FTA

Transit with FTA
23 

Figure 16. Rate of return for a 6-hour and 12-hour refueling window

What if I have to upgrade my garage? 

Some garages are not equipped to store CNG vehicles. Upgrades to the garage are part of the 

upfront costs for the fleet, such as infrastructure. The cost to retrofit a garage varies widely, as 

explained by Adams (2006). In one scenario, a garage required a gas-detection system that cost 

$3,750 per bus plus $40,000 for a control panel. The VICE model indicated this garage cost had 

no significant impact on transit and refuse fleets. However, it increased the payback time to 

school fleets 1.8 years to 2.3 years depending on the size of the fleet. 

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0 50 100 150 200 250 300

Rate of Return

Number of Buses

Rate of Return for Two Refueling Windows

12-Hour Window

6-Hour Window
24 

Figure 17. Payback period by garage upgrade 

Changes in Operating Costs

What happens if my vehicle maintenance costs change? 

Switching to CNG can increase or decrease maintenance costs, depending on the particular 

vehicle, application, and mechanic (Lemmons 2009). NREL models both scenarios by setting 

both CNG and diesel maintenance costs equal (at $0.50 per mile), then increasing CNG 

maintenance cost to $0.75 per mile (150%), and then decreasing them to $0.25 per mile (50%). 

Figure 18 shows that a 50% change in vehicle maintenance cost makes a big difference in project 

profitability. These costs are tracked on a per-mile basis, so they quickly add up to some very 

large costs in fleets where there are a lot of miles driven. This is one of the few costs that, by 

changing up or down 50%, can make a school CNG fleet more profitable than a refuse fleet. This 

is also one of the few costs that can make a school project not pay off no matter how large the 

fleet is. So school bus fleets that travel a lot of miles realize more cost benefits from CNG.

Notice that the 100% line is much closer to the 50% line than the 150% line, which indicates a 

given reduction in maintenance costs has a larger impact on project economics if the starting 

CNG maintenance cost is greater than the diesel maintenance costs.

0

2

4

6

8

10

12

14

16

0 50 100 150 200 250 300

Payback Period (Years)

Number of Vehicles

Payback Period by Garage Upgrade

School + Garage

School No Garage

Transit + Garage

Transit No Garage

Refuse + Garage

Refuse No Garage
25 

Figure 18. Payback period by vehicle maintenance cost 

What if I have to hire a hostler or attendant?

The VICE model's baseline assumes that fleets will not encounter additional staff costs when 

they switch from diesel to CNG. However, numerous circumstances can contribute to the need 

for more hostlers or attendants at the CNG station. There is also a case where a fleet can 

eliminate hostlers if they use slow-fill. To test the effect of hiring or firing personnel, NREL ran 

the model from a two-hostler reduction to a four-hostlers addition and looked at how that affects 

the number of vehicles a fleet needs for a 7-year payback. The results are shown in Figure 19. 

The hostler is assumed to cost $24 per hour when benefits are added. He is assumed to work an 

8-hour shift 5 days a week, and additional refueling is done by the drivers before or after their 

routes. Therefore, the addition of a hostler costs school and refuse fleets $4,200 per month or 

about $50,000 per year. 

For the transit and refuse fleets, each hostler required 4 additional vehicles to pay himself off in 7 

years. Because both of these numbers are less than a hostler can handle, these fleets should never 

limit their number of CNG buses based on what their current staff can handle. It seems to be a 

sound decision to increase staff to accommodate as many CNG vehicles as possible. 

Each hostler for a school fleet required 55 additional buses. Therefore, it would only make sense 

to hire an additional hostler if he can service 55 buses or more. 

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

0 50 100 150 200 250 300

Payback Period (Years)

Number of Vehicles

Payback Period by Vehicle Maintenance 

Cost

School 150%

School 100%

School 50%

Refuse 150%

Refuse 100%

Refuse 50%
26 

Figure 19. Effect of personnel costs on required fleet size

What if I open my refueling station to the public?

