A national laboratory of the U.S. Department of Energy Office of Energy Efficiency & Renewable Energy National Renewable Energy Laboratory Innovation for Our Energy Future Lessons Learned from the Technical Report NREL/TP-560-40753 Alternative Fuels Experience August 2007 and How They Apply to the Development of a Hydrogen- Fueled Transportation System M. Melendez, K. Theis, and C. Johnson NREL is operated by Midwest Research Institute ● Battelle Contract No. DE-AC36-99-GO10337 Lessons Learned from the Technical Report NREL/TP-560-40753 Alternative Fuels Experience August 2007 and How They Apply to the Development of a Hydrogen- Fueled Transportation System M. Melendez, K. Theis, and C. Johnson Prepared under Task No. H270.2300 National Renewable Energy Laboratory 1617 Cole Boulevard, Golden, Colorado 80401-3393 303-275-3000 • www.nrel.gov Operated for the U.S. Department of Energy Office of Energy Efficiency and Renewable Energy by Midwest Research Institute • Battelle Contract No. DE-AC36-99-GO10337 NOTICE This report was prepared as an account of work sponsored by an agency of the United States government. Neither the United States government nor any agency thereof, nor any of their employees, makes any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of any information, apparatus, product, or process disclosed, or represents that its use would not infringe privately owned rights. 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Box 62 Oak Ridge, TN 37831-0062 phone: 865.576.8401 fax: 865.576.5728 email: mailto:[email protected] Available for sale to the public, in paper, from: U.S. Department of Commerce National Technical Information Service 5285 Port Royal Road Springfield, VA 22161 phone: 800.553.6847 fax: 703.605.6900 email: [email protected] online ordering: http://www.ntis.gov/ordering.htm Printed on paper containing at least 50% wastepaper, including 20% postconsumer waste Background A simple chemical reaction between hydrogen and oxygen generates energy, which can be used to power a car producing only water, not exhaust fumes. With a new national commitment, our scientists and engineers will overcome obstacles to taking these cars from laboratory to showroom so that the first car driven by a child born today could be powered by hydrogen, and pollution free. Join me in this important innovation to make our air significantly cleaner, and our country much less dependent on foreign sources of energy. – President George W. Bush, State of the Union Address, January 28, 2003 On January 13, 2006, the National Academy of Sciences released its recommendations on how best to develop the hydrogen future outlined by President George W. Bush in his 2002 Hydrogen Fuel Initiative and in his January 2003 State of the Union Address. The National Academy of Sciences’ recommendations included direction to the U.S. Department of Energy (DOE) to sponsor an independent study of lessons learned in the efforts to deploy alternative transportation fuels and alternative fuel vehicles (AFVs) into the U.S. market. Specifically, the National Academy of Sciences directed DOE to research what it considered the lack of success and widespread market acceptance of previous alternative fuel technologies. The study would allow stakeholders in the development of a hydrogen future to: • Assess the role of government policy and its stability as it affects industry and consumer behaviors • Optimize strategies related to the introduction of hydrogen in the end-use sectors • Avoid repeating mistakes of previous transportation technology introduction programs. In response to the National Academy of Sciences’ recommendations, DOE’s Office of Energy Efficiency and Renewable Energy (EERE) sponsored a broad two-phased study of 1) the success/failure of alternative-fuel vehicle programs and corresponding legislative policies, and 2) how well alternative fuels and vehicles met customer requirements and achieved economic viability. This report, Lessons Learned from the Alternative Fuels Experience and How They Apply to the Development of a Hydrogen-Fueled Transportation System, describes the results of the study and uses them to provide policy recommendations. Research Methodology Since 1994, the National Renewable Energy Laboratory (NREL) has worked on behalf of EERE to develop and evaluate advanced transportation technologies including alternative fuels and alternative fuel vehicles (AFVs). This work has been supported by activities within EERE’s FreedomCAR and Vehicle Technologies Program. NREL’s work with 1 alternative fuels activities such as Clean Cities, the Alternative Fuels Data Center, and the Advanced Vehicle Testing Activity, has resulted in extensive knowledge of the implementation of alternative fuels. In addition, NREL supports the DOE Hydrogen, Fuel Cells & Infrastructure Technologies Program to develop viable hydrogen fuel cells and hydrogen fueling infrastructure. These combined bodies of work provided a solid foundation from which NREL researched the alternative fuels experience