W H ITE PA PE R

Total Cost of Ownership

Diesel vs. Natural Gas Generators

INTRODUCTION
The standby power market has historically been dominated by diesel
generators, but this is changing. Frost & Sullivan North American
market research data shows a rapid shift toward natural gas
generators: 28 percent in 2013 and 38 percent in 2016. This growth
is driven by many factors including a greater awareness of natural
gas as a reliable fuel; increased concerns over diesel maintenance
and refueling issues; expansion of utility demand response and
interruptible rate programs; and the general desire to be more
environmentally responsible. As the market continues to show
greater interest in utilizing natural gas, there is an increasing dialogue
taking place relative to total owning cost between these two options.
This paper will focus on the key elements of that discussion.

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Total Cost of Ownership Diesel vs. Natural Gas Generators

CAPITAL COST electric rates may participate in demand reduction programs —

demand response, interruptible rate, curtailment rate, etc. These
From a capital cost standpoint, the generator market is split at 150
programs provide a payback stream in opposition to the sunk cost
kW. Below 150 kW, generators use automotive-style engines with
of a standby generator system. Standby generators provide their
appealing cost points. In this market segment, natural gas
normal value by deferring losses normally associated with power
generators are priced at or below diesel units. Above 150 kW, the
outages. Demand-response programs offer the potential to defer
generators use diesel-derivative engines that are more specialized
those sunk costs with a modest annual electric savings — $50/kW
and have a lower power density. In this market segment, natural
is not atypical in some markets. Consult your local utility or energy
gas units typically cost 60 to 100 percent over diesel. Though the
marketer for more details.
generator cost increases dramatically, the associated transfer
equipment and installation cost remains fairly constant. The net
effect may be project cost increases in the 30 to 60 percent range. Participation in these programs requires the generator be U.S.
Since the generator cost is a significant component within a total Environmental Protection Agency (EPA) stationary nonemergency
owning cost analysis, your local distributor can capture current emission rated, which increases generator cost. Diesel generators
pricing for greatest accuracy. must be EPA Tier 4-compliant, which incorporates expensive
selective catalytic reduction (SCR) diesel engine exhaust
aftertreatment. Tier 4 engine technology dramatically increases the
One way to leverage the cost efficiencies of 150 kW or smaller
generator cost, typically 40 to 50 percent, narrowing the capital
natural gas generators is via on-generator paralleling technology,
cost difference to natural gas. SCR technology also adds an active
as with Generac’s Modular Power System (MPS) products, for
control process that injects an ammonia derivative into the
example. Since natural gas generators at 150 kW still use
exhaust, which poses additional maintenance and reliability
automotive-derivative engines, paralleling multiple 150 kW units
challenges.
can achieve very cost-effective solutions for midrange power
applications. For large kW applications, paralleling four 500 kW
generators provides significant operational and capital advantages Natural gas standby generators make the transition into demand-
over implementing a single natural gas 2000 kW generator. response applications with very little impact to cost or operational
On-generator paralleling is also a great way to optimize an reliability. Natural gas generators greater than 85 kW are already
application for reliability and scalability. equipped with a three-way catalytic converter used to reduce
emissions. This is the same reliable, maintenance-free technology
that is implemented on automobiles. Generator manufacturers
simply need to validate the catalyst effectiveness to EPA stationary
DEMAND RESPONSE nonemergency standards and label the engine for nonemergency
Electric utilities and energy marketers often have times of physical use. The cost adder for this increased functionality is typically only
and economic constraints in delivering electric power to their a few percent.
customers. Customers that wish to receive a discount on their

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Total Cost of Ownership Diesel vs. Natural Gas Generators