Opening a refueling station to the public changes the project economics in a number of ways that 

are listed below. There is too much variability to model all of these factors in one scenario, but 

each factor was modeled independently in response to questions earlier in the report. 

1. Many project grants are tied to the station opening to the public. This is the same as if the 

upfront station cost was reduced, as modeled for this question: "What happens if the price 

of my station changes?" 

2. Excess capacity may be added to the station to accommodate public vehicles refueling at 

the same time as the primary fleet. Other equipment such as card readers may also be 

necessary. These both add to the upfront cost, which is also modeled in the "What 

happens if the price of my station changes?" section.

3. The refueling window might need to be expanded to accommodate public vehicles. 

Increased refueling windows were modeled when answering this question: "What 

happens as I have more or less time to refuel?" 

4. The number of attendants must be increased to facilitate sales to the general public. This 

increase is also modeled in the "What if I have to hire a hostler or attendant?" section. 

5. Opening to the public will likely increase wear and tear on station equipment. This 

increase is explored under this question: "What if my maintenance costs increase or 

decrease?" 

18 23 27 31 36 40 45

146 

203 

259

17 21 26 30 34 39 43

-

50 

100 

150 

200 

250 

300 

-2 -1 0 1 2 3 4

Vehicles needed for 7 year payback

Number of New Hostlers/Attendants

Effect of Personnel Costs on Required Fleet Size

Transit Buses

School Buses

Refuse Trucks

300+ 300+ 300+ 300+
27 

6. A profit can be made on each GGE of CNG sold to the public. The profit on each gallon 

affects the firm's finances the same as if the price of diesel went up so the firm saved 

more money on each gallon of CNG used. This impact is very significant, as shown in the 

"What will a change in diesel prices do to my payback period?" section. 

How do electricity prices change my project economics? 

Not much. Increasing electricity prices 50% increased the payback period a maximum of 0.7 

years (for a 100-bus school fleet) or 0.5 years (for a 20-truck refuse fleet).

How do station maintenance costs change my project economics?

Maintenance costs affect project economics more than electricity prices, but they are still not 

very influential. Increasing maintenance costs 50% increased payback time for a 100-school bus 

fleet by 2.7 years and a 300-school bus fleet by 0.7 years. The same cost increase resulted in one 

additional year to pay back for a 30-truck refuse fleet and only 0.1 additional years to pay back a 

refuse fleet of 125 or more trucks. 

Conclusions

As with all fleet projects, predicting whether a project is financially sound is challenging but 

critically important. Decisions made on equipment purchases, capital upgrades, and fuel 

contracts have long-term impacts on the operational success of the fleet. NREL has modeled the 

impact of these decisions and other fleet parameters with its VICE model and analyzed fleet 

projects. When these parameters are compiled as a fleet, the fleet can be classified as "Resilient," 

"Marginal," or "No-CNG." Resilient fleets tend to use a lot of fuel and are profitable enough to 

be resilient to multiple changes in fleet parameters. Marginal fleets are profitable but can quickly 

become unprofitable if parameters change. No-CNG fleets are ones for which CNG would be an 

unprofitable proposition. 

Larger transit and refuse fleets (75+ vehicles) tend to be profitable and resilient to variations in 

project parameters. This is because the miles driven by the fleet overall use enough fuel to 

magnify the benefits of the lower-price CNG to offset the entry costs of CNG (vehicle 

incremental costs and infrastructure costs). Their payback period only rises above 5 years when 

diesel drops below $2.25/gallon, vehicle incremental costs are doubled, CNG vehicle 

maintenance costs increase 50%, VMT drops below 26,000 miles/year (transit) or 14,000 miles a 

year (refuse), vehicle incremental costs are doubled, or when these factors combine. 
28 

Figure 20. Largest factors affecting the profitability of marginal and resilient fleets

In general, school fleets and small transit/refuse fleets tend to be marginal. Marginal fleets are 

heavily influenced by many factors, but their profitability drops precipitously if the number of 

transit/refuse vehicles drops below 30. School fleets have no clear cutoff point for the number of 

buses, but their profitability deteriorates rapidly if the VMT drops below 10,000 miles per bus

because of the overall low fuel use of the fleet.

