Life Cycle Cost Analysis of Natural Gas Based Vehicles in Indonesia

Budhi S. Wibowo1 and Farizal2

Industrial Engineering Department, University of Indonesia Depok, West Java, Indonesia
1

budhisholeh@yahoo.com
2

farizal@ie.ui.ac.id

Abstract Environmental impacts of using gasoline as vehicle fuel as well the depletion of crude oil reserve, turn researchers to find alternative vehicles that used non gasoline fuels. This paper analyzes the comparative value between gasoline based and natural based vehicles in term of economic value. Life cycle cost analysis has been conducted to assess four vehicles, gasoline, hybrid, natural gas, natural gas hybrid in Indonesia. By comparing their costs, it is possible to know the social benefit and the related tax structure. The result showed that the tax structure in Indonesia does not promote the alternative vehicles utilization. A change in taxation scheme is necessary to maximize the utility of existing technology extensively. Keywords life cycle cost, vehicle, alternative fuel, tax

alternatives that provide more benefit to society. The question is how to determine the advantages and disadvantages each alternative vehicle technology in an objective perspective? In this paper, life cycle cost analysis is used to determine the relative benefit among the existing technologies. The costs will include the initial cost, operational cost, tax structure, and pollution cost. Comparing the cost, it is possible to analyze the social benefit and the related tax structure thus a better policy to maximize the social benefit extensively can be proposed. II. METHODOLOGY

I.

INTRODUCTION

Nowadays, transportation systems are still dependent highly on fossil fuels. This condition leads to many problems such as air pollution that later becomes the source of diseases in urban society. Another issue related to using oil as transportation fuel is its scarcity. This issue may lead to price shock or supply disruption that might have negative economic impact. In last few years, considerable efforts have been undertaken to replace or reduce the utilization of fossil fuels with alternative fuels. In 1986, Indonesian government had actually started adopting CNG technology by creating 20% tax policies of using natural gas fuel [1]. However, due to gasoline price was still relatively cheap and CNG pump stations were located in limited locations, hence the interest to use the natural gas did not get bigger. Now, there are other alternative fuels exist in Indonesia, such as: bio-solar, natural gas, electric and hybrid. These fuels are expected to be an

In the following section the methodology of life cycle cost analysis will be described. The calculation model is adapted and modified from [2]. The model compute the initial cost, operation cost (fuel cost), tax, and external cost (pollution damage) in term of societal and consumer life cycle cost. The societal life cycle cost is the total cost including external cost without tax. Consumer life cycle cost is the sum of initial cost and operation cost with tax. The technology with the lowest societal life cycle cost is the most beneficial to the society from the standpoint of the policymakers. The lowest consumer life cycle cost will be the most preferable from the standpoint of the consumers. That is, the taxation scheme plays important role to determine the consumer preference. Figure 1 presents general methodology of life cycle cost analysis.

Appeared in: International Conference on Industrial Engineering and Business Management -Yogyakarta, Indonesia, October, 13th 2010

Pollutant Emission Damage Pollution Cost

Original Price Retail Price

Fuel Cost Km Travelled per year Vehicle Efficiency

three alternative, natural gas vehicle takes the smallest initial cost, while natural gas hybrid has the biggest initial cost.

External Cost

Initial Cost

Operation Cost

TABLE I PARAMETER ASSUMPTION

Parameter
Taxes Societal Life Cycle Cost Consumer Life Cycle Cost

Value 20000 15 10000 1.38%

Unit USD years IDR per year

Vehicle Price Base Vehicle Lifetime Value of 1 Dollar Real Interest Rate

Present Worth Analysis

GV

Fig 1. Life Cycle Cost Analysis Methodology

GHEV 99.1 50 149.1

Life cycle cost is calculated using the present worth analysis (PWA) which is defined as the current value of all future costs based on the interest rate to accommodate the time value of money. The PWA is calculated using the following equation [3]: 1 + 1 1 +

NGV NGHEV

Fig. 2. Vehicle Initial Cost (in million IDR) - relative to gasoline

= 0

Where PWA is the present worth value, A0 is amount of recurring cost, r is the real discount rate, and n is the time period analysis (in years) based on vehicle lifetime. The real discount rate 1.38% was used to eliminate the inflation factor within analysis. To simplify the calculation, life cycle cost of each technology has been calculated relative to gasoline based vehicle.

