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PHEV Investment Opportunity: $500K in Chicago
Jun 26, 2007 (From the CalCars-News archive)
This posting originally appeared at CalCars-News, our newsletter of breaking CalCars and plug-in hybrid news. View the original posting here.
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We frequently hear from people who want to know about how to invest in the nascent PHEV industry. They ask which after-market conversion or battery company to invest in and whether the non-profit will spin off an independent for-profit entity (we're still building a team and exploring business models).

We've been able to point them to the component-makers trade group, and to "winner-pickers" like the Alliance Bernstein report, Bill Paul's "Future Energy" and Ron Pernick and Clint Wilder's "Clean Tech Revolution." (see 8/18/06, 2/2/07 and 6/17/07 postings at CalCars-News).

Now here's a specific opportunity with a business plan so compelling a consumer report devoted a long article to the details. Hybrid Electric Vehicle Technologies, Inc. intends to convert low-MPG diesel buses to hybrids and, even better, to plug-in hybrids, with a very rapid return on investment for the Chicago Transit Authority. (The PHEV schoolbus industry is already starting to take off.)

We've never met the people involved and can't vouch for their technology or their business capabilities. But they are incubated in and emerging from the same Illinois Institute of Technology community that's been working on advanced batteries and has converted a Ford Escape Hybrid to a PHEV. Don't ask us for contact info: we provide links to the founder at the end of the story.

Cutting cost of hybrids
IIT design could save CTA millions
Chicago Tribune by Jon Hilkevitch, June 25, 2007­news/­local/­west/­chi-gettingaround_25jun25,1,4837349.story?

Local engineering students and their research professors are hoping to fuel interest in accelerating the Chicago Transit Authority's commitment to operating cleaner-running hybrid buses.

The team at the Illinois Institute of Technology in Chicago has developed several types of hybrid electric conversion kits for diesel buses and other heavy-duty vehicles. Billed as a revolutionary conversion technology, the kits contain battery packs that help to as much as double fuel efficiency compared with strictly diesel-powered engines, and they cut greenhouse gas emissions by at least half, the researchers say.

A standard 40-foot CTA bus travels an average of only 3.4 miles per gallon of diesel, the transit agency said.

IIT's aftermarket systems can be installed on existing buses for tens of thousands of dollars less per vehicle than what bus manufacturers charge on new-vehicle orders to upgrade standard diesel buses to diesel-electric hybrids, according to the start-up company created at IIT.

The CTA also stands to save as much as $54 million annually in operating costs, depending on the type of hybrid conversion kit selected, the company estimates.

The high capital cost of acquiring alternative-energy vehicles has been a major obstacle to expanding fuel-conserving technology across the CTA's fleet of about 2,100 buses.

The CTA tested several zero-emission hydrogen fuel cell buses from 1997 to 2000. The buses, which emit an exhaust of pure water, were prohibitively expensive at $1.4 million each.

The CTA is testing 10 commercially manufactured hybrid electric buses, at a price tag of more than a half-million dollars apiece, with 10 more on the way this year.

The IIT researchers say their conversion kits can knock $80,000 to $100,000 off the $180,000 cost that the CTA is now paying to go hybrid on each bus.

Hybridizing the buses -- retrofitting the chassis and using a computerized controller on each bus to distribute the power needed between the electric propulsion system and the diesel engine in the most efficient manner -- would increase fuel economy to more than 5 miles per gallon, the IIT researchers say.

The CTA is budgeting $61.2 million for fuel this year and estimates consumption at 24.5 million gallons. Fuel expenses are second only to labor costs in the CTA's operating budget.

"We have completed our research and would love to present the proposal to the CTA and collaborate to test the conversion kits on buses in regular service," said electrical engineering professor Ali Emadi, director of IIT's Electric Power and Power Electronics Center. "We see it as an important environmental contribution to our city and to our country."

A company sponsoring the IIT research previously sent a standard bus chassis to Chicago from India. The bus was converted to hybrid power, tested here and shipped back to India, where it provided reliable service, officials said. CTA President Ron Huberman, who learned about the IIT initiative when the Tribune contacted him, said he is very interested.

"CTA has a strong track record for incorporating environmentally friendly technologies into operations, so we would welcome the opportunity to talk to the IIT representatives about their new conversion kits," Huberman said. "If we can be environmentally friendly and save money, it would be a win all around."

