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.

Business Case for CNG in Municipal Fleets

Clean Cities Webinar

Caley Johnson 

Fuel/Vehicle Market Analyst 

NREL

July 27, 2010

NREL/PR-7A2-48981
Innovation for Our Energy Future

Agenda

• Why municipal fleets?

• Assessing investment profitability

• VICE model

• Base-case scenario

• Pressing questions for fleet owners

2
Innovation for Our Energy Future

Why municipal fleets?

3

• Transit buses, refuse trucks, and school buses

• Circular routes lead to CNG station!

• Municipal governments value some CNG attributes that 

many businesses don’t

• Long-term cost-effectiveness (instead of just short-term)

• Consistent operating costs

• Increased energy and climate security

• Reduced local air and noise pollution

• Future report to cover delivery trucks and taxi cabs

Credit: Leslie Eudy, NREL

PIX12293

Courtesy of Kevin Chandler, Battelle

PIX09569

Courtesy of John Kubesh, Southwest Research Institute

PIX04151
Innovation for Our Energy Future

Assessing project profitability

4

• Look at discounted cash-flow of initial investment and future 

payback/savings

• Discount expenses and savings incurred in the future because 

money is worth more now than later (because you can invest it 

now)

• Discount rate is set at what you could make from alternative 

investments at similar risk

Discount Rate 6%

Year 0 1 2 3 4 5 6 7 8 9 10

Annual Cash 

Flow -$1,000,000 $200,000 $200,000 $200,000 $200,000 $200,000 $200,000 $200,000 $200,000 $200,000 $200,000 

Discount Factor 1.00 0.94 0.89 0.84 0.79 0.75 0.70 0.67 0.63 0.59 0.56

Discounted Cash 

Flow -$1,000,000 $ 188,679 $ 177,999 $ 167,924 $ 158,419 $ 149,452 $ 140,992 $ 133,011 $ 125,482 $ 118,380 $ 111,679 

Cumulative Cash 

Flow -$1,000,000 -$811,321- $633,321 -$465,398 -$306,979 -$157,527 -$16,535 $116,476 $241,959 $360,338 $472,017 

NPV $ 472,017 note: npv would be $1,000,000 if not discounted
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Assessing project profitability 2

5

• Most common metrics are payback period, net present value, 

or percent return on investment (ROI)

• ROI= discount rate when NPV=0 
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Vehicle and Infrastructure Cash-Flow Evaluation (VICE) Model

6

• Contrasts the cash flow for CNG infrastructure, vehicles, and 

fuel with that of a diesel fleet

• Determines discounted payback period, NPV, and ROI

• Assesses finances for transit, refuse, school fleets, and mixes 

thereof

• Discount rate for municipal governments is assumed to be 

6% because that is what municipal bonds cost them

• Excel-based and I can send you a copy
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VICE input/output screen shot

7
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Base Case- Fleet Parameters

8

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

Seven modeled fleets and their parameters

• Numerous data sources

• Most published, a few from interviews

• Tried to get multiple sources and take average

• Mixed fleets are simply averaged

• Base case is an average or common value

• Allows a benchmark from where we can test the effect of 

changing one parameter.
Innovation for Our Energy Future

Base Case- Station Parameters

9

• Equations developed from Rob Adams’ (Marathon Technical 

Services) cost calculator

• Replicates buffered fast-fill station

• Applicable to time-fill scenarios because compression (not storage) is 

the bulk of the cost

• Fleets determine refueling window and expected throughput

$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
Innovation for Our Energy Future

Base Case- Fuel Costs

10

• Savings from fuel costs are what pays back the investment in 

a station and vehicles

• Per-DGE saving increase further into the future 

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$ per diesel-gallon equivalent

EIA Fuel Price Projections

Diesel

NatGas
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Profitability of Base Case

11

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

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

Minimum Number of Vehicles to Have a Positive NPV or 6% ROR
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Using VICE to answer FAQ’s

12

With the base case established, we can see what effect specific 

changes have on project profitability.

Most important question is wrapped up into all answers:

• How many vehicles do I need to make the project profitable?

Three question categories:

• Variations in fuel expenditures

• Changes in Upfront Costs

• Changes in Operating Costs
Innovation for Our Energy Future

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

13
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What if diesel prices change?

14

Great question, given the volatility of diesel prices

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
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What happens as my vehicle efficiency changes?

15

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

-25% -20% -15% -10% -5% 0% 5% 10% 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

Not much, except for in school buses
Innovation for Our Energy Future

What if I don’t get the tax incentives?

16

• Some of the tax incentives are under debate in Congress

• Tax incentives need to be passed along to municipal 

governments—an uncertain proposition

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

Payback Period (Years) with Various Tax Credits Missing

• Station tax credit ($50K) doesn’t matter much

• Fuel ($0.55/gal diesel) and vehicle (≤$32K/vehicle) credits 

make a big difference

• Fuel credit matters most for transit buses

• Vehicle credit matters most for refuse trucks

• There are synergies between the three credits
Innovation for Our Energy Future

What happens if the price of my station changes?

17

Big difference for refuse/transit fleets less than 75 vehicles

Can bring school fleets to a reasonable payback period

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%
Innovation for Our Energy Future

What happens as my vehicle incremental cost changes?

18

• Grants effectively reduce the incremental cost

• Asymmetrical changes because subsidy covers most of 

difference between zero and base case

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
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What happens if my vehicle maintenance costs change?

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• Both CNG and diesel maintenance costs start at $0.50 per mile

• Asymmetrical—reducing CNG maintenance costs is more important if it is 

more expensive than diesel to begin with

• Can make school bus fleet profitable 

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%
Innovation for Our Energy Future

Conclusion

20
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Questions

21

Caley Johnson

303-275-3607

caley.johnson@nrel.gov

Business Case for CNG in Municipal Fleets report at:

www.afdc.energy.gov/afdc/pdfs/47919.pdf
Innovation for Our Energy Future

Supplemental Slides

22
23 Innovation for Our Energy Future

$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
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What if I receive an FTA grant?

24

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

• FTA can pay for 80% of a diesel bus or 83% of a CNG bus
25 Innovation for Our Energy Future

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
26 Innovation for Our Energy Future

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