1
Incentives, criteria and problems for investment in new energy technologies:
A cost-benefit analysis of hydrogen fuel cell buses in the United States
Jerry Chen
Josh Herzberg
Rishab Mittal
Kerry Zhang
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Table of Contents
I. Introduction
II. Public Transportation
III. Fuel Cell Technology
IV. Public Policy
V. Cost-Benefit Analysis
VI. Conclusion
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Abstract
Hydrogen fuel cells are a clean energy technology that can decrease greenhouse gas
emissions and tailpipe air pollution created by conventional combustion engines. As climate
change worsens and public transportation usage rises, hydrogen fuel cell buses represent an
opportunity for emissions reduction. Addressing the conditions and incentives
for implementation of alternative energy technologies, we evaluate the costs of purchasing and
introducing hydrogen fuel cell buses in a hypothetical model city in the United States. We use a
traditional discounted cash flow model to determine the net present value of introducing
hydrogen fuel cell technology. To supplement this analysis, we compare against the traditional
diesel bus model currently in widespread use. Our results indicate a negative net present value of
introducing hydrogen fuel cell buses, even when including internalization of social and
environmental costs. However, the valuation is sensitive to several large capital expenditure
costs that may be reduced with technological progress. In addition, we explore financing options,
including federal resources via grants and tax credits that can provide realistic sources of funding
for fuel cell buses. Further research can expand upon our model and analysis to evaluate the
incentives, criteria, and problems of renewable and disruptive energy technologies.
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I. Introduction
Energy Landscape
In the first weeks of December 2015, heads of state, diplomats, journalists, activists,
policy makers, experts and scientists gathered in Paris for a highly anticipated climate change
discussion. The COP21 conference highlighted the urgency of efforts to mitigate global warming
effects. Carbon emissions played a central role in the talks, with diplomats balancing economic,
political, and ideological concerns against setting more aggressive emissions standards. The talks
in Paris, in concert with those before and those that will come after, paint a picture of a planet in
dire need.
EnergyrelatedCO2emissionsandeconomicgrowth,2005-2014
The United States has reported a goal of reducing greenhouse gas (GHG) emissions by 26%
to 28% by 2025.1 Around the world, top CO2 emissions leaders have set goals at least as high as
this. As each of these countries grows in GDP and population, energy demand increases. The
1 International Energy Agency, “World Energy Outlook 2015” and “World Energy Outlook 2014”
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International Energy Agency (IEA) sets mid-range estimates of 37% growth in energy demand
by 2040. Even within their projection models where new government policies are able to create
structural economic change, CO2 emissions from the energy sector will rise by 16%. Further,
world electricity usage is expected to rise by at least 70% over the next quarter century. Thus the
need for lower GHG emission technologies is pressing. Renewable energy sources can limit the
environmental impact of energy generation and deployment of renewables headlines many
nations’ efforts and emissions targets.
20% of energy usage falls within the transportation sector with 103 billion BTUs end use
in 2011.2 Much of the energy loss in other sectors is due to transportation. Oil sustenance
estimates put supplies lasting as little as 41 years until oil runs out or prices increase such that
reliance on oil is no longer feasible.3 While coal is abundant, it remains detrimental to the fight
against higher emissions. Alternative energy sources allow us to tackle the emissions and
demand problems within the transportation sector.
2 U.S. Energy Information Administration, “Frequently Asked Questions: How much energy is consumed in the world by each sector?” 3 Michele Chandler, Stanford Business, “It’s About Forty Years Until the Oil Runs Out”
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Worldenergyconsumptionbysector(quadrillionBTUs) 2
New Energy Technologies
Certain technologies have led the way in replacing petroleum-powered cars. Leading
among the alternative fuels are biodiesel, electricity, ethanol, natural gas, propane, and hydrogen.
While each is now briefly considered, the majority of this paper focuses on hydrogen in order to
address what is, in our view, an underdeveloped niche in the literature.
Biofuels
Ethanol is domestically produced, and is touted as boon for local ethanol producing
economies. However, ethanol can have detrimental environmental impacts that outweigh any
benefits4. Corn ethanol production receives large tax credits of $.45 per gallon, increasing
ethanol market viability. However, a number of issues have arisen around ethanol production. As
droughts have developed worldwide, ethanol’s highly water intensive growth has become a
4 Katie Colaneri, “AP: Environmental Impacts of Ethanol May Outweigh the Benefits”
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problem. Even replacing just 25% of petroleum would require at least 146 gallons of water per
gallon of petroleum.5
Biodiesels are also domestically produced in the United States and can be used in
conventional diesel engines. They release harmful emissions on burning, but growing the
necessary crops to produce them offsets some of the CO2 production, thereby resulting in an
overall decrease.6 Biodiesels are made from feedstocks of cooking oil, soybean oil, and animal
fats. In 2014 about 1.7 billion gallons of advanced biofuel were produced. This is up from 25
million gallons at the beginning of the millennium and is in line with industry targets to produce
at least 10% of the 40-billion on-road diesel market by 2022.7
Electricity
Electric vehicles (EVs) dramatically reduce fuel consumption, fuel costs, and total
emissions.8 Many automotive companies are producing fully electric vehicles including Nissan’s
Leaf, Mitsubishi’s i-MiEV, Chevrolet’s Volt, Fiat’s 500e, and, perhaps most visibly, Tesla’s full
production line.9 One of the major hurdles to major electric vehicle adoption is reducing battery
costs. Efforts to reduce costs have largely been successful because of the 8.7 billion dollars
invested in research and development of electric batteries. Currently there are about 180,000 EVs
on the road, representing 0.02% of all passenger cars. The industry wants to reach 20 million
EVs on the road by 2020, which would encompass a full 2% of all passenger cars. Towards this
5 Erica Gies, New York Times, “As Ethanol Booms, Critics Warn of Environmental Effect” 6 Alternative Fuels Data Center, U.S. Department of Energy, “Biodiesel Benefits and Considerations” 7 Biodiesel.org, “Biodiesel Basics” 8 Alternative Fuels Data Center, U.S. Department of Energy, “Benefits and Considerations of Electricity as a Vehicle Fuel” 9 Green Car Reports, “Electric Car Price Guide”
8
goal, the electric vehicles initiative was developed to provide a forum for global cooperation on
EV production.10
Tesla’sFullyElectricModelS11 ElectricVehicleStockTargets12
The equipment necessary for electric vehicles also poses a significant roadblock. Despite
large increases in EV ranges, greater infrastructure is needed to allow major adoption. Charging
stations need to be installed in more residential, office, and retail areas. There are two types of
charging. Slow charging is the most common and uses an alternating current (AC) from the
vehicles battery to an external power source. AC slow charging takes 4-12 hours and is
commonly done overnight. For on-the-go scenarios, fast charging is the preferred method. Using
a direct current (DC) connected to the vehicles battery; a full charge can be accomplished in less
than 2 hours.13 Pack swaps are another intriguing charging method Tesla has pursued wherein
the entire battery pack is removed and exchanged for a new, fully charged pack in roughly three
10 International Energy Agency, “Global EV Outlook” 11 Car and Driver, “Tesla Model S” 12 American Public Transportation Association, “The Benefits of Public Transportation” 13 International Energy Agency, “Global EV Outlook”
9
minutes.14 However, Tesla has largely moved on from this idea.15 Electric vehicles will likely
play a major role in the renewables market even as world urbanization and population density
increase through passenger vehicles, public transportation, and other sustainability efforts.
Natural Gas and Propane
Natural gas vehicles can decrease GHG emissions in some cases, however limited
infrastructure availability and popularity limits their success.16 Hydraulic fracturing or ‘fracking’
is touted as the ‘shale revolution’ that can produce energy sustainability. Projections for natural
gas growth are aggressive, but are highly uncertain.17 In addition, fracking has been shown to
present its own environmental concerns.18 Propane use can also reduce GHGs, but cost-per-unit
considerations make propane considerably less viable than alternatives.19
14 Bob Sorokanich, R&T, “Tesla’s battery-swap charging program begins next week” 15 Bob Sorokanich, R&T, “Musk: Tesla Unlikely to pursue battery swapping stations” 16 Alternative Fuels Data Center, U.S. Department of Energy, “Natural Gas Benefits and Considerations” 17 Mason Inman, Nature, “Natural Gas: The Fracking Fallacy” 18 New York State Department of Environmental Conservation, “High-Volume Hydraulic Fracturing in NYS” 19 Alternative Fuels Data Center, U.S. Department of Energy, “Propane Benefits and Considerations”
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II. Public Transportation
Overview
As urbanization continues worldwide and population density increases, public
transportation will play a large role in the future of sustainable energy. Public transportation
usage can decrease GHG emissions even without the introduction of renewable energy
technology as private vehicle usage necessarily requires more driving per person than buses and
trains that can carry many people. Public transportation reduces the total mileage of travel and
can allow for more efficient land use patterns. With Americans taking over 10 billion trips on
public transportation per year, introducing renewable energy sources to this industry can have an
even larger environmentally positive impact on our carbon footprint.
