Update: OEM alternative fuel offerings

Over the years, we have been witness to the ebb and flow of alternative fuels for on-highway vehicles, which has been driven the price and/or availability of oil. Typically, fleet applications drive the choice for specific alternative fuels. We asked truck original equipment manufacturers (OEMs) about the current alternative fuel trends and demands, and where fleets might still find tax incentives.

Shifting paradigm

The shift over the past five years has been fairly consistent from diesel to natural gas in the heavy-duty market where it is available. “CNG is the preferred fuel, with LNG ordered by a few customers. Even so, the natural gas market is only approximately 1% of the total market,” says Robert Carrick, natural gas sales manager for Freightliner.

Bryan R. Henke, manager of products for Freightliner Custom Chassis Corp. (FCCC), points to the current price of diesel and gas for “driving customers away from alternative fuels.” 

Charles Cook, Peterbilt’s marketing manager for vocational products, responds: “Daily routes, duty-cycles, expected vehicle life cycles, fuel price stability and refueling infrastructure are key factors in the decision process when considering natural gas vehicles. The choice to go with natural gas should be a long-term move due to the added cost of the vehicles and fueling infrastructure. Additionally, once a Class 7 or Class 8 truck is built for natural gas, it is dedicated to run on natural gas and not easily converted to diesel. That said, Peterbilt has seen consistent sales volume of natural gas vehicles for the past several years.”

“Typically, fleet applications drive the choice for specific alternative fuels,” says Steve Gilligan, vice president of product marketing for Navistar. “Of the applications that are driving the choice for alternative fuels, the largest is currently refuse where the customer is also the producer of the fuel because of the bio methane generated in landfills. The school bus segment, for example, is another area where the customers are requesting access to propane due to regional market availability or operating costs considering current incentives.

“Very few other applications, however, lend themselves to alternative fuel being a more cost-effective alternative than diesel,” Gilligan continues. “In addition, chassis packaging of the fuel tanks is more difficult with alternative fuels and vehicle typically weight more as well. Most purchasers tend to be influenced by operating cost and currently B/E period for the fuel savings to offset the incremental cost of the engine, tanks, and vehicle modifications ranges from six to well over 10 years depending on application and annual mileage. Some line haul applications are still conducive to natural gas, but the secondary market for used vehicles is currently in an infancy state.”

“The biggest shift would be the adoption of alt fuels by fleets who stand to benefit from the selected fuel choice because that fuel is sourced from the industry the fleet is involved in,” says Adrian Ratza of Hino Motors Manufacturing U.S.A. “Good examples would be CNG for a waste/refuse application, an electric drivetrain for an electrical utility company, or the use of biodiesel blends by a waste oil recycler. Outside of that, fleets are still going to choose the fuel option that makes the best business sense for them.” 

Federal and state funding

Carrick reminds us that federal vehicle funding for alternative fuel vehicles has not been available for about four years. “There is some state funding available around the country, and the best way to determine what funds are available is to access the state websites and search for funding for deployment of natural gas vehicles,” he says. “Some states that have funding or tax credits available are California, Texas, Washington, Utah, Colorado, Nebraska, Maryland, Florida, Indiana, and Ohio.”

Gilligan agrees. “A few years ago some fleets (primarily vocational and government) were eligible for tax incentives for the purchase of alternatively fueled vehicles,” he says. “Some states and regional authorities still provide incentives. These incentives are driven by greenhouse gas concerns in some cases, and local infrastructure costs in others. Most private companies, especially those involved in interstate commerce, have a hard time taking advantage of these incentives. The California Environmental Protection Agency, the Air Resources Board for example, continues to be a good resource for this grant information.”

“Incentives are still available and Peterbilt and its dealer network encourage customers to seek out incentives for which they are eligible,” notes Cook. “The Alternative Fuel Data Center, part of the Department of Energy, maintains a listing.” 

