Transcript Fueling Station

This is a student exercise!
Natural Gas Alternative for
StarMetro
Applied Economic Research Group
Key Questions

1. Should StarMetro operate its transit fleet
on natural gas?

2. What is the best turnover strategy for
StarMetro?
Presentation Overview
Intro
Costs
Plan
• StarMetro
• Compressed Natural Gas (CNG)
• Emissions
• Fixed
• Variable
• Timeline
• Financing
• Recommendations

Transit authority run by the City of Tallahassee

Traveled over 2.3 million miles in 2011

650,000 gallons of diesel gas used in 2011

FY 2012 budget: $2.3 million for fuel
StarMetro Fleet Composition

60 diesel buses


12 year life cycle
Average age: 3 years

17 paratransits


5 year life cycle
3 electric buses

Operation begins in
August
Compressed Natural Gas
Opportunity for CNG Market Growth in US

CNG use is growing at 30% globally, but only 3% in the
United States


Why is it a good option?




After diesel, second-most widespread fuel option for buses in the
US (20% of transit buses as of 2011)
Cheaper than diesel
Large domestic production
Cleaner burning fuel than diesel
StarMetro’s purchase of electric buses shows a clear
interest in pursuing alternative energy sources
Emissions
CNG Emits Fewer Emissions Than Diesel
Image Source: TCRP Report 146, 2011
CNG Would Improve Tallahassee Air Quality

Higher emissions of methane (CH4) and nitrogen oxides
(NOX) from natural gas production

Reduced tail pipe emissions:


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Particulate matter (PM)
Nitrogen Oxides (NOX)
Hydrocarbon (HC)
Carbon Dioxide (CO2)
Opportunity for improvement regarding PM
concentration in Tallahassee
Fixed Costs
CNG Buses Are More Expensive

CNG buses currently cost about $70,000 more than
comparable diesel buses



Diesel: $390,000
CNG: $460,000
StarMetro usually purchases 5 buses a year via federal
grants
Depot Modifications Are Necessary with CNG

Must install safety equipment



Increased ventilation
Methane detection
Modifications would cost approximately $250,000 if
turn over 100% of fleet

$100,000 + $2500 per bus
Variable Costs
CNG Would Save on Fuel Costs

CNG buses require 20% more fuel

3.08 MPG (CNG) vs. 3.64 MPG (diesel)

However, CNG is 40-50% cheaper than diesel

Additional Electricity


CNG is compressed at the fueling site, requiring extra energy
About $0.16 per DGE
EIA Projected Prices of Diesel and CNG
Image Source: M.J. Bradley & Associates, 2012
Calculating Fuel Costs
Annual Miles Driven
MPG
Total Gallons of
Fuel
Per Gallon
Price of Fuel
Total
Fuel
Costs
CNG Buses Are Less Costly to Maintain

Annual maintenance costs are slightly more expensive
for diesel buses than for CNG buses

Approximately $5200 per diesel bus and $4900 per CNG
bus
Annual savings of $18,000 for a complete CNG fleet
Diesel Bus Variable Costs Exceed Those of CNG
Cost of
CNG
$20,900
Cost of
Diesel
$33,700
CNG Bus
Maintenance
Costs
$4900
Diesel Bus
Maintenance
Costs
$5200
Variable Cost of
CNG Bus
$25,800 per bus
in 2013
Variable Cost of
Diesel Bus
$38,900 per bus
in 2013
Diesel Buses Have Greater Lifetime Costs
Purchasing price of buses plus total variable costs of 20132024 lifecycle:
$834,700
$781,700
CNG would save $53,000 per bus
StarMetro should implement a CNG program.
Turnover Timeline
Turnover Will Be Complete By 2024
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12 year plan
Assumptions:
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Continue to purchase
5 buses per year
(standardize age
structure)
Diesel and CNG buses
have similar life cycles
Routes and fleet size
will remain constant
Year
Number of
Diesel Buses
Number of
CNG Buses
2013
55
5
2014
50
10
2015
45
15
2016
40
20
2017
35
25
2018
30
30
2019
25
35
2020
20
40
2021
15
45
2022
10
50
2023
5
55
2024
0
60
Fueling Options
Fuel at Existing Station
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Partnership with Leon County Schools
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Public-private station, city will provide gas
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StarMetro could negotiate a
contract to purchase at a
reduced rate

Concern: $0.15 mark-up
over wholesale price
Build a Proprietary Station to Avoid Mark-Up

May eventually be more economical for StarMetro to
build their own station
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Would cost about $2M if StarMetro turned over 100%
of fleet
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Funding Options:
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Federal grant
Municipal bond
StarMetro Could Apply for a
Federal Grant
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FTA 5308 Clean Fuels Grant
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Usually $2 to $3 million
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Gainesville: $3 million for biodiesel buses
Tampa: $2.32 million for CNG fueling station
Tallahassee comparable to Gainesville with respect to
air quality
City Could Issue a Bond
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In order to be feasible:
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Annual savings must cover annual costs
Accumulated savings must cover principal at maturity
Assumptions:
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Buses are purchased using federal grant money as usual
Issue a $2M 10-year bond in 2016 at 5%
Cost of maintaining station $350,000 annually (includes
labor and depreciation)
Bond Financing Feasible in 2016
Cost/Savings (in millions)
7
6
5
4
Cumulative savings
can cover principal
at maturity.
3
2
Interest
Payments +
Operation Costs
($450,000)
1
Costs + Principal
($2,450,000)
0
2014
2016
2018
Year
Cumulative Net
Savings
Savings
2020
2022
Annual Costs
2024
Specialized Knowledge is Needed to Manage CNG
Fueling Sites
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Technology is extremely sophisticated
Each Option Has Some Disadvantages
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Station Maintenance
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CNG programs pursued by some municipal transit
authorities were abandoned due to poor management of
proprietary stations
Private companies have more success with maintaining
fueling sites
Higher Costs

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Leasing through Nopetro implies higher fuel costs
A proprietary station would provide a higher payoff if
StarMetro is willing to take on the added risk
Comparing the Options
Nopetro Station
Construction Cost

Fuel Cost
Maintenance
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Proprietary Station
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While it may eventually become cheaper to build and fuel at a proprietary station,
the issue of station maintenance is of greater concern.
We recommend that StarMetro pursue the less risky option of fueling at
the Nopetro station permanently.
In Conclusion

1. Should StarMetro operate its transit fleet
on natural gas?
Yes, it would save money and reduce emissions.

2. What is the best turnover strategy for
StarMetro?
Replace 5 diesel buses per year with CNG buses
and negotiate a fueling contract with Nopetro.
Applied Economic Research Group