Commutingbypublictransportation–CO2emissionseffect
The American Public Transportation Association reports that 19% of buses use natural
gas fuels (CNG), 9% use hybrid electric fuel, and 8% use biofuels, primarily biodiesels.
Currently Dallas, Los Angeles, San Bernardino, and State College, PA all use CNG with LA
operating the largest fleet at 2200 CNG buses. Ann Arbor, MI, Lee County, FL, Urbana, IL, and
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West Covina, CA all use fully electric or hybrid electric buses. West Covina’s Foothill Transit
operates three fully electric buses along its busiest route and charges mid-run in just ten
minutes.20 Peoria, IL, Flint, MI, and Miami, FL all use biofuel or propane buses. Other areas
where public transportation authorities have decreased their GHG emissions include rails and the
buildings that serve as transit hubs and headquarters. Ann Arbor, Boston, Lee County, Los
Angeles, and Urbana all have earned LEED status on their buildings.21
Fuel Cell Buses
Each year, the National Renewable Energy Laboratory of the United States Department
of Energy publishes a report on the status of fuel cell buses. They review the American Fuel
Cell Bus Project (AFCB), which observes the HFC bus project in Coachella Valley, CA.
SunLineAmericanFuelCellBus
Their 2015 report measures the performance of SunLine Transit Agency’s AFCB fleet
through June 2015. As more and more of these buses are adopted and rolled out, the costs of
20 Foothill Transit, “Foothill Transit’s Ecoliner: The Greenest Ride in Town” 21 American Public Transportation Association, “More than 25% of U.S. Public Transit Buses Use Alternative Fuels or Hybrid Technology”
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implementing HFC bus programs must be appropriately considered.22 SunLine has been able to
receive much of their funding in grant money and research funds, but major commercialization
will require decreases in bus costs and proper evaluations of the environmental benefits. Our
paper seeks to identify and enumerate this analysis.
22 National Renewable Energy Laboratory, “ American Fuel Cell Bus Project Evaluation: Second Report (2015)”
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III. Fuel Cell Technology
How Fuel Cells Work
This section describes the chemical and physical components of hydrogen fuel cells.
While fuel cells vary greatly in size and type, they all rely on the same underlying principles.
Most fuel cell technology today revolves around the polymer exchange membrane fuel cell
(PEMFC) model. These fuel cells are made up of three parts: the anode, the cathode and the
electrolyte. One chemical reaction occurs each in the anode and the cathode that together
generate an electrical current that can be used to carry a load. At the anode, an oxidation reaction
takes place wherein hydrogen is split into protons and electrons.
2H2 ! 4H+ + 4e-
A catalyst increases the rate of the reaction so that it occurs at a rate usable for load
bearing. Hydrogen for the cell is passed in from a hydrogen source. With aid from bipolar plates
on each side of the cell that aid in distribution; etched channels are used to maximize the surface
area of catalysis, thereby increasing the occurrence of the reaction. Gaseous oxygen is pull from
the air around the cell. At the cathode, a reduction reaction recombines the separated hydrogen
and electrons with oxygen to form water.
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4e- + 4H+ + O2 ! 2H2O + ΔH
When the electrons are separated at the anode, the remaining protons pass through a
proton exchange membrane that only allows positive ions through. This forces the electron
current through an external circuit, powering the load. The catalyst at the cathode then joins the
protons, electrons and oxygen to form water. The reaction is exothermic, producing heat. The
electron current of a single fuel cell is not very powerful, producing roughly 0.7 volts.
FuelCellStack
15
Because each individual cell cannot power a load of any use, many fuel cells are
combined to form a stack. In the Toyota Mirai, 370 cells are aligned to form each stack for a
total output of 114 kW.23 In PEMFC fuel cells, efficiency runs 50-60%. The bipolar plates help
distribute gases and collect current from both fuel cells stacked on their either side.24
Challenges
A number of challenges face the structural production of HFC technology in common use.
First is the power density. Because so many stacks are necessary to create a usable amount of
power, the stacks and supporting machinery quickly become heavy. Second, hydrogen on-board
storage is large and heavy, decreasing vehicle efficiency as the storage must be carried along
with the hydrogen. Thirdly, the reactions in fuel cells are temperature sensitive and do not react
well to extreme changes in environment, limiting their use.25
23 Toyota, “Technology File” 24 DOE Hydrogen Program H2, Department of Energy, “Hydrogen Fuel Cells” 25 U.S. Department of Energy, FuelEconomy.gov, “Fuel Cell Vehicles: Challenges”
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Production and Infrastructure
Although hydrogen is chemically abundant on Earth, most naturally occurring hydrogen
is not suitable for use in fuel cells. Hydrogen usually appears in nature as part of a compound,
such as H2O, and must be separated for industrial use.26 The current state of the production and
transport of hydrogen represents a significant challenge to the commercial viability of fuel cell
technology – to make hydrogen fuel cell technology competitive in the transportation industry,
the production, distribution, and storage of hydrogen all must be further optimized to provide the
necessary supply of hydrogen for widespread transportation use. The Department of Energy
estimates that the cost of hydrogen (untaxed, delivered, and dispensed) needs to be less than $4
per gasoline gallon equivalent (GGE) in 2007 dollars.27
Production of Hydrogen
At present, the most common method of hydrogen production in the United States is
steam reforming of natural gas (methane). This process accounts for 95% of the hydrogen used
in the US.28 The second most common method of hydrogen production is electrolysis at 4%.29
Currently, natural gas reforming and electrolysis both depend on hydrocarbon fuels and produce
undesirable outputs. The use of fossil fuels is necessary in natural gas reforming, which seeks to
separate hydrogen from a hydrocarbon and results in carbon dioxide as a byproduct of hydrogen
gas. The use of fossil fuels is not necessary in electrolysis, which splits water into hydrogen and
oxygen through an electric current; however, most electricity in the United States is currently
26 Sharaf, Omar and Orhan, Mehmet. “An Overview of Fuel Cell Technology” 27 US Department of Energy, “Hydrogen Production” (online) 28 Ibid. 29 Press et al. “Introduction to Hydrogen Technology”, 307
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derived from coal. The chemical equations below illustrate the relevance of fossil fuels in these
methods of hydrogen production.30
Natural Gas Reforming:
• Step 1: Methane-Steam reforming reaction
o 𝐶𝐻! + 𝐻!𝑂 + ℎ𝑒𝑎𝑡 𝐶𝑂 + 3𝐻!
• Step 2: Water-gas shift reaction
o 𝐶𝑂 + 𝐻!𝑂 𝐶𝑂! + 𝐻! (+𝑎 𝑠𝑚𝑎𝑙𝑙 𝑎𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 ℎ𝑒𝑎𝑡)
Electrolysis:
• Anode:
o 2𝐻!𝑂 𝑂! + 4𝐻! + 4𝑒!
• Cathode:
o 4𝐻! + 4𝑒! 2𝐻!
These processes are currently economically disadvantageous compared to the direct use of fossil
fuels because the cost-per-kWh of producing hydrogen is higher than the cost-per-kWh of using
the hydrogen. Thus, it is actually more efficient to use fossil fuels directly.31
30 US Department of Energy, “Hydrogen Production: Processes” (online) 31 Ibid.
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The diagram below illustrates the Department of Energy’s hydrogen production pathway goals:
Natural gas reforming is the most well established method of hydrogen production and is
the cheapest and most efficient method, with 70-80% efficiency. Despite this, it costs
approximately three times the cost of natural gas per unit energy produced.32 The Department of
Energy expects it to remain the dominant production method in the short term and to be
augmented by production using renewable energy sources in the long-term.33
Electrolysis’ efficiency ranges from 10-50% depending on the type of electrolysis and
costs slightly less than two times the cost of natural gas reforming for the same amount of
hydrogen produced, assuming electricity costs 5 cents per kWh.34 Researchers are currently
32 Florida Solar Energy Center at University of Central Florida. “Hydrogen Basics – Production” (online) 33 US Department of Energy, “Hydrogen Production: Processes” (online) 34 Ibid.
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optimizing the electrolysis process to use renewable energy sources such as wind, solar, hydro,
or geothermal energy instead of coal for electricity.
In the future, researchers hope that the dependence of hydrogen production on fossil fuel
usage will be weakened with the development of improvements in renewable-energy capture or
novel processes in hydrogen production methods. The most recent initiatives in hydrogen
production research include fermentation, pyrolysis of biomass waste, and splitting of water
through biological and photo-electrochemical means.35 Researchers hope that the use of
renewable energy can replace the use of fossil fuels for electricity generation for electrolysis and
research in non-fossil fuel energy sources can result in methods of hydrogen production that
minimize energy input.
Distribution of Hydrogen
In the United States, California, Louisiana, and Texas lead in production of hydrogen.
Almost all the hydrogen produced is used at or close to the site of production for industrial or
agricultural purposes such as refining petroleum, producing fertilizer, and processing foods.36 As
such, the infrastructure for distributing hydrogen across the nation for fuel cell use in vehicles
does not currently exist.