The potential benefits of retrofitting buses already on the street into diesel-electric hybrids include saving the CTA at least $24 million a year in fuel costs and speeding up the transit agency's effort to slash toxic emissions, according to the IIT start-up company, Hybrid Electric Vehicle Technologies Inc.

Even more money would be saved and additional environmental gains achieved if the CTA chose a plug-in diesel-electric hybrid system, the IIT researchers say. Plug-in hybrids provide the flexibility of driving in an all-electric mode under certain conditions, resulting in zero tailpipe emissions. The IIT researchers have developed a plug-in hybrid electric conversion kit for transit buses and other heavy-duty vehicles ranging from school buses to military Humvees.

"With the CTA bus fleet operating more than 200,000 miles a day, you have to do something different," said Sanjaka Wirasingha, a doctoral research assistant at IIT who is manager of the school's Grainger Power Electronics and Motor Drives Laboratory.

What that "something different" should be, however, is open to debate. CTA critics who charge that the transit authority has been slow to clean up its bus-fleet emissions recommend that the agency invest more money to install pollution-trapping filters on all its buses instead of spending money on hybrid electric buses.

"The CTA has one of the dirtiest bus fleets in the country," said Anna Frostic, environmental health advocate at the American Lung Association of Metropolitan Chicago. She said only about 15 percent of CTA buses are equipped with diesel particulate filters to reduce soot emissions into the air. "With the money the CTA has spent on fancy hybrid technology, it could have retrofitted 19 buses with particulate filters for each of the 20 hybrid buses it is acquiring," Frostic said.

CTA officials say the agency has reduced bus emissions by 22 percent since 1997. Initiatives include converting all buses to use ultra-low sulfur diesel and purchasing new buses that are more fuel-efficient and produce lower emissions, CTA spokeswoman Noelle Gaffney said.

Several dozen CTA vehicles that are not used in passenger service operate using compressed natural gas. The transit agency also has experimented with a diesel-ethanol blend, called oxygenated diesel, to reduce emissions.

And the City of Chicago in the late 1990s tested "soybean buses" -- a fleet of conventional diesel-engine vehicles powered by a bio-mix of diesel and waste vegetable oil collected from restaurants' deep-fat fryers. Riders complained that the buses smelled like french fries.

The CTA is operating 10 diesel-electric hybrid buses made by New Flyer of America Inc. And it will receive 10 more this year as part of a pilot project. The CTA cannot afford to purchase all hybrid buses due to the extra cost.

The 20 New Flyer hybrids cost the transit agency about $530,000 per bus, compared with $350,000 for a standard diesel bus, Gaffney said. The average mileage for the New Flyer hybrids was 4.48 miles per gallon in May, she said.

The IIT team said a hybrid diesel-electric conversion kit without the plug-in feature would cost about $80,000 per bus. Annual savings to the CTA is projected at $24.1 million.

The business model created by the IIT researchers proposes selling plug-in hybrid electric conversion kits for $100,000 per bus. Actual costs come out to about $50,000 -- some $36,000 for materials and $14,000 for labor.

The fuel-efficiency gain with the plug-in hybrid kit is estimated at 65 percent or higher, and at 35 percent for the non-plug-in conversion kit, Wirasingha said.

The plug-in hybrid electric version would save the CTA as much as $54 million in operating costs annually, the IIT team said. The larger battery packs on the plug-in hybrid buses would require about six hours of recharging using standard electrical outlets while the buses are out of service, the IIT researchers said.

Both the plug-in and non-plug-in hybrids use regenerative braking. The electric motors charge the onboard batteries as the bus slows down.

IIT runs a business incubator program for companies formed as a result of research at the university. The IIT team estimates its start-up company would break even in the second year with a projected operating profit of $300,000. By the fourth year, $4.7 million in profits are projected. Hybrid Electric Vehicle Technologies is looking for an investment of $300,000 to $500,000 to develop mass production of the conversion kits.

Huberman said the ongoing tests of the New Flyer hybrid buses will dictate the direction the CTA takes.

"If they perform well, I am confident the CTA's future bus purchases will be for ultra-low sulfur diesel hybrids," he said. ----------

Ali Emadi, Ph.D.
Professor & Director, Electric Power and Power Electronics Center
Director, Industry/Multi-university Consortium on Advanced Automotive
Systems (IMCAAS)
Illinois Institute of Technology­­

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