Clean Energy Offers Plan to Cut Nat-Gas Truck Cost

This story appears in the Oct. 21 print edition of Transport Topics.

Natural-gas supplier Clean Energy Fuels Corp. said it has reached an agreement with GE Capital to create a financing device that neutralizes the significant cost premium over diesel vehicles.

Under the deal, expected to be formally announced Oct. 21, GE Capital will finance leases and purchases of any new Class 8 truck that runs on compressed or liquefied natural gas for a creditworthy for-hire or private trucking fleet.

The program applies to all six manufacturers of heavy-duty natural-gas trucks: Freightliner, Kenworth, Mack, Navistar, Peterbilt and Volvo.

Clean Energy will subsidize the lease or purchase payments so they are equivalent to those for the same truck with a diesel engine. In return, the truck operator must agree to buy at least 75% of its natural-gas fuel from Clean Energy during the course of the lease.

“Together with GE Capital, we’re breaking down the barriers to entry that may have prevented some fleet owners from making the transition to natural gas,” said Andrew Littlefair, Clean Energy’s CEO.

“All of our products will be available for this program, and that gives fleets flexibility,” said Dan Clark, general manager of GE Capital’s transportation finance division in Irving, Texas, adding that the program probably will run for years rather than months.

Clark said the three major options will be financing toward purchase and two types of leases: fair market value and terminal rental adjustment clause agreements. The length of a lease or loan would be three to five years, he said, and more often closer to five years.

Under the program, after the fleet manager picks a truck, GE Capital, a unit of General Electric Co., writes a contract where the truck operator is entirely responsible for the vehicle payments, Clark said.

At the same time, Clean Energy makes an agreement with the fleet to subsidize the vehicle’s higher price. Clark said a natural-gas truck usually costs “in the 30% range” more than a comparable diesel truck.

ACT Research Co. has examined the natural-gas issue and company general manager Ken Vieth said a spark-ignited system can add $40,000 to $50,000 to the purchase price for a truck, while a high-pressure, direct-injection system would add even more.

Newport Beach, Calif.-based Clean Energy would subsidize the monthly payment difference of about $500 to $600 with a direct payment to GE Capital. The carrier also would get a fuel bill from Clean Energy with the price adjusted monthly, said Peter Grace, Clean Energy’s senior vice president for sales and finance.

The minimum threshold for a truck in the program would be one that drives 60,000 miles a year. A carrier would have to buy at least 75% of its fuel with Clean Energy, which has about 400 locations in the United States and Canada.

Normally the differential between a diesel-gallon equivalent of CNG or LNG and a gallon of diesel is about $1.25 to $1.50, but for fleets participating in this program that would be chopped roughly in half. The fuel savings Clean Energy keeps pays for the vehicle finance subsidy, but the fuel the carrier buys is still cheaper than diesel, Grace said.

The difference between the two lease types concerns what happens at the end.

For a fair-market-value lease, the monthly rate is higher, but there is no obligation at the end. The carrier returns the truck and walks away.

A lease with the terminal rental adjustment clause is less per month, but there is a residual cost at the end and the carrier could be obligated to meet some of that cost.

Natural-gas vehicles have been much discussed over the past two years but have made up only a small portion of sales, about 1% to 1.5% of heavy-duty North American trucks in 2012, according to some estimates. R.L. Polk & Co., for example, said 1,311 U.S. trucks with natural-gas engines were registered during the first six months. It was the first time Polk broke out the data.

But this is supposed to be a breakout year for natural gas-powered Class 8s, in large part because of the Cummins Westport ISX12 G. The new spark-ignited engine has been available in limited numbers since April and in full production since August.

Sales are expected to hit 3% market penetration this year, according to engine and equipment makers, and a Kenworth Trucks manager said during the summer he expects to sell every 12G the company can acquire this year.

ACT’s Vieth said the previous natural-gas choices were a 9-liter engine, also from Cummins Westport but insufficient for many heavy-duty applications, and a 15-liter high-pressure direct injection from Westport Innovations, which can be financially daunting for fleets.

Clean Energy’s Grace also credited the 12G as a significant development for sales of natural-gas vehicles.