35 National Renewable Energy Laboratory. “Hydrogen and Fuel cell Research” (online) 36 Department of Energy Alternative Fuels Data Center “Hydrogen Production and Distribution” (online)
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Currently, hydrogen can be distributed through different three methods:
1. Pipeline
2. High-Pressure Tube Trailers
3. Liquefied Hydrogen Tankers
The most economical method of delivering hydrogen is through pipelines, which allow for the
transport of large volumes of gaseous hydrogen over long distances. Unfortunately, building a
new hydrogen pipeline network is expensive and the chemical properties of hydrogen, which
may cause embrittlement of the steel pipelines and welds, present a potentially large maintenance
cost. About 1,200 miles of hydrogen pipelines have been developed near chemical plants in
Illinois, California, and along the Gulf Coast.37
Using high-pressure tube trailers is currently the most economical method of delivering
gaseous hydrogen to areas within 200 miles of the site of production without pipeline access. The
hydrogen is compressed and can be moved by trucks, rail, ships, or barges. For distances greater
than 200 miles, the use of liquefied hydrogen tankers is more economical because it allows for
the delivery of more hydrogen per unit volume. Using this process, the hydrogen is cooled to -
253C, transported to the site of use, and vaporized before use. The drawback to this method is
that liquefaction of hydrogen requires a large amount of energy.38
Centralized and Distributed Production
As the United States begins to develop hydrogen distribution infrastructure, it must take
into account the cost of production and delivery together. A benefit of producing hydrogen is that
37 Ibid. 38 Ibid.
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it can be produced from a variety of sources, which allows for a distributed infrastructure where
the production of hydrogen can be done at the site of use. For example, hydrogen refueling
stations could produce their own hydrogen instead of receiving it from elsewhere. In contrast, a
centralized infrastructure would see production of hydrogen occur in specific areas and be
transported to sites of use later on. A distributed/forecourt infrastructure would have low
transportation costs and possibly high capital costs of development, while a centralized
infrastructure would have high transportation costs but low cost of production due to economies
of scale.39 In order to assess the demand for fuel cell buses, we would need to study geography-
specific demand for hydrogen.
Hydrogen Production and Transportation
One of the most important challenges for hydrogen to become a viable fuel source is cost.
Hydrogen production, distribution, and storage all need improvements to become more
economical. In order for fuel cells to be competitive, the untaxed cost of hydrogen to consumers
must be less than $4/GGE. To assess the viability of hydrogen use for fuel cell bus systems, we
must study the cost of production and delivery of hydrogen in both distributed and centralized
systems.
39 Ibid.
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IV. Public Policy
Overview
U.S. interest in hydrogen fuel cells for use in buses has rapidly grown over the last twenty
years, with the majority of the impetus coming from the desire to reduce petroleum-based fuel
consumption and emissions such as greenhouse gases.40 Many policies have since then been
passed by the federal government to reduce greenhouse gas emissions as the country aimed to
curb significant energy consumption and emission. Executive Order 13514 in October of 2009
set forth guidelines for federal agencies such as the U.S. Environmental Protection Agency (EPA)
to work with the U.S. Department of Transportation (DOT), among other agencies, to reduce
greenhouse gas emissions for trucks and buses.41
The appeal of using transit buses for efficiency energy consumption such as fuel buses is
derived from a number of core reasons. Transit buses are government subsidized, thus they come
under the oversight of the government, are professionally operated and maintained, and are used
throughout the country to provide widespread exposure to different energy technology. Most
importantly, they are centrally located and fueled for easier implementation of government clean
energy initiatives.42 Ultimately, the adoption of fuel cell buses will result in near-zero emission
buses with better fuel economies and growing faith in new energy technologies. While this is a
very favorable outcome, a few barriers to commercialization remain, namely the durability of
fuel cell power systems, the costs and infrastructure present to adopt fuel cells, and the
availability and cost to produce and store hydrogen. Nonetheless, several key initiatives have
40 FTA. “FTA Fuel Cell Bus Program: Research Accomplishments through 2011.” 41 Ibid. 42 Ibid.
23
been taken by the Federal government to implement hydrogen fuel cell buses in various cities
within the U.S.
Hydrogen Fuel Cell Bus Initiatives
The Federal Transit Administration’s (FTA) fuel cell electric bus (FCEB) research
increased dramatically with the beginning of the National Fuel Cell Bus Program (NFCBP) in
2006. The program was part of a four-year surface transportation authorization known as the
Safe, Accountable, Flexible, Efficient Transportation Equity Act for Users, or SAFETEA-LU.43
The program purchases and improves FCEBs, helps with the implementation and demonstration
of FCEBs in transit operations, modifies and improves facilities relating to FCEB operations, and
even performs detailed analysis to evaluate FCEB infrastructure improvements.44 The FTA-
funded FCEB programs fit under a much larger umbrella of federally funded electric propulsion
research for buses and railways. The ultimate objective of these initiatives is to improve systems
and components to increase energy efficiency while at the same time maintaining reliability. The
FTA coordinates with the U.S. Department of Energy (DOE) as well as the National Renewable
Energy Laboratory (NREL) to provide consistent updates on FCEB research and progress.
A large part of the success and growth of FTA-initiatives for FCEB research comes from
the funding the program has received over the years. As noted, one of the key barriers to
widespread commercialization of fuel cell buses are the large upfront costs. Funding from the
American Recovery and Reinvestment Act of 2009, Transportation Investment Generating
Economic Recovery (TIGER) grants, and Transit Investment for Greenhouse Gas and Energy
43 Ibid. 44 Ibid.
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Reduction (TIGGER) are just some of the various avenues of funding the FTA has sought out for
progress. Most notable, however, is the money that came from the passing of the SAFETEA-LU
Act in 2005. The Act authorized $49 million in capital funding as part of a competitive grant
program for up to three nonprofit organizations in various parts of the country to develop and
implement FCEB technology.45 The program uses a minimum 50% cost share clause for all
projects, meaning the federal government will only fund 50% of the cost of the project (at the
most). Given the government allocated $49 million to this initiative, the total initial size of the
program totaled close to $100 million.46 The remaining 50% cost of this program is shared
among other funding and revenue avenues, such as passenger fares and hydrogen fuel sales,
which are not necessarily unique to fuel cell buses. Initial testing and research was almost
entirely funded by the government.
Federal Government Policy Goals
The FTA and DOT worked together to recommend 14 projects for funding under the
program. The purpose was to provide a balanced portfolio for the NFCBP to use to further
commercialize FCEB. The success of the projects ensured that the NFCBP was funded for more
than its initial four years through extensions of SAFEATEA-LU for fiscal year 2010 and fiscal
year 2011. Each extension pumped an additional $13.5 million into the program, yielding close
to $76 million in Federal funding through the end of fiscal year 2011. As a result of the 50% cost
share plan, the total size of the program through FY 2011 came to more than $150 million. It is
45 Ibid. 46 Ibid.
25
important to note that all FTA-funded research for FCEBs for the NFCBP follow three core
project objectives:47
1. “Advance development of FCEBs and related infrastructure through innovation of FCEB
design, component development, improved systems integration, and real-world
demonstration”
2. “Document the state of FCEB technology development, and determine next steps for
market introduction”
3. “Enhance awareness and education about FCEBs and related infrastructure”
Case Study: CALSTART & SunLine Transit Agency
To recall, the SAFETEA-LU Act authorized Federal capital funding for up to three
geographically diverse nonprofits to implement FCEB technology in an NFCBP project. Thus,
each NFCBP project is managed through one of these three non-profit organizations. One that
will be focused on in this paper is CALSTART, a non-profit organization in California.
CALSTART represents close to 140 firms in the region, and provides consultation services to
develop clean and advanced energy technology for all types of vehicles, including, but not
limited to, buses.48 One project under CALSTART that will be discussed in this paper is the
American Fuel Cell Bus (AFCB) Project, a demonstration of fuel cell buses operating in the
Coachella Valley area of California.
The prototype of AFCB was developed under the FTA’s NFCB program. Under the non-
profit organization CALSTART, a team led by SunLine Transit Agency and BAE Systems has
47 Ibid. 48 Ibid.
26
worked hard to develop new FCEB’s for implementation and commercialization.49 SunLine is
collaborating with the U.S. Department of Energy’s National Renewable Energy Laboratory
(NREL) to determine whether the forty-foot ElDorado National bus is commercially viable
through this project. Since 2011, SunLine has received three additional American Fuel Cell
Buses (AFCBs), bringing the project having a total of four fuel cell buses in operations through
June 2015.50
To develop the project, CALSTART, a member organization focused on
commercialization of clean transportation technologies, worked with SunLine to bring a team of
manufacturers together to build a fuel cell bus. The AFCB design used in the CALSTART
project builds off of a hybrid propulsion system designed by BAE systems. The collaboration
between CALSTART, SunLine, and BAE systems enabled the development of the first AFCB in
the project. BAE System provided the hybrid propulsion system, power converters, and electric
accessories, while Ballard Power System provide the 150kW fuel system and ElDorado National
served as the final stage manufacturer. All five organizations were key to developing the
prototype AFCB delivered to SunLine in 2011. The success of the first bus, which accumulated
over 48,000 miles and over 3,000 hours of operations, led to further rounds of funding through
the NFCBP. This was just one of the many sub-projects the federal government has funded
through its NFCBP project discussed earlier.
