Evaluation of the economics of conversion to compressed natural gas for a municipal bus fleet

Domestic natural gas production has increased markedly in the United States, and now compressed natural gas (CNG) has the potential to become a cleaner and less expensive energy source than diesel fuel for use in the public transportation sector, especially for city bus fleets. This paper provides an economic analysis of possible CNG conversion for Lafayette, IN CityBus Corporation. It uses benefit-cost analysis to compare the total cost of three potential options for bus replacement: standard diesel, hybrid diesel-electric, and CNG. A spread-sheet model was used to estimate the total cost of these three fleet options over a 15-year project horizon. Results suggest that the CNG option has the lowest net present value (NPV) cost, and that cost savings would be larger if the corporation could obtain a grant for the CNG fueling station or if the project life span could expand to 20 years. From the environmental perspective, the CNG option would reduce greenhouse gas and particulate emissions particularly in comparison with the diesel option. Monte Carlo simulation was used to examine the inherent riskiness of the three fleet options. CNG is always lower cost than hybrid diesel-electric. Depending on assumptions regarding the underlying price distributions, the CNG option has a 51 100% chance of being lower cost than the standard diesel option.