B. Operation Cost The operation cost is estimated from fuel cost used by vehicle to travel in a certain distance. A set of possible distance is categorized to achieve better comprehension in policy making process (see table II). All non-fuel operation costs, such as: maintenance, insurance, parking, and charges, are assumed about the same.
TABLE II TRAVELER CLASS

III. A. Initial Cost

PARAMETER AND ASSUMPTION

Traveler Class Low Traveler Medium Traveler High Traveler

Km traveled per year 15000 30000 30000 60000 > 60000

Four alternative vehicles will be compared and analyzed: Gasoline Vehicle (GV), Gasoline hybrid electric vehicle (GHEV), Natural gas vehicle (NGV), and Natural gas hybrid electric vehicle (NGHEV). Camry-like car was used to make the comparison equal. The initial cost of natural gas vehicle was modified from gasoline vehicle by installing conversion kit. Hybrid vehicle has to change the batteries in about 8 years, or half of the car lifetime. Table I summarizes parameters and their values used in this analysis. The initial cost including tax for every vehicle is showed in figure.2. Figure 2 indicates that all alternatives vehicles have initial cost more than gasoline based vehicle. Moreover among the

C. External Cost The External costs included in this study is just the damage pollution cost. Data from the Australian Greenhouse Office [4] was used for the estimation of air pollutant emission. Valuations of environmental damage cost are based on studies carried out by Litman, et al [5] and modified using benefit transfer method [6] for the case of Indonesia (see figure 3). Figure 3 shows that all the three alternative

Appeared in: International Conference on Industrial Engineering and Business Management -Yogyakarta, Indonesia, October, 13th 2010

vehicles have negative damage pollution costs that mean these three technologies are environmentally friendly.

GV -62426.57 -29054.13 -77775.92 GHEV NGV NGHEV

in societal life cycle cost showed that technological developments had been able to provide attractive options in terms of economic and environmental impacts. From the composition of consumer life cycle cost, the factor which affects this result is the prevailing tax structure.

GV GHEV -10.96 NGV 57.31 35.90

Fig. 3. Damage pollution cost per year (IDR) - relative to gasoline

NGHEV

IV. A. Societal Life Cycle Cost

RESULTS

Fig. 5. Consumer Life Cycle Cost (in million IDR) - relative to gasoline

V. Figure 4 clearly shows that hybrid and gas vehicles have a lower total cost relative to gasoline. This result shows that the alternative technologies have been able to provide an attractive option both in terms of economic and environmental impact to human beings to used (as also seen in figure 3).
GV -36.16 -31.80 -24.48 GHEV NGV NGHEV 1100

DISCUSSION

At the current tax structure, it appears that the alternative vehicles have not become attractive options to consumers in Indonesia. By analyzing the sensitivity of mileage parameter, it is known that alternative vehicles can only benefit the longdistance traveler class (> 60 000 km per year).,except for the natural gas vehicle NGV. Its traveler distance is 30,000 km per year. Moreover, the sequence of the consumer preference also tends to vary (inconsistent) toward the mileage parameters (see figure 6).

1000

Fig. 4. Societal Life Cycle Cost (in million IDR) - relative to gasoline
(in Million Rupiah) 900

The result shown on figure 4 is a bit different with Goedecke [7]. Goedecke found that the societal life cycle cost of hybrid vehicle is higher than the gasoline vehicle positively. The reason is utilizing different value in mileage traveled per year. He used 20000 km traveled per year as basic parameter while this study use 30000 km. As will be shown in the next section, mileage traveled per year is a sensitive parameter that will give different result in each different value. B. Consumer Life Cycle Cost

800

700

GV GHEV

600

NGV NGHEV

500 15000 km/y 30000 km/y 60000 km/y 100000 km/y

Consumer LCC by Km Traveled per year

Figure 5 shows that from the consumer perspective, alternative vehicle such as hybrid and natural gas have not become an attractive option in Indonesia. Yet the comparison

Fig. 6. The sensitivity analysis of consumer life cycle cost based on mileage parameter

Appeared in: International Conference on Industrial Engineering and Business Management -Yogyakarta, Indonesia, October, 13th 2010

VI. If we assume that the consumer interest in comparative technology is at the excess of IDR 20,000,000 then we need to cut the taxes by 20% for hybrid vehicles and 10% for natural gas vehicles (see figure 7). This tax scheme tends to give a consistent result with consumer preferences in each class (see figure 8). 1. 2.