In addition to the NFCBP program, SunLine received FTA funding through the Transit
Investments for Greenhouse Gas and Energy Reduction Program (TIGGER). Before the
49 DOE. “Business Energy Tax Investment.” 50 Ibid.
27
TIGGER grants, the integrator and transit agency took the lead role in designing and building the
FCEB, instead of the original equipment manufacturer (OEM). To fully commercialize fuel cell
bus technology, it is necessary to transition the design and building of the FCEB to the OEM.
Through the TIGGER grant, SunLine was able to transition the building process of the buses to
the OEM’s, namely BAE Systems and ElDorado. BAE Systems worked with ElDorado staff in
the CALSTART project to complete integration of the propulsion system into the fuel cell buses
as well as final building. The TIGGER grants led to the development of an ElDorado facility
capable of building a FCEB from the ground up.
Given the massive success of the OEM’s, the team at the facility has received several
orders for AFCBs for operations in other areas, showing that the ElDorado facility is capable of
becoming one of the major OEM facilities for complete hydrogen fuel bus manufacturing. Just
over the last year, the ElDorado facility has manufactured several AFCBs for varying U.S. transit
agencies.51 This facility shows the potential of OEMs to fully commercialize fuel cell buses, and
will manufacture enough buses to optimize performance in various geographies.
51 Ibid.
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Realized Benefits
Buses are uniquely positioned to take advantage of hydrogen fuel cell technology because
they provide mass transit in dense and congested areas, many of which pollution has been an
ongoing problem. The Federal Transit Administration has outlined five specific benefits of fuel
cell implementation on buses:
1. Reduce emissions
2. Increase efficiency
3. Reduce dependency on imported oil
4. Better operations for increased transit appeal
5. Create jobs
As of August 5, 2015, the National Renewable Energy Laboratory (NREL) reports that
twenty-four fuel cell buses are currently active and another twenty-two are currently in
development under the American Fuel Cell Bus (AFCB) project as part of the FTA’s National
Fuel Cell Bus Program.
The following table shows the summary statistics of a study comparing fuel cell buses
(AFCB) against compressed natural gas buses (CNG), a common alternative to gasoline for bus
fuel. Of particular interest are columns 3 and 5, which represent data from a 28-month study
comparing the two technologies. During this study, one AFCB prototype operated for the entire
28 months, while an additional three AFCBs operated for 12 months, 7 months, and 2 months.52
52 National Renewable Energy Laboratory. “American Fuel Cell Bus Project Evaluation: Second Report (2015)”
29
Reducing Emissions
The results of the NREL study illustrate the AFCBs’
ability to reduce emissions relative to conventional diesel transit
buses. We can estimate the monthly and total reductions in levels
of pollution by using data from the study and estimates from the
Environmental Protection Agency, which are presented on the
right (units are grams per mile).53 The average reduction in
emissions per month per bus is obtained by multiplying the average pollutant rate and the
average monthly mileage per bus. The total amount of emissions reduced during the 28-month
study is obtained by multiplying the average pollutant rate and the total mileage of all four buses.
These numbers are presented in the following table:
53 Environmental Protection Agency. “Average In-Use Emissions from Urban Buses and School Buses”
30
Pollutant EmissionsReducedPerMonthPerBus(grams) TotalEmissionsReduced(grams)
VOC 775.83 38022.50
THC 784.72 38458.29
CO 7504.85 367805.07
NOX 32884.84 1611652.97
PM2.5 60.91 2985.15
PM10 660.23 32357.26
Total 42671.37 2091281.24
We find that each bus reduced emissions by 42.67kg of pollutants per month relative to a
conventional diesel transit bus based on an average monthly mileage of 2,223 miles. Over the
course of the 28 months of the study, the buses reduced emissions by a total of 2091.28kg of
pollutants.
Reducing Oil Dependence
To quantify the reduction in oil usage and efficiency gains of using fuel cell technology
(net of production and distribution costs), we examine the fuel economy relative to gasoline and
diesel. Using the miles per gasoline gallon equivalent (GGE) or diesel gallon equivalent (DGE)
will allow us to compare the number of miles a fuel cell bus can run with the equivalent energy
content in hydrogen. The average fuel economy of AFCBs was 6.90 miles per DGE. Previous
31
literature estimates that the typical mileage for a diesel bus is 3.27 miles per gallon. 54 This
makes AFCBs 111% more efficient per mile than diesel buses.
Increasing Transit Appeal
AFCBs are expected to prove more appealing to customers and operators than
conventional buses due the perception of environmental friendliness and better operation. A
study conducted by Hickson, Phillips, and Morales in 2006 randomly surveyed 369 riders on a
hybrid hydrogen fuel cell bus at bus stations as it ran a regular bus route. They found that public
perception of the use of hydrogen as fuel is largely positive: 63% of the riders reported that the
use of hydrogen fuel is a “very good idea,” 29% of riders responded “good idea,” and only 2% of
riders responded that it was “neither good nor bad”. Only 6% of respondents had no opinion or
did not state it while there were no respondents who believed it to be “poor” or “very poor.” 55
To better identity the reasons behind public perception on hydrogen as a fuel, Hickson et al.
asked riders to share their thoughts on why they believed hydrogen is good or bad. The results
are presented in the following figure.
54 Lowell, Dana. “Clean Diesel versus CNG Buses: Cost, Air Quality, & Climate Impacts” 55 Allister Hickson, Al Phillips, and Gene Morales. “Public Perception Related to a Hydrogen Hybrid Internal Combustion Engine Transit Bus Demonstration and Hydrogen Fuel”
32
Overall, public response to the use of hydrogen reacted positively on its potential to
lessen emissions and benefit the environment. In contrast, the public did not have any strong nor
specific negative perceptions of hydrogen.
Riders were also asked to evaluate their ride experiences based on five metrics important
to ride satisfaction. The goal was to determine whether ride refusal rates would be high following
an introduction of hydrogen fuel cell hybrid buses. Ride refusal rates are an important concern
for transportation operators because of the high capital costs associated with purchasing a
hydrogen fuel cell bus. The results of this question are presented in the following figure, showing
the respondents’ experiences relative to their normal rides on a non-fuel cell bus:
33
Overall, riders across all age groups reported that the hydrogen fuel cell bus exceeded
their normal buses in ride comfort, acceleration, stopping, noise level, and temperature comfort.
This suggests that the introduction of new hydrogen-powered buses would not dissuade
customers from using their mass transit systems.
Creating New Jobs
The Department of Energy believes that fuel cell technology holds enormous potential for
fueling job growth in the United States. A 2014 study by the DOE predicts that the largest
potential job markets lie in stationary power generation, portable power, and transportation, with
expected revenues of $14-$31 billion in stationary power, $11 billion in portable power, and
$18-$97 billion in transportation applications per year if global markets mature over the next two
decades. The DOE predicts that this will create 180,000 new jobs by 2020 and 675,000 new jobs
by 2035, mostly for workers with engineering and science backgrounds related to product and
34
technology development. Educational and developmental initiatives are already underway, with
several universities offering fuel cell research programs sponsored by the government’s Fuel Cell
Technologies Office.56
The status of the AFCB project shows that fuel cell technology is nearing commercial
readiness. Using the Department of Energy’s Technology Readiness Level (TRL) rating system,
starting at TRL 1 (concept) and ending at TRL 9 (commercial deployment), the NREL classifies
AFCBs at TRL 7. The current goals are to verify fuel cell electric buses can meet the
DOE/FTA’s technical performance targets and identity important issues.57
56 US Department of Energy. “Careers in Fuel Cell Technologies” 57 National Renewable Energy Laboratory. “American Fuel Cell Bus Project Evaluation: Second Report (2015)”
35
V. Cost-Benefit Analysis
Overview
The overall aim of our cost-benefit analysis is to calculate the social benefit of adopting
hydrogen fuel cell buses as a mode of public transportation. To do so, we first take into account
the costs of emissions from traditional buses, which include tailpipe pollutants and carbon
dioxide. Then, we determine the various private costs associated with the development and
implementation of hydrogen fuel cell technology, based on estimates from fuel cell projects that
are either currently being implemented or have been tested in the past. Finally, forecast our
projected costs and benefits using a traditional discounted cash flow model in order to determine
the net present value of adopting hydrogen fuel cell technology.
