This is a student exercise!
Natural Gas Alternative for StarMetroApplied 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
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 After diesel, second-most widespread fuel option for
buses in the US (20% of transit buses as of 2011)
Why is it a good option? 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: 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 DrivenMP
G
Total Gallons of
Fuel
Per Gallon Price of
Fuel
Total Gallons of
Fuel
Total Fuel Costs
CNG Buses Are Less Costly to Maintain
Annual savings of $18,000 for a complete CNG fleet
Annual maintenance costs are slightly more expensive for diesel buses than for CNG buses Approximately $5200 per diesel bus and $4900
per CNG bus
Diesel Bus Variable Costs Exceed Those of CNG
Cost of CNG
CNG BusMaintenance Costs
Cost of
Diesel
Diesel BusMaintenance Costs
$25,800 per busin 2013
$38,900 per busin 2013
Variable Cost of CNG
Bus
Variable Cost of
Diesel Bus
$33,700
$20,900 $4900
$5200
Diesel Buses Have Greater Lifetime Costs
$834,700 $781,700
CNG would save $53,000 per bus
Purchasing price of buses plus total variable costs of 2013-2024 lifecycle:
StarMetro should implement a CNG program.
Turnover Timeline
Turnover Will Be Complete By 2024
12 year plan
Assumptions: 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
YearNumber 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
Partnership with Leon County Schools
Public-private station, city will provide gas
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
Would cost about $2M if StarMetro turned over 100% of fleet
Funding Options: Federal grant Municipal bond
StarMetro Could Apply for a Federal Grant
FTA 5308 Clean Fuels Grant
Usually $2 to $3 million 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
In order to be feasible: Annual savings must cover annual costs Accumulated savings must cover principal at
maturity
Assumptions: 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
Interest Payments + Operation Costs($450,000)
Costs + Principal($2,450,000)
Cumulative savings can cover principal at maturity.
Cumulative Savings
Annual CostsCumulative Net Savings
Specialized Knowledge is Needed to Manage CNG Fueling Sites
Technology is extremely sophisticated
Each Option Has Some Disadvantages
Station Maintenance 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 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
Proprietary Station
Construction Cost
Fuel Cost
Maintenance
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?
2. What is the best turnover strategy for StarMetro?
Yes, it would save money and reduce emissions.
Replace 5 diesel buses per year with CNG buses and negotiate a fueling contract with Nopetro.
Applied Economic Research Group