and recommended strategies for integrating hydrogen fuel cell vehicles into the U.S. transportation infrastructure. Resources that NREL used in this project include several recently produced documents evaluating the deployment of AFVs and the development of a hydrogen infrastructure. Those documents are listed in the References. NREL also tapped expert experience through a meeting of program and industry experts on July 20, 2006. Meeting attendees are listed in the Appendix. In addition, several industry experts, technology experts, and Clean Cities stakeholders provided input outside of the meeting. We (NREL) have broken our contributors down into key stakeholder categories. These categories are: • Policy makers • Fuel producers and providers • Fuel station owners • Vehicle manufacturers and dealers • Fleet decision makers • Consumers. We divided our study to capture the successes attained and challenges faced by each of these stakeholder groups as they attempted to integrate alternative transportation fuels and AFVs into the U.S. transportation market. Each of these stakeholders plays a critical role individually, but is just one piece of the community necessary to implement the sea change that an entirely new transportation system requires. All the stakeholders are needed, so all must benefit from the change. Coordination among these groups is key because a transportation system cannot stand without the support of those creating infrastructure and manufacturing, purchasing, and driving vehicles. 2 Policy Makers Regulations and Laws Policy makers in state, local, and federal government have enacted a variety of regulations and laws to encourage the use of alternative fuels and advanced technology vehicles. According to DOE’s Alternative Fuels Data Center, as of November 2006, there were 283 laws and regulations on the books with state and the federal governments that are designed to advance reduced-petroleum alternatives in transportation [1]. The Alternative Fuels Data Center considers regulations and laws that may impact the deployment of alternative fuels, AFVs, and advanced transportation technologies to include: • Acquisition requirements • Fuel taxes • Idling restrictions • Registration requirements • Fuel production standards • Vehicle driving restrictions • Energy-based economic development plans • Vehicle emissions inspections • Renewable fuel standards • Renewable fuel mandates • Fuel use requirements. Many of these regulations and laws were seen as effective by attendees of the July 2006 Lessons Learned Meeting. For example, Energy Policy Act (EPAct) state and fuel provider rules had a positive impact in some states. “EPAct worked well for the state of New York. Adequate enforcement would cause it to be taken seriously in other states as well. EPAct done well, worked well; EPAct done wrong, didn’t work.” – Steve Ellis, Honda Regulations mandating the use of ethanol and biodiesel in some markets and for some state fleets were considered effective and allowed the fuels to overcome a price disadvantage. For example, the success of E85 in Minnesota (which has more than 300 E85 stations) is due in part to that state’s aggressive policy toward E10. More is possible. “Half of Minnesota’s “20% renewable” content mandate could be filled by E85. The 3 billion gallon market projected for 2010 would require 60% of all outlets or roughly 1,800 stations selling an average of 14,000 gallons/month.” – Tim Gerlach, American Lung Association of the Upper Midwest 3 Other regulations and laws were seen as less effective, often due to a mismatch between alternative fuel vehicle availability and the type of vehicle needed for a particular function, as well as budget constraints. The DOE’s EPAct federal fleets program is one example and, according to meeting attendees, may be having limited success because government fleets are very budget driven. Additionally, the government procurement process—its complexity and the time required—has also limited the number of AFVs that have been purchased to fulfill government mandates. Furthermore, there is also a mismatch between the mandates and the availability of alternative fuels, infrastructure, and vehicles. Incentives Incentive programs were generally seen as being more successful than mandates in increasing the number of alternative fuel and hybrid electric vehicles purchased. The Alternative Fuels Data Center lists 345 state and federal incentives that have been implemented to increase AFVs and advanced transportation technologies. Incentive programs include: • Grants • Tax incentives • Loans and leases • Rebates • High-occupancy vehicle lane access • Exemptions from requirements and restrictions • Fuel discounts • Technical assistance. Of those, the hybrid electric vehicle tax credit is well used, according to meeting attendees, although there is some question as to whether the tax incentive is influential or if these drivers are already committed to making a “green” purchase. Other incentives, such as high-occupancy vehicle