However, a discounted cash flow analysis in this case merely assesses the feasibility of
implementing fuel cell technology, e.g. whether the benefits outweigh the costs. The model, by
itself, does not determine whether hydrogen technology is the optimal choice compared to
existing technologies. To conduct a more comprehensive analysis, we compare the value of
hydrogen fuel cell technology with the current diesel bus model used by many public
transportation systems in the United States. By comparing the two technologies, we can assess
whether the overall net benefit of fuel cell technology is greater than traditional diesel. In order
to make an apples-to-apples comparison, we will compare the overall cost of a traditional diesel
bus over the course of its effective working life to the overall cost of a hydrogen fuel cell bus. If,
despite the social benefit of emission cost savings, the cost of introducing fuel cell buses exceeds
the cost of the current diesel technology, then we may not have a strong enough case to
incentivize the adoption of the newer technology.
36
With a quantitative estimate of the financial value of our project, we can then approach
the topic of incentives for public and private entities, such as governments and corporations, to
invest in hydrogen fuel cell technology. We explore possible methods to finance and deploy
hydrogen fuel cell technology within the context of public transportation. With respect to
implementation, fuel cell technology is still a relatively unexplored area within hydrogen energy
– a few hydrogen fuel cell car models are slated to enter the market in upcoming years, and small,
regional hydrogen fuel cell bus projects are currently ongoing. Our analysis, therefore, serves as
a platform for further analysis of the incentives, criteria, and problems behind the
implementation of hydrogen as a disruptive energy technology.
Assumptions
For any valuation model, we must make a few basic assumptions regarding the scope of
our project and technology that we are analyzing. We have one overarching justification for
many of our key assumptions: we want the results of our analysis to be as generalizable as
possible, and not rely too much on contingent features specific to certain factors. See below for a
more detailed explanation.
Technology
As for the technology, we relied heavily on data collected by the National Renewable
Energy Laboratory, which has conducted evaluations of fuel cell electric buses for more than ten
years. We draw from their annual evaluations in 2014 and 2015, which analyzed multiple fuel
cell bus projects across the United States. According to the NREL, 19 fuel cell “demonstrations”,
37
or projects, were active as of August 2014, spanning cities across the United States such as San
Francisco, Birmingham, Newark, and New Haven.58
We believe this was the most reasonable assumption on the state of technology, as a
critical component of the valuation model will be the infrastructure cost to build hydrogen fuel
cell buses. By aggregating the current evaluations of fuel cell bus projects, we can get a sense of
the trajectory of the technological progress to date, and thereby gain a sense of improvements in
the near future.
Scope
We did not choose a specific, target city to introduce hydrogen fuel cell buses into. As
mentioned before, we want our results to be as generalizable as possible, and so we refrained
from choosing as single target as we would have had to account for a range of exogenous
features that were specific to the city we chose, in terms of implementation, maintenance, and
financing. However, we did choose to base a few inputs in our model off an existing
transportation system – the Chicago Transit Authority (CTA).
We believe the CTA served as a good proxy for an existing and sizable public
transportation system that serves a relatively large metropolitan area. For one, to introduce a
significant new fuel cell project, replacing existing diesel bus technology seems to be a natural
way of introducing renewable energy into the transportation system. Additionally, if it were the
case that a fuel cell project was being introduced into a new city, it would make sense to look for
58 National Renewable Energy Laboratory (NREL). “Fuel Cell Buses in U.S. Transit Fleets: Current Status 2014”. Also see appendix 1.
38
a city with a reasonable need for a public transportation system – often times an urban area.
Indeed, based on the NREL annual report, new fuel cell transit projects are scheduled for the
near future in large urban areas such as Boston, Austin, Washington DC, and Hartford.59
Within the social benefit analysis below, a few inputs will come from data drawn from
the current CTA bus system. Since much of our valuation will deal with calculations on a per bus
basis, we synthesized the CTA data to obtain data on average mileage traveled by buses each day
or each year, based on the existing CTA bus route. Specifically, we rely on an estimate of 85.67
miles traveled per day per bus, obtained from a simple average of the total bus miles traveled per
day and the total number of CTA buses. We also rely on an estimate of roughly 314 effective
operating days per year, derived from dividing the average weekday bus ridership by the average
yearly bus ridership.
CTAStatistics60
Busmilestraveledperday 159,781
NumberofCTAbuses 1865
Averagebusmilestraveledperdayperbus 85.67
Busridership(avgweekday) 957,033
Busridership(avgyear) 300,120,000
Effectiveoperatingdaysperyear 313.5942021
Averagemilesperyearperbus(eff.op.days) 26866.70
Averagemilesperbus(efflifetime,12yrs) 322400.40
59 NREL, 5. 60 See appendix 2 for data and source.
39
Social Cost-Benefit Analysis
To conduct the social benefit analysis from introducing hydrogen fuel cell buses, we
examined the emission costs of traditional diesel buses that would be replaced by the newer
technology. Our analysis involves the common pollutants emitted by vehicles. Naturally, we
include an examination of the social cost of greenhouse gases, in addition to common vehicular
air pollutants. Of greenhouse gases, we focus specifically on carbon dioxide (CO2), emitted by
vehicles through combustion of fossil fuel resources such as gasoline. The latter consists of
common tailpipe pollutants emitted by vehicles, including nitrogen oxides (NOx), sulfur oxides
(SOx), and fine particulates (PM10 and PM2.5).61
In our research, we found numerous studies discussing the financial cost of greenhouse
gas and tailpipe emissions. To obtain a reasonable estimate for our calculations, we used a study
conducted by the Victoria Transport Policy Institute (VTPI), an independent transportation
research organization. The study aimed to estimate costs of air pollution through a review of the
relevant literature, synthesizing various regional and national studies conducted prior to 2011.
Given the various direct and indirect health effects and pollution costs that could have regional
or even global impacts, there is naturally a wide range of cost estimates in the literature. For the
purposes of our study, we relied on the conclusions of the VTPI study, which provided emissions
cost estimates for specific vehicle types on a per mile basis. Specifically, we use an average of
$0.173 per mile for non-greenhouse gas pollution costs, and $0.770 per mile for greenhouse gas
pollution costs.62
61 Victoria Transport Policy Institute (VTPI). “Transportation Cost and Benefit Analysis II – Air Pollution Costs”, 2. 62 VTPI, 26. See appendix 3 for a more thorough breakdown of the emissions cost estimates.
40
Although we rely on cost estimates from a specific study, we took an additional step in
our calculations and ran a sensitivity analysis, using the study as the base case. We introduced
two cases where we added 5% of the base case emissions cost and 10% of the base case cost
respectively, and two cases where we subtracted 5% and 10% of the base case cost. This way, we
could analyze how large the variance in our social benefit calculation would be depending on
changes in our cost inputs. We obtain the following estimates for emission costs savings per year,
by using our estimates of average mileage per bus per year drawn from CTA data.
Emissioncostsperbusperyear
Emissioncostspermile Emissioncostsperyear
$0.85 $22,777.59
$0.89 $24,043.01
$0.94 $25,308.43
$0.99 $26,573.85
$1.04 $27,839.27
In addition to the VTPI study, we also examined the emissions costs of carbon dioxide
separately by reviewing additional sources in the literature. Given that greenhouse gases were the
primary driver of emission cost savings in the VTPI study, we wanted to support our
assumptions with other studies. Many of the sources we looked at provide an estimate of roughly
$40 per ton of CO2, but there also exist other studies that support a higher number.63 According
63 Stanford Report, “Estimated social cost of climate change not accurate, Stanford scientists say”
41
to the Environmental Protection Agency, the social cost of carbon amounts to $12 per metric ton
at a 5% discount rate in 2015, $40 at a 3% discount rate, or $62 at a 2.5% discount rate.64
Indeed, the VTPI study uses a default value of $35 per ton of CO2 that “[s]everal recent
studies suggest that emission control costs will remain $20-50 per tonne of CO2 for some time,
although this may increase to achieve larger emission reductions”.65 Despite the disagreement in
the literature, our research on greenhouse gas costs primarily serves as a sanity check on the
emissions cost numbers we obtained from the VTPI study. With a range for emissions costs that
is reasonably agreed upon by several sources, we can proceed with our analysis. After converting
the CO2 emissions cost from a dollars per ton figure to a dollars per mile figure, we find that our
assumptions for emissions costs overall is within a reasonable range to proceed with our
calculations.66
64 United States Environmental Protection Agency, “The Social Cost of Carbon” 65 VTPI, 24. 66 See appendix 4.
42
Together with the data from the CTA as our model public transportation system, we were
able to estimate the social benefit from emissions cost savings for a bus by multiplying the per
mile emissions cost by the miles traveled per bus in an average year. In our model, we sum up all
the yearly savings over the course of a hydrogen fuel cell bus’s useful working life. Then, we
discount the savings back to today’s dollars to obtain the net present value (NPV) of the social
benefit.
Net present value = ∑tn=0 Cash Flown/(1+r)n
In our model, the cash flows are represented by the yearly emissions cost savings, as they
serve as the primary social benefit from introducing hydrogen fuel cell buses. We discount the
cash flow of each year by a 7% discount rate in order to adjust the value of the future cash flows
back to present value. In the model, r represents the discount rate and n represents the year,
starting from year 0 and ending in year 12.