Fleet type makes a large difference in profitability. At any given fleet size, refuse projects are 

slightly more profitable than transit projects, and both are much more profitable than school 

buses. Mixed fleets are more profitable than the mid-point between the individual component 

fleets, which is particularly helpful for school buses. 

Diesel prices are a powerful indicator of profitability given that natural gas prices are relatively 

consistent. A school bus project appears to only make economic sense once diesel prices 

approach $4/gallon for 100-bus fleets and $5/gallon for 50-bus fleets. For transit and refuse 

fleets, the size and fleet type become increasingly irrelevant as the price of diesel increases past 

$2.50. For prices below $2.50, larger fleets are favored, and refuse fleets are favored over transit.

Our current diesel price of $2.56 is on a transitional point of the payback curve for transit and 
29 

refuse fleets. If diesel prices stay where they are or rise, project economics look resilient, and if 

they fall, the economics look marginal. 

Per-vehicle VMT is almost as strong an indicator of profitability as the number of vehicles for 

school fleets. However, VMT is not a relevant factor in transit or refuse fleets unless their VMT 

is reduced to 1/3 of the average fleet's VMT. 

Project success is very sensitive to vehicle maintenance costs. Doubling these costs increases the 

payback period of the least-sensitive fleet from 1.7 years to 3.3 years. Doubling them can also 

make a school project not pay off no matter how large the fleet is. 

An increase in vehicle incremental cost has a large effect on project profitability. A reduction in 

incremental cost has a much smaller impact on profitability because most of the amount up to the 

base case was subsidized by the government, and very little of the amount over the base case is 

subsidized. 

Tax issues have a strong influence on profitability. There are synergies with the vehicle and fuel 

tax credits, so together, they reduce the payback period of a project more than the sum of both of 

their impacts. Taking either one of the tax credits away makes school projects not pay off. If a 

fleet has to pay taxes on diesel but not CNG, their payback period is reduced by 22%.

The cost of the station has a significant influence on the profitability of marginal projects. In 

general, a 50% increase in station cost results in a 30% increase in payback years. This could be 

make-or-break for many school fleets and smaller (<50 vehicle) transit and refuse fleets.

Factors that don’t have much effect on project profitability over the range tested are:

• Efficiency difference between CNG and diesel engines (-25% to +10%) 

• Change in vehicle/project life (10 years to 20 years) 

• Electricity prices (50% and 150% baseline) 

• Maintenance costs for CNG station (50% and 150% baseline) 

• Garage upgrade (for minimal-upgrade scenario)

• Number of new attendants/hostlers (-2 to +4 personnel). 

These conclusions were derived from testing parameter changes on what NREL deemed a 

common or average fleet. Synergies between these parameters were not tested and could have 

surprising effects. To account for these synergies and the specific operating conditions of 

individual fleets, we encourage fleet managers to use the VICE model when it is posted on the 

Alternative Fuels and Advanced Vehicles Data Center (www.afdc.energy.gov/afdc/) or to have a 

CNG infrastructure contractor do an individual assessment of their fleet.
30 

References 

American Public Transit Association. (2009). Public Transportation Fact Book. 

www.apta.com/gap/policyresearch/Documents/APTA_2009_Fact_Book.pdf. Accessed March 

17, 2010. 

American School Bus Council. National School Bus Fuel Data. 

http://americanschoolbuscouncil.org/index.php?page=fuel-calculator. Accessed March 17, 2010. 

Andre, M. Supervisor of Transportation. Lower Merion School District. Personal 

communication. August 2009. 

Andrews, B. Sales Application Specialist. Autocar. Personal communication. May 2009. 

Antila, B. Senior Management Analyst. ValleyMetro RPTA. Personal communication. August 

2009. 

Chandler, K.; Eberts, E.; Melendez, M. (2006). "Washington Metropolitan Area Transit 

Authority: Compressed Natural Gas Transit Bus Evaluation." NREL Report No. TP-540-37626; 

pp. 79. 