lane access, may also account for some of the popularity of hybrid electric vehicles. Among loan and lease programs, many meeting attendees consider the California Air Resources Board’s zero emissions vehicle program a success because of its broad approach. The program ran from 1998 – 2000 and under its specifications the board established memoranda of agreement with original equipment manufacturers (OEMs) who were producing zero emission vehicles. The OEMs placed more than 1,300 vehicles with fleets and consumers. The California Air Resources Board provided the manufacturers with entrée to fleets, assistance with infrastructure development, and an emergency respondents training program. It also offered consumer incentives including buy-downs for up to $5,000/vehicle and assistance with the installation costs of home rechargers... 4 Grant programs are popular for covering incremental vehicle and infrastructure costs in a fleet environment. A measure of their success is the amount of cost sharing provided by project partners. For example, in 2006 Clean Cities provided $8.6 million for 16 projects covering three topic areas—E85 infrastructure, incremental costs for AFVs, and idle reduction training and awareness for school districts. Project partners invested another $16 million in the projects. Not all incentive programs met with success, according to meeting attendees. There was criticism that consumer and fleet incentive programs don’t change the market price of vehicles, but only offset the OEM’s costs. High-occupancy vehicle lane access for AFVs was criticized as an incentive because the more numerous and convenient hybrid electric vehicles often had this same access. Overall, inconsistent public policy is seen as a fundamental barrier to the acceptance of alternative transportation fuels [2]. A disjointed and random collection of mandates and incentives, along with shifting priorities and short incentive terms, have led to confusion and the dilution of resources. Focusing resources on one alternative fuel, its vehicles and infrastructure, may be a more effective approach. Or, at a minimum, it’s critical to not shift from fuel to fuel, but to maintain support for the same fuels and technologies over time. “Consistent policy and economics are the only two factors that matter…DOE, DOT, and EPA need to coordinate.” – Bob Myers, Propane Education and Research Council Fuel Producers and Providers Success for alternative fuel producers and providers is measured by net profits at the pump. Both volume and pricing are important. Sales at alternative refueling stations are greatly impacted by cost and how that cost compares to that of conventional fuels. In 2006, when the cost of petroleum-based fuels surpassed the cost of ethanol and biodiesel in some areas of the country, alternative fuel sales greatly increased. According to NREL senior scientist Robert McCormick, biodiesel sales grew more than 100% in 2005 and nearly that in 2006, and it’s a market worth pursuing. “It’s a 60 billion gallon diesel market, and some producers are now [July 2006] selling B20 for less than petroleum diesel.” – Robert McCormick, NREL Despite some success in sales volume when pricing was optimum, alternative fuel producers and providers still face barriers. Competition against the economies of scale available to conventional fuels was seen as a key barrier to the use of alternative fuels [2]. It was suggested at the Lessons Learned Meeting that if the producers and providers of different alternative fuels worked together, they could enjoy some of those same economies of scale. Different fuel delivery systems also impacted the market. Diesel, for example, is transported by pipeline, but biodiesel is transported by rail—an option that is 10-20 times more expensive, according to meeting attendees. 5 There have been isolated cases in which the biofuels industry has not been able to keep up with demand for ethanol and biodiesel in all areas of the country. These shortages and corresponding business opportunities have resulted in an increase in the number of biodiesel and ethanol plants under construction. The National Biodiesel Board reported in September 2006 that 65 biodiesel plants were under construction and 13 plants were being expanded at that time. That represents another 1.4 billion gallons per year in biodiesel production capacity [3]. And the Renewable Fuels Association’s Ethanol Industry Outlook reported that ethanol production increased by more than 20% in 2006. In addition to the 106 refineries nationwide that have a capacity to produce more than 5 billion gallons annually, there are 48 ethanol refineries and seven expansions under construction with a combined annual capacity of more than 3.5 billion gallons of ethanol [4]. These supply and demand corrections are a common pattern in emerging industries. “New industries tend to go through periods of rapid growth followed by correction where those businesses that are well-managed survive and those that are uncompetitive will fail. We