As an aside, it is important to briefly discuss our assumptions behind the chosen discount
rate and useful working life in our model, as they are two of the most critical components to the
valuation of the social benefit.
For the discount rate, we use a base case of 7%, which represents the average returns on
private sector investments from the two principal activities in the economy: ordinary business
43
and housing.67 Nevertheless, we conduct a simple sensitivity analysis to gain a bigger picture of
the possible valuation ranges for our social benefit calculation.
As for the useful working life of a hydrogen fuel cell bus, we use the ultimate target
useful life set by the NREL in their annual evaluation of existing hydrogen fuel cell bus projects.
Based on NREL estimates, we rely on an estimated useful life of 12 years per bus. While the
current technology is not able to meet this standard, the NREL annual report indicates that
technological progress has been quite rapid in recent years with regard to the useful working life
of fuel cell vehicles. In addition, the 2016 target for the bus lifetime is equivalent to the ultimate
target of 12 years and 500,000 miles. Given that any hydrogen fuel cell project will take a certain
amount of time to implement, we believe it is reasonable to take the target bus lifetime. Below
are the results of the social benefit analysis:
Emissionscostsavingsperbusovercourseofusefulworkinglifetime
Discountrate
Emissionscost
6.0% 6.5% 7.0% 7.5% 8.0%
$0.85 $190,963.74 $185,836.08 $180,915.24 $176,190.98 $171,653.68
$0.89 $201,572.84 $196,160.31 $190,966.08 $185,979.37 $181,190.00
$0.94 $212,181.94 $206,484.54 $201,016.93 $195,767.76 $190,726.31
$0.99 $222,791.03 $216,808.77 $211,067.78 $205,556.15 $200,262.63
$1.04 $233,400.13 $227,132.99 $221,118.62 $215,344.53 $209,798.94
67 From class lecture, “What to Do About the Discount Rate in Energy Policy, Including Global Warming”, by George S. Tolley
44
Using our base case for emissions costs and discount rate, we arrive at an estimated social
benefit of $201,017 per hydrogen fuel cell bus over the course of its useful working life.68 The
sensitivity analysis shows that the differences in discount rate and emissions cost assumptions do
not have a relatively significant effect on the overall valuation, which will be clear in the next
section when we address the private cost benefit analysis.
68 See appendix 5 for full calculations.
45
Private Cost-Benefit Analysis
For our private cost benefit analysis, we assess the costs of building and operating
hydrogen fuel cell buses. We again rely on NREL estimates for the costs of constructing
hydrogen fuel cell buses as well as the necessary infrastructure needed to support the buses.
Selectedcostestimatesandassumptions69
Units
Current
Status
(Range)
2016
Target
Ultimate
Target
Bus lifetime years/miles
2.5–5 /
49,296–
151,000
12/500,000 12/500,000
Bus cost $ 2,000,000 1,000,000 600,000
Power plant
cost $ N/A 450,000 200,000
Hydrogen
storage cost $ N/A 75,000 50,000
Scheduled
and
unscheduled
maintenance
cost
$/mile N/A 0.75 0.4
69 See appendix 6 for full table of cost estimates and bus specifications.
46
Naturally, the primary cost to consider is the cost of building the hydrogen fuel cell bus
itself – we conduct a sensitivity analysis of different cases due to the wide range of cost
scenarios driven by technological progress in the future. Based on the current status of fuel cell
bus projects, the average cost of a bus is $2 million. However, the 2016 target is set at $1 million
per bus, and the ultimate target is set at $600,000. As the ultimate target seems comparatively
farther away relative to the 2016 target, we set a base case of $1.5 million, as a simple average
between the current cost and 2016 target cost. Then, we set up an extreme case on either end,
with $600,000 on the lower end as the most optimistic scenario (maximum expected
technological progress), and $2 million on the higher end as the most conservative estimate (no
technological progress). In the middle, we set a target case using the $1 million figure.
Aside from the capital requirements for purchasing a bus, there is also a power plant cost
of $450,000 and a hydrogen storage cost of $75,000. As fuel cell technology moves forward, we
believe the additional costs aside from the bus itself will lessen, and so we are comfortable using
2016 target estimates for the purposes of our analysis.
As for operational costs, the combined for scheduled and unscheduled maintenance costs
are set at $0.75 per mile. To obtain a cost figure, we rely on the CTA estimate for average yearly
mileage per bus, which comes out to roughly $20,150 per year in maintenance costs per bus.
Aside from regular maintenance costs, hydrogen fuel cell buses also incur a fuel cost.
Based on the literature, the average fuel cell bus is around twice as fuel efficient as its diesel bus
counterpart in diesel equivalent terms. To make a rough estimate, we take the average fuel cost
47
per bus per year using figures from the most recent CTA budget and adjust them based on the
higher efficiency of fuel cell buses.70 While fuel costs can be heavily dependent on market
conditions and global oil supply, we believe hydrogen fuel is less sensitive to these factors due to
the fact that it is not widely used as a fuel source. In addition, the overall fuel cost per bus is
minimal relative to other costs, so even a relative large change in fuel cost due to a supply shock
or market condition would likely not have a significant impact on our valuation. Specifically, we
assume that production infrastructure is fully developed to meet market demand with centralized
hydrogen production, which would be the optimal refueling system for city buses in a large
urban environment.
There is no historical data for centralized hydrogen production because there are no large
hydrogen fuel cell bus fleets in the United States. Current hydrogen refueling stations in states
such as California dispense up to 425 kg of hydrogen per day with 30 kg of hydrogen per bus.71
While 30 kg of hydrogen will service a bus for a whole day of standard operations, max fuel
capacity is 50 kg. This would mean that current hydrogen distribution stations could service 8 to
14 buses per day, which is not enough to meet transit demand in a large urban city such as
Chicago, which operates 1,865 buses.72
Following the Department of Energy’s assumptions in their wells-to-wheels analysis, we
assume that current hydrogen distribution is done via liquefaction and cryogenic transport to
forecourt stations and future hydrogen distribution (2030) is done via pipeline transport. The
estimated price for hydrogen distribution today via truck is $2/GGE. The estimated price for
70 See appendix 7 for budget numbers. 71 California Fuel Cell Partnership. “AC Transit Emeryville Station” (online) 72 Chicago Transit Authority. “CTA Facts at a Glance” (online)
48
hydrogen distribution via pipeline in 2030 is $1/GGE. These prices (in 2005 dollars) account for
all costs associated with transport.73
In terms of revenues, we must look at external funding sources. While one may expect
the bus fares from operating the fuel cell buses to bring in a constant stream of revenue, the
inclusion of fares is unsuitable for our specific analysis.
To render an apples-to-apples comparison with the current diesel bus technology, we
would not rely on bus fare revenue to cover the capital expenditures of constructing the buses. A
quick look at the CTA budget for 2016 shows the breakdown of operating costs – the primary
expense covered by revenues from fares is labor.74 Even if we were to include bus fare revenue
in our valuation model, we would still require an external financing source to cover the current
operating costs. These other budgetary costs do not factor into our model currently because they
would hold constant for either diesel or hydrogen fuel cell vehicles. Likewise, since revenues are
unlikely to change from switching from diesel to hydrogen buses, we do not include them as a
unique revenue source in our calculations. Finally, the revenue streams would come in as a
yearly cash flow, whereas the construction costs for the bus, power plant, and storage are capital
expenditures that must be paid off immediately, for all effective purposes, before operations can
commence.
73 US Department of Energy. “DOE H2A Production Analysis” (online) 74 See appendix 7.
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Valuation
Once we have estimates for all of the inputs into our valuation model, we can forecast out
all of the cash flows for the full useful working life of the bus from year 1 to year 12, and then
discount them back to present value, as we did with the social benefit analysis. To calculate the
cash flows in this case, however, we use the following formula:
Free cash flow (FCF) = Earnings before interest, depreciation, and amortization (EBIT) * (1 – tax rate) +
Depreciation & Amortization – Capital Expenditures – Change in Net Working Capital
In applying this formula to our model, the capital expenditures represent the largest costs,
e.g. bus, power plant, storage, etc, as they are upfront costs that must be paid out before the
beginning of operations. Amortization and changes in net working capital do not factor into our
analysis, but since we assume a 12-year useful life of a hydrogen fuel cell bus, we calculate a
constant depreciation expense each year by dividing the overall cost of the bus by 12. As for the
earnings before interest and depreciation, we must account for the revenue streams and subtract
out any operating costs, e.g. maintenance and fuel. Once we have our projected free cash flows,
we discount them using the same 7% discount rate (WACC, or the weighted average cost of
capital75) as before, using the following formula:
NPV of free cash flows = ∑tn=0 FCF/(1+WACC)n
Going forward with our valuation at this point, it is immediately clear that the net present
value of introducing even one hydrogen fuel cell bus will be negative – it would not a
75 WACC serves the same purpose as the discount rate r used in the social benefit analysis.
50
worthwhile investment for any investor even after internalizing the social benefit from emissions
cost savings. Without any unique revenue streams for hydrogen fuel cell buses, there are no
private benefits to offset the initial capital expenditure costs that any private or public investor
would incur. However, as with many of the existing and planned hydrogen fuel cell bus projects,
we proceed by assessing various financing options that can represent a source of revenue for our
model. With potential federal funding sources from grants or tax credits, we can then reassess the
overall valuation of a hydrogen fuel cell project.