Current demand & future

“Demand is consistent, but flat,” Freightliner’s Carrick notes. “The industry should deliver the same volume of natural gas units in 2016 as we delivered in 2015. As for the future, demand will follow the price delta between natural gas and diesel fuel. When the price of oil returns to normal and natural gas cost is half of the cost of diesel, the ROI calculations are much more acceptable to the customers.”

“The current price of diesel and gas have driven customers away from alternative fuels, however, many states have alternative fuel programs for any fleet,” FCCC’s Henke says. “Demand for NG is slipping as diesel and gas keep going lower. Some applications and carriers, like UPS, buy propane-powered vehicles.

“Customers will buy alternative fuels when gas and diesel start to spike. And it will spike when it is time,” Henke predicts. 

“Alternative fuel demand is dependent on price of diesel/gasoline,” Ratza explains. “With the current low prices of these traditional fuels, demand for certain alternative fuel vehicles hasn’t been as strong. Consumers are comfortable with diesel/gasoline. They know what to expect from it and know it will be readily available wherever they are. Inevitably, diesel and gasoline prices will begin to rise again, potentially even in 2016. When that time comes, that will flip a switch for fleets to look at alternative fuels as a more viable option again. The drive to be more environmentally conscious is a very worthy one, but the reality is there still must be a business case to do so. Fleets will continue to lean on diesel/gasoline as long as it makes fiscal sense.”

“We have seen a significant decline in the interest for natural gas across all markets, with one exception, due to the dramatic reductions of the cost of gasoline and diesel and relatively flat prices in natural gas,” Navistar’s Gilligan says. “While the infrastructure is much more mature than it was a few year ago and both the engine and tank technology are more robust, the costs remain relatively high. Without legislation encouraging the change, the natural gas market will need to be driven by economics and the long range prognosis for diesel prices would indicate that there is going to be little change at least through 2020. Most OEMs have a clear line of sight to attainment of GHG legislation with diesel technology and fuel supplies seem to be in a healthy state for the near future.” 

Peterbilt’s Cook disagrees. “Demand remains strong. 2015 was a record year for natural gas vehicles for Peterbilt. The refuse industry continues to lead the way with natural gas vehicles, but we are also seeing more general freight, tanker and construction operations integrating natural gas powered vehicles into their fleet.” As for the future, he says, “We expect continued growth as infrastructure expands and the cost of fuel systems decreases.”

Future fuel cell technology

As for future fuel options, Cook says that “Peterbilt continues to explore many different technologies. The number of choices included under the alternative fuels category will grow in the years ahead.”
“It is hard to envision fuel cell technology which is currently prohibitively in a 2,000-lb. car to have a practical application in an 80,000-lb. truck,” Navistar’s Gilligan says. “There are however, many activities underway to move specific vehicle functions and engine accessories to electric operation. Removing these functions from being a parasitic load on the main engine in a truck to electric operation is in the not too distant future.”

Freightliner’s Carrick agrees. “There is no technology for heavy-duty trucks on the near horizon which involves fuel cell or battery power which is commercially acceptable, so those projects will be in test for quite some time,” he says.

“Fuel cell technology is a possibility if a company can perfect it and make it affordable,” Henke adds. “A lot of electric powered companies came and left the market over the past eight years. Some companies have put fuel cell technology on the shelf as gas and diesel drop.”

Hino’s Ratza is optimistic. “We’ve come so far in the trucking industry, and there are such bright minds leading the way, that I have a hard time believing we won’t find be able to find a way making fuel cell technology work in trucking,” he says. “When EPA mandates on NOx emissions reductions were first released, I’m sure many didn’t believe we could meet requirements, but we have. While an imposing challenge, it’s definitely possible.”

However, Freightliner’s Carrick adds that “there is no technology for heavy-duty trucks on the near horizon which involves fuel cell or battery power which is commercially acceptable, so those projects will be in test for quite some time.”

Click here to view the original article by Fleet Equipment Magazine.