CVEF 2010. CNG Transit Experience Survey. Report to the National Renewable Energy 

Laboratory under Task Order KLFH-9-88664-01. Pending NREL review and publication. 

Cohen, J.T. (2005). "Diesel vs. compressed natural gas for school buses: a cost-effectiveness 

evaluation of alternative fuels." Energy Policy (33:13); pp. 1709-1722 

EIA 2010a. Petroleum Navigator. 

http://tonto.eia.doe.gov/dnav/pet/pet_pri_gnd_dcus_nus_w.htm. Accessed March 10, 2010. 

EIA 2010b. Natural Gas Navigator. 

http://tonto.eia.doe.gov/dnav/ng/ng_pri_sum_dcu_nus_m.htm. Accessed March 10, 2010. 

EIA 2010c. Fuel Price Forecasts and Analysis. Tables 12 and 13. 

www.eia.doe.gov/oiaf/forecasting.html. Accessed March 10, 2010. 

Engle, D. (2010). "Fueling with Natural Gas." NGV Fleet Manager, a Supplement to MSW 

Management; pp. 4. 

Federal Transit Administration. (April 2007). "Useful Life of Transit Buses and Vans." Report 

No. FTA VA-26-7229-07.1. 

www.fta.dot.gov/documents/Useful_Life_of_Buses_Final_Report_4-26-07_rv1.pdf. Accessed 

March 17, 2010. 

Gordon, D.; Burdelski, J.; and Cannon J. (2003). "Greening Garbage Trucks: New Technologies 

for Cleaner Air." Inform, Inc. ISBN #0-918780-80-2. 
31 

International Fuel Tax Association. Motor Fuel Excise Tax Rates, as of January 1, 2008. 

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32 

Glossary and Acronyms

Capacity charge—Also termed "demand charge," it is the charge that an electric utility charges a 

customer to be ready to meet the customer's demands immediately. It is therefore dependent on 

how quickly the customer pulls electricity out of the grid. 

Compressed natural gas (CNG)—A gas, consisting primarily of methane, that is compressed to 

allow more energy to fit into a smaller fuel tank. 

Diesel-gallon equivalents (DGE)—The amount of energy that is in 1 gallon of diesel fuel. This is 

larger than a GGE.

Federal Transit Administration (FTA)—An agency within the United States Department of 

Transportation (DOT) that provides financial and technical assistance to local public transit 

systems.

Gasoline-gallon equivalents (GGE)—The amount of energy that is in 1 gallon of gasoline. CNG 

is typically measured in this unit. 

Hostler—A person who refuels, cleans, and performs regular maintenance for a fleet of buses or 

trucks at the end of the day. 

Net present value (NPV)—The difference between the present value of cash inflows and the 

present value of cash outflows. All present-value cash flows have been discounted so that recent 

flows are worth more than future flows.

National Renewable Energy Laboratory (NREL)—One of the U.S. Department of Energy’s 16 

national laboratories, NREL is the primary laboratory for renewable energy and energy 

efficiency research and development.

Rate of return (ROR)—The gain or loss on an investment over a specified period expressed as a 

percentage increase over the initial investment cost (investopedia.com). 

Refueling window—The period of time in which vehicles are available to refuel.

Vehicle-miles traveled (VMT)—The number of miles traveled by 1 vehicle in 1 year.

Vehicle and Infrastructure Cash-Flow Evaluation (VICE) model—An NREL-built model that 

assesses the profitability of investing in alternative fuel infrastructure under for various fleets. 

NREL plans to expand the VICE model to assess more fuels than CNG.
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Business Case for Compressed Natural Gas in Municipal Fleets

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This report describes how NREL used the CNG Vehicle and Infrastructure Cash-Flow Evaluation (VICE) model to 

establish guidance for fleets making decisions about using compressed natural gas.

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compressed natural gas; CNG; municipal fleets; CNG Vehicle and Infrastructure Cash-Flow Evaluation model; 

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