Investment Tax Credit
One major source of cost decreases for fuel cell systems are tax credits that allow
companies and transit agencies purchasing and producing fuel cell technologies to pay less in
taxes when they spend on renewable energies. Currently the major tax reduction that hydrogen
fuel cell investment can receive falls under the federal business energy investment tax credit.
H.R. 1424, the Energy Improvement and Extension Act of 2008 increased the established tax
credits for fuel cells first available under 26 USC § 48. These were extended by the American
Recovery and Reinvestment Act. The tax credit allows for Solar, Wind Turbine, Geothermal,
Microturbine, Combined Heat and Power, and HFC tax reductions.
For fuel cells, energy.gov reports “[t]he credit is equal to 30% of expenditures, with no
maximum credit. However, the credit for fuel cells is capped at $1,500 per 0.5 kilowatt (kW) of
capacity. Eligible property includes fuel cells with a minimum capacity of 0.5 kW that have an
electricity-only generation efficiency of 30% or higher. (Note that the credit for property placed
51
in service before October 4, 2008, is capped at $500 per 0.5 kW).76 It is important to note that the
tax credit must be used for investments where the taxpayer will use the equipment and that the
property must be in use in the year of the credit. This credit will allow business and transit
authorities to invest in fuel cell technologies and fuel cell equipment, such as buses, at a 30%
reduction in expenditures. As start-up costs for HFC technologies are significantly high and pose
much of the barrier to widespread adoption, accessing these tax credits will help close the gap
between the benefits that arise from HFC adoption and the costs associated with purchasing them.
It is interesting that the amount of the ITC available currently is calculated in two
different ways: “30% for qualified fuel cell property or $3,000/kW of the fuel cell nameplate
capacity (i.e., expected system output), whichever is less”.77 The tax credit is likely designed in
this way to ensure that no single fuel cell project receives a disproportionately large amount of
funding based on the specific characteristics of the fuel cell. While no tax credits have been
extended towards fuel cell bus projects78, we believe that an expansion would be a reasonable
approach in incentivizing further investment in fuel cell projects within the realm of public
transportation. Specifically, the $96 million total pool of federal funding available79 was set to be
allocated to up to 1,000 fuel cell projects – with an average grant size of $96,000, expanding the
tax credit to fund even a few public transportation projects would not put a huge drain on
funding relative to other fuel cell projects. For our purposes, we treat a potential tax credit as a
source of revenue, assuming we would be able to use the funding to cover the remaining
operating and manufacturing costs.
76 Energy.gov, “Business Energy Investment Tax Credit” 77 Office of Energy Efficiency & Renewable Energy, “Financial Incentives for Hydrogen and Fuel Cell Projects” 78 Office of Energy Efficiency & Renewable Energy, “Recovery Act Projects for Fuel Cell Market Transformation” 79 Ibid.
52
The average fuel cell capacity of a hydrogen fuel cell bus is 150 kW, which obtains a tax
credit of $450,000 per bus.80 However, depending on our assumptions for the overall cost of the
bus, the ITC may fund less than the fixed $450,000 if the first calculation method is used (30%
of the overall bus cost). For example, in the more optimistic cases where the cost of a bus is
under $1.5 million, 30% of the fuel cell expenditure would come out to be less than $450,000;
the ITC funds whichever calculation is less. As a result, we obtain different revenue amounts
depending on which case we use for the bus cost:
HypotheticalITCFunding
ITC TechnologyCase 1 2 3 4 5
Funding
Case Costofbus $600,000 $1,000,000 $1,500,000 $1,750,000 $2,000,000
1
ITCFunding(30%of
total) $180,000 $300,000 $450,000 $525,000 $600,000
2
ITCFunding
($3000/kW) $450,000 $450,000 $450,000 $450,000 $450,000
Going forward with these figures, we then run our full discounted cash flow model using
the ITC funding as a source of revenue. Below is the result for the most optimistic case with
maximum expected technological advancement, in which the bus cost is $600,00081:
80 See chart with cost estimates at beginning of private cost benefit analysis. 81 See appendix 8 for valuations for other cases.
53
Discountedcashflowforthemostoptimistictechnologicalcase($600,000/bus)
After including the social benefit of emissions cost savings and the funding provided by
an investment tax credit, the net present value of the discounted cash flow still comes out to be
negative in the most optimistic case. However, even with a net present value of -$42,260, the
valuation is still relatively sensitive to changes in the capital expenditure costs – aside from the
cost of the bus, slight technological improvements may be able to drive down the costs of power
plants and hydrogen storage. Even reducing the power plant cost from $450,000 to $400,000
would raise the net present value of the bus to positive territory at $7,740 per bus.
Operational Revenues
Our research of current public policy regarding hydrogen fuel cell buses can also shed
some light on additional financing options. The SunLine project in California can be used as a
model for how other projects in various geographies make use of different funding opportunities
to fund hydrogen fuel bus projects. Almost 50% of revenue for the SunLine project comes from
54
Local Transportation Funds, which is a California program which is calculated from $0.25 cents
from the state general sales tax revenues.82
This is important to note because the majority of SunLine’s operations are funded by a
program that is independent of the type of buses SunLine operates (fuel cell or CNG). The
National Renewable Energy Laboratory (NREL) is the primary department in the government
that is responsible for the national commercialization of hydrogen fuel cell buses. There are three
main phases to ensure commercialization of fuel cell buses:83
1. Operational field testing
2. Full-scale operational demonstration and fleet ready reliability testing
82 See appendix 9 for a breakdown of the revenue summary. 83 Hydrogen Cars Now. “Hydrogen Bus Fleet Expanding in North America.”
55
3. Limited production and full operation
Additionally, there are three main groups driving this initiative: the Federal Transit
Administration (FTA) National Fuel Cell Bus Program, Zero Emission Bay Area (ZEBA) Group
Demonstration and BC Transit Fuel Cell Bus Demonstration. The FTA initiative is definitely the
most impactful of all the three groups, and has been instrumental, and will continue to be
instrumental, in developing this program.84 The American Reinvestment and Recovery Act of
2009 laid much of the groundwork for funding of projects like the SunLine one in California. For
FCEBs to be fully commercialized, the fuel cell hybrid propulsion system needs to be offered by
a bus OEM (ElDorado facility), as opposed to what currently exists for projects where the hybrid
system integrator (BAE Systems) has the lead role in developing and building the bus.85
For example, in the SunLine project, the bus glider was being shipped to BAE Systems
for integration of the propulsion system. BAE Systems worked with ElDorado to complete this
installation process. Instead of this process, it would be more efficient for the bus to be entirely
built in an OEM, or in this case the ElDorado factory that was subsequently built with support
from BAE Systems. Due to the FTA’s TIGGER grant program, BAE Systems, Ballard, and
ElDorado National were able to construct the ElDorado factory to deliver two AFCBs for
SunLine. As mentioned before, this factory has become a major hydrogen fuel cell bus OEM for
not just SunLine buses, but various other transit agencies in need of fuel cell buses. These buses
are now being built in a standard production line with other conventional buses, making it more
84 Ibid. 85 NREL. “Fuel Cell Buses in U.S. Transit Fleets: Current Status 2014”
56
cost-effective to produce fuel cell buses.86 This represents a major advancement in the push for
full commercialization of hydrogen fuel cell buses.
With regards to funding, we recommend targeting the government’s Transit Investments
for Greenhouse Gas and Energy Reduction (TIGGER) program. TIGGER was founded through
the FTA in 2009, and was appropriated over $100 million through the Recovery Act. Hydrogen
fuel cell buses fulfill both objectives of the grant program, which specifically are to reduce the
government’s reliance on energy consumption as well as reduce greenhouse gas emissions.87 In
2010 and 2011, the government was able to appropriate additional $75 million and $50 million
funding respectively. In the upcoming fiscal year 2016, there is a $320 million Accelerated
Project Delivery and Development program88, a new category of funding aimed to move
accelerated projects in the pipeline forward if they are ready for construction grants. Under this
program, at least $75 million of these funds will be reserved for small urban and rural
communities to implement new bus services with premium features. This initiative can either be
used to accelerate existing projects through the construction of hydrogen bus OEM’s in places
such as Connecticut and Texas, or even help develop an entirely new bus line in a rural area
consisting of purely hydrogen fuel cell buses.