don’t expect that biodiesel will be any different. It will not be long before the rapid expansion of the biodiesel industry produces a shortage of feedstocks causing price increases that will challenge the profitability of biodiesel production.” – J. Van Gerpen et al., Building a Successful Biodiesel Business, Second Edition [3] Fuel quality was another issue discussed at the July 2006 Lessons Learned Meeting. Attendees agreed that fuel quality and high standards are necessary to win and keep consumers. B20 has recently faced quality issues. An NREL study sponsored by DOE and the National Biodiesel Board found that half of the B20 samples they tested between November 2005 and July 2006 did not meet current standard ASTM D-6751. The most serious concern was that about one-third of the samples failed to meet specifications for total glycerin. Total glycerin levels above the specification can cause operational problems in cold weather by clogging fuel filters. Additionally, some of the fuel samples failed sodium level and flash-point specification tests. “The government needs to set quality standards for fuels. This is especially important for hydrogen because fuel cells can be completely ruined by contaminants.” – Richard Parish, WestStart-CALSTART Some Lessons Learned Meeting attendees suggested that emissions problems could be better solved during fuel production than with vehicle-based emissions remedies. Emissions have become less of an issue in the alternative fuels discussion, because new conventional vehicles are running so clean that alternative fuels do not significantly reduce regulated pollutant emissions. There are, however, substantial reductions in greenhouse gases when alternative fuels are used. Fuel producers and providers are marketing alternative fuels for both their emissions reductions and their contribution to the nation’s energy security. The impact this promotion has had on sales is unknown. 6 Fuel Station Owners Midwestern refueling stations that offer E85 were the big winners in 2006. According to Tim Gerlach, coordinator of the Minnesota Clean Cities Coalition and a vice president of the American Lung Association of the Upper Midwest, 2006 E85 sales in Minnesota increased 125% over sales in 2005 and 600% over sales in 2004. Today, more than 300 Minnesota refueling stations offer E85. Some stations (those in which mid-grade and premium sales were dropping and the stations had no franchise restrictions), replaced their mid-grade gasoline pumps with E85 at a relatively low conversion expense. In addition, a few retailers have begun installing E85 equipment with little or no financial assistance. However, retailers still face a lower return on investment with E85 compared to overall gasoline sales and many must seek grant assistance and other incentives. The success of E85 in Minnesota is partially attributable to gasoline price spikes. At one point in the summer of 2006, E85 was averaging $0.43/gallon less than gasoline in Minnesota. Furthermore, infrastructure investment is minimized by the fact that the equipment required is very similar to that required for gasoline. The most significant barrier to AFV integration, according to current literature, NREL engineers, and Clean Cities coordinators, is the availability of alternative refueling infrastructure for drivers [2]. As of November 2006, there were 737 compressed natural gas (CNG) stations and 1,167 E85 stations in the United States [1]. (See Figure 1 for a breakdown of fuel offerings from 1998 – 2006.) Comparatively, there were more than 167,000 gasoline stations [5]. That means that consumers who purchase CNG vehicles or flexible-fuel vehicles (FFVs) have to make a greater effort to fuel their vehicles with alternative fuels. To make matters worse, some of these fueling stations are private and provide alternative fuels to fleets only. While these fleets can present an attractive market for an individual station owner, they do not aid in the distribution of alternative fuel beyond fleets – to the public. Making these stations public would slightly increase the availability of alternative fueling stations, but security and liability are issues that discourage the station owners. Additional barriers for fueling stations and the customers who use them include key card access limitations, misunderstood safety and fire codes, and lack of reliable information on station locations and hours of operation. This is especially true of stations that offer gaseous fuels because these require driver training before drivers can operate the pumps. However, progress has been made in California, New York, Arizona, and Texas where some CNG stations have been converted to accept major credit cards and provide video training for instant pump activation. The introduction of FuelMaker’s Phill provides consumers with home CNG refueling and also works to diminish the barrier of fueling station availability. Some meeting attendees felt that Phill may pave the way for a similar model to be used with hydrogen fuel. 7