CONCLUSIONS

3.
GV -28.94 -35.26 -36.78 GHEV NGV NGHEV

4.

5.

Fig. 7. Consumer Life Cycle Cost (in million IDR) under the new tax scheme - relative to gasoline

Hybrid technology and gas technology have lower damage pollution cost than the gasoline From the societal life cycle cost perspective, the technology has been able to provide an attractive option for human beings to use widely, both in terms of economic and environmental impact. The current tax structure makes the alternative vehicles have not yet become an attractive option for Indonesian consumers. 20% tax cut for hybrid vehicle and 10% tax cut for gas vehicle are needed to make them an attractive option for Indonesian consumers Selection of mileage per year value is a sensitive parameter in life cycle cost comparison. It will be better to use more than one value in its sensitivity analysis.

1100

REFERENCES
[1] (2009) Menko Perkekonomian Website [Online] CNG Perlu Digalakkan, Menko Perekonomian, Indonesia (www.energialternatif.ekon.go.id) Goedecke, M., 2005, Life Cycle Cost of Alternative Vehicles and Fuels in Thailand, Master Thesis, Joint Graduate School of Energy and Environment, King Mongkuts University of Technology Thonburi, Thailand. Canada, et al, 1996, Capital Investment Analysis for Engineering and Management, 2nd ed., Prentice Hall, Inc. Upper Saddle River. Tom Beer, et al, 2004, Life Cycle Emission Analysis of Fuels for Light Vehicles, Australian Greenhouse Office, Australia.) Litman et al, 2002, Transportation Cost and Benefit Analysis II - Air Pollution Cost, TDM Encyclopedia. Canada. Pattanayak, et al, 2002, International Health Benefit Transfer Application Tool: The Use of PPP and Inflation Indices, Healthy Environments and Consumer Safety Branch, Canada. Goedecke, M., et al, 2006, Life Cycle Cost of Alternative Vehicles and Fuels in Thailand, Journal, Elsevier, Energy Policy 35 (2007) 3236 3246, Thailand. CIA World Fact Book, 2009, Countries by Inflation Rate 2008 Estimation, Central Intelligence Agency, United States of America. Departemen Keuangan, 2009, Perkembangan Asumsi Dasar Ekonomi Makro dan Realisasi APBN, Indonesia Departemen Energi dan Sumber Daya Mineral, 2009, Harga Bahan Bakar Minyak Dalam Negeri 2009, Indonesia Department of Economic and Social Affairs Population Division, 2009, World Population Prospects, Table A.1, 2008 revision. United Nations. EPA, 2009, Fuel Efficient Cars, Environmental Protection Agency, United States of America (2009) World BankWebsite [Online], World GDP PPP 2008, World Development Indicators Database. (www.worldbank.org) (2009) WHO Website [Online] World Health Statistics 2009, World Health Organization. (www.who.int)

1000

[2]
900

800

[3] [4]
GV

700 GHEV NGV NGHEV 500 15000 km/y 30000 km/y 60000 km/y 100000 km/y

[5] [6]

600

[7]

Consumer LCC by Km Traveled per year

[8] [9]

Fig. 8. Consumer Life Cycle Cost (in million IDR) under the new tax scheme - relative to gasoline

[10] [11]

20% tax cut for hybrid vehicles and 10 % tax cut for gas vehicles proposals are similar to the tax structure established currently in Thailand [2,7]. It tends to give the same impact in the comparison of consumer life cycle cost. The tax cuts are expected to be an incentive for society to further invest in alternative vehicles.

[12] [13] [14]

Appeared in: International Conference on Industrial Engineering and Business Management -Yogyakarta, Indonesia, October, 13th 2010