The success of the ElDorado factory OEM demonstrates the viability of targeting various
federal grant programs as a method of developing other OEMs to help surmount the barrier of
commercialization for hydrogen fuel cell buses. Developing a network of fuel cell bus OEM’s
will help reduce the cost of fuel cell bus commercialization as well as help facilitate the
86 Ibid 87 FTA. “TIGGER Program Overview” 88 FTA. “U.S. Transportation Secretary Foxx Recommends $3.2 Billion to Expand Transit Options that Improve Access to Jobs and Opportunities”
57
commercialization process.89 Many existing bus OEM locations have shown large degrees of
success through hydrogen fuel cell bus projects. These locations include, but are not limited to,
Connecticut, Texas, California, and New York.90
89 Ibid 90 NREL. “Hydrogen Fuel Cell Bus Evaluations”
58
VI. Conclusion
In this paper, we set out to explore the incentives and problems behind investments in
hydrogen fuel cell technology within the public transportation space. After evaluating the
potential social and private costs and benefits, we find that the current fuel cell technologies are
still too cost prohibitive to incentivize investment. However, given that our valuation relies on
numerous assumptions regarding the current state of fuel cell technology, it is likely that costs
will decrease with time. We hope that further research and development of fuel cell technology
will be able to reduce the startup costs of introducing fuel cell buses. With proper funding, the
social benefit of introducing a cleaner energy source should be able to incentivize the launch fuel
cell projects. Nevertheless, our research reveals the viability of numerous available financing
sources that can aid in funding hydrogen fuel cell bus projects. The federal government can play
a role by expanding existing financing sources for clean energy investment, which will grow
with importance as new fuel cell bus projects are launched throughout the country.
59
Appendix 1: NREL Fuel Cell Projects, Current and Future91
ExistingFuelCellProjects
Bus Operator Location Total Buses Active Buses
Technology Description
ZEBA (led by AC Transit)
San Francisco Bay Area, CA
13 12 Van Hool bus and hybrid
system integration, US Hybrid fuel cell
SunLine Transit Agency, AT FCEB Thousand Palms, CA 1 1
New Flyer bus with Bluways hybrid system and Ballard fuel cell
SunLine Transit Agency, AFCB Thousand Palms, CA 1
1 ElDorado/BAE Systems/Ballard next- generation advanced design to meet ‘Buy America’ requirements
SunLine Transit Agency, AFCB TIGGER
Thousand Palms, CA 2 1
ElDorado/BAE Systems/Ballard updated AFCB design
BC Transit, FCEB Whistler, BC, Canada 20
0 New Flyer bus with Bluways hybrid system and Ballard fuel cell
Birmingham FCEB Birmingham, AL 1 1
EVAmerica bus with Embedded Power hybrid system and Ballard fuel cell
91 NREL, 3, 5.
60
Flint MTA Flint, MI 1 0 Van Hool bus and hybrid
system integration, US Hybrid fuel cell
University of Delaware (Phase 1 and 2) Newark, DE 2 2
Ebus battery dominant plug-in hybrid using Ballard fuel cells (22-ft)
Greater New Haven Transit District New Haven, CT
1 1
Ebus battery dominant plug-in hybrid using Ballard fuel cells (22-ft)
Total 42 19
ScheduledFuelCellProjects
Project Location Total Buses
Technology Description
Massachusetts FCEB Demo (NAVC) Boston, MA 1 ElDorado/BAE
Systems/Ballard next- generation AFCB
Advanced Composite FCEB (CTE) Austin, TX; Washington, DC
1
Proterra composite body with a next- generation battery dominant hybrid system and a Hydrogenics fuel cell
Advanced Generation FCEB (CALSTART) Hartford, CT 1
New Flyer bus with next-generation fuel cell and BAE Systems hybrid propulsion
61
Next-Generation Compound Bus (CALSTART)
San Francisco, CA
1
BAE Systems diesel hybrid bus with fuel cell auxiliary power unit for auxiliary loads (next-generation system to the original Compound bus)
AFCB (CALSTART) Canton, OH 2 ElDorado/BAE
Systems/Ballard next- generation AFCB
Battery Dominant FCEB (CALSTART) Palm Springs, CA 1
ElDorado bus with a battery dominant fuel cell system from BAE Systems and a Hydrogenics fuel cell
Central New York Fuel Cell Transportation Program (CTE) Ithaca, NY 1
ElDorado/BAE Systems/Ballard next- generation AFCB
62
Appendix 2: CTA Statistics92
Ridership
AverageWeekday(2013)Bus 957,033
Rail 726,459Totalsystem 1.68million
Annual(2013)Bus 300.12million
Rail 229.12millionTotalsystem 529.23million
RouteStatisticsBusroutemiles 1,354
Busmilestraveledperday 159,781Railtrackmiles 224.1Railmilestraveledperday 214,625Milesofelevatedstructure 35.8Milesof'L'atgradelevel 35Milesof'L'embankment,etc. 20.6Milesofsubway 11.4Clearancerangeof'L'structureintheLoop 13'3"-19'4"
Numberof...Buses 1,865
Busroutes 128Busstops 11,104Railcars 1,356Raillines 8Railstations 145Employeepositions 9,661
92 Chicago Transit Authority, “Facts at a Glance”
63
Appendix 3: Air Pollution Cost Estimates93
Table 5.10.7-1 Estimate Non-GHG Air Pollution Costs (2007 US Dollars per VMT)
Vehicle Class
Urban Peak
Urban Off-Peak Rural Average
Average Car 0.062 0.052 0.004 0.04
Compact Car 0.051 0.042 0.003 0.031
Electric Vehicles 0.016 0.013 0.001 0.01
Van/Light Truck 0.112 0.094 0.007 0.071
Rideshare Passenger 0.002 0.002 0 0.001
Diesel Bus 0.185 0.16 0.013 0.129
Electric Bus/Trolley 0.078 0.065 0.005 0.05
Motorcycle 0.106 0.086 0.006 0.061
93 VTPI, 26.
64
Table 5.10.7-3 Estimate Greenhouse Gas Damage Costs (2007 USD per VMT)
Vehicle Class
Urban Peak
Urban Off-Peak Rural Average
Average Car 0.161 0.147 0.132 0.147
Compact Car 0.121 0.11 0.099 0.11
Electric Vehicles 0.04 0.037 0.033 0.037
Van/Light Truck 0.222 0.202 0.181 0.202
Rideshare Passenger 0.004 0.004 0.004 0.004
Diesel Bus 0.806 0.733 0.66 0.733
Electric Bus/Trolley 0.269 0.244 0.22 0.244
Motorcycle 0.081 0.073 0.066 0.073
65
Appendix 4: Carbon Dioxide Emissions Costs94
Unit conversions
CO2/km(g) 1034.611322kilometertomile(km/mi) 0.621371gramtoton(g/ton) 907185gCO2/mi 642.8774718tonCO2/mi 0.000708651
Cost estimates95
$tonCO2/mi $40 $60 $80 $100 $220$CO2/mi $0.028 $0.043 $0.057 $0.071 $0.156
94 Greenhouse Gas (GHG) Protocol, “Calculating CO2 Emissions from Mobile Sources”, 9. 95 These figures are reasonably close to the estimates obtained from the VTPI source.
66
Appendix 5: Emissions cost calculations
Socialbenefitanalysisofemissionscosts
67
Appendix 6: NREL Bus Statistics96
Table ES-1. Summary of FCEB Performance Compared to DOE/FTA Targets
Units Current Statusa
(Range)
2016 1
Target Ultimate Target1
Bus lifetime years/miles 2.5–5 / b
49,296–151,000
12/500,000 12/500,000
Power plant lifetimec hours 5,557–
17,211b,d,e 18,000 25,000
Bus availability % 45–72 85 90
Fuel fillsf per day 1 1 (<10 min) 1 (<10 min)
Bus costg $ 2,000,000 1,000,000 600,000
Power plant costc,g $ N/Ah 450,000 200,000
Hydrogen storage cost $ N/Ah 75,000 50,000
Roadcall frequency (bus/fuel cell system)
miles between roadcalls
1,408–6,363 / 10,406–37,471
3,500/ 15,000
4,000/ 20,000
Operation time
hours per day/days per week
7–19 / 5–7 20/7 20/7
Scheduled and unscheduled i
maintenance cost
$/mile N/Aj 0.75 0.4
Range miles 145–294k 300 300
Fuel economy
miles per gallon diesel equivalent
4.32–7.26 8 8
96 NREL, vi.
68
Appendix 7: CTA Budget Analysis97
Fuelcostanalysis
2014A 2015B 2015E 2016PTotalbusfuelcost($/year) $59,476,000 $73,331,000 $83,025,000 $82,534,000NumberofCTAbuses 1,865 Averagefuelcostperbusperyear($/bus/year) $31,890.62 $39,319.57 $44,517.43 $38,575.87Estimatedfuelcellefficiencyoverdieselequivalent 2x Estimatedaveragefuelcostperbusperyear($/bus/year) $15,945.31 $19,659.79 $22,258.71 $19,287.94
97 Chicago Transit Authority, “President’s 2016 Budget Recommendations”, 48.
69
Appendix 8: Discounted cash flow analysis
Averagecase($1.5millionperbus)
Targetcase($1millionperbus)
70
Optimisticcase($600kperbus)
71
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