INSTALLATION COST
Installation cost is very similar between diesel and natural gas Diesel fuel must be tested annually and maintained as necessary
generator options. For outdoor generators, installation costs are to be reliable. Fuel polishing is the process of removing the
largely impacted by ampacity and distance. If you’re carrying the contaminants and restoring necessary fuel additives. This process
same amps the same distance, the install cost between diesel and must be done more frequently in high-humidity environments. As a
natural gas is largely the same. Specific project installation costs general rule, fuel needs polishing every one to four years. The cost
vary based on application configuration, cabling distance, copper for this service varies, but $1.00/gal. is a reasonable initial
and conduit cost, regional labor rates, etc. A reasonable initial estimate.
estimate of $150/kW will typically cover cabling and the necessary
transfer and distribution equipment. For detailed total owning cost
calculations, an installing electrical contractor would need to bid FUEL COST
the cost of installation for the specific site and configuration.
Diesel and natural gas cost varies significantly over time, but
certain trends are fairly consistent. Diesel is typically three to four
When installing natural gas generators, fuel must be piped to the
times more expensive for the energy gained ($/BTU). Diesel also
generator. Normally this can be estimated in the $10 to $20/kW
has the additional disadvantage of having to be prepaid. This initial
range to be inclusive of fuel pressure regulators, isolation valves
prepay occurs at commissioning when the onsite diesel fuel tank
and piping. Gas service capacity and available gas pressure need
is filled for the first time. Applications desiring extended runtimes
to be evaluated to ensure all gas infrastructure costs are identified.
— 72 or 96 hours of onsite diesel — have greater initial fuel costs
and greater ongoing maintenance costs. Applications that use
smaller tanks minimize fuel maintenance but run a much greater
FUEL RELIABILITY risk of running out of fuel.
Any discussion of diesel versus natural gas generators will quickly
Generators consume fuel based upon the fuel efficiency of the
incorporate the perceived reliability of both diesel and natural gas
engine, run hours and the load level applied. Generators are
as a reliable fuel source. If one fuel is perceived as being much
usually programmed to run a weekly no-load exercise cycle for 20
more reliable than the other, the cost comparison would need to
min. Since this test normally is without facility load, fuel
incorporate the economic impacts of a fuel failure. In many
consumption is only about 5 percent of full-load-rated
markets, natural gas is seen as an extremely reliable and well
consumption. The majority of the generators fuel is consumed
supported fuel choice:
during power outages or demand-response operation. When
• Infinite supply performing a total cost of ownership calculation, estimates are
needed for outage hours, demand-response hours, and expected
• Not interdependent with electrical system
load levels. Actual load levels will vary significantly between
• Doesn’t degrade applications. Load levels of 50 to 75 percent are common.
• Doesn’t rely on human interaction to maintain reliability Assuming a conservatively higher generator load level of 75
percent illustrates the impact that fuel has on the generators total
life cycle owning cost.
Natural gas reliability and outage history information for a given
location can often be gotten from the serving gas utility. The Gas
Technology Institute (GTI) has also investigated the relative LOAD BANKING
reliability of the two fuel sources (GTI Natural Gas Backup Power).
Generators are periodically loaded to 100 percent capacity in a
Diesel Maintenance process called load bank testing. Diesel generators need this done
more frequently, typically every 2 to 3 years, due to an effect known
It is generally well understood that diesel must be maintained to be as wet stacking. Wet stacking is a buildup of unburnt fuel in the
reliable (Standby Power Generation Fuel Security – Diesel vs. exhaust system. This can occur when a diesel generator is
Natural Gas). Diesel fuel has multiple failure modes that need to consistently operating at no load exercise or load levels less than 30
be protected against with maintenance and contingency planning: percent. Natural gas engines don’t wet stack but still need periodic
load bank testing to validate generator health and cooling system
• Fuel depletion performance. Load banking cost can vary based on the physical
• Moisture constraints of the site and regional variations. An initial estimate of
• Biomass $1000 fixed cost and $1.50/kW can be used until detailed costing
can be gathered from your local generator distributor.
• Gelling
• Fuel instability/varnishing
• Fuel transfer systems

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Total Cost of Ownership Diesel vs. Natural Gas Generators

GENERATOR MAINTENANCE catalytic converters produce less nitrogen oxides (NOx) and carbon
monoxide (CO) as well as no measurable particulate matter (PM).
Both diesel and natural gas generators will require routine
Nitrogen oxides interact in the environment to create ground-level
maintenance. For standby generators with less than 250 hours of
ozone, which is bad for anyone with respiratory issues like asthma.
annual run time, this is typically an annual inspection and servicing.
Carbon monoxide (CO) is a pollutant that replaces oxygen within the
Generally speaking, filters and oil are changed annually. Cranking
blood stream. Particulate matter (PM) is the smoke that is seen on
batteries are usually replaced every two to three years. Belts,
diesel engines. Diesels have particulates but natural gas engines
hoses and coolant are inspected/tested annually and replaced as
don’t have measurable levels. The level is so low on natural gas
needed (typically every four to six years). Maintenance costs can
engines that the EPA does not require it to be measured.
be impacted by multiple factors. An initial estimate of $500 fixed
cost and $1.00/kW can be used until detailed costing can be
gathered.
RUNNING THE NUMBERS
Using the Generac online total cost of ownership calculator (TCO
Calculator), various configurations were compared to evaluate how
ANALYSIS PERIOD diesel and natural gas generators compare in standby and demand-
The largest portion of the North America generator market is standby response applications. The following assumptions were utilized for
power (greater than 90 percent). These are generators that are these comparisons:
installed to meet code requirements or avoid the pain and economic
losses associated with power outages. They are not normally Period: 25 years
installed based on short term economic cash flow/ROI calculation. Inflation: 2.5 percent
When performing total owning cost comparisons between diesel and
Tank Size: 48 hr.
natural gas alternatives, the period for the comparison may be much
longer than the traditional payback calculation. You may want to look Diesel: $2.50/gal.
at the cost comparisons over different time periods based on your Natural Gas: $0.70/therm
objective. If the demands on capital are significant, you may wish to
Load Banking Natural Gas: Every six years
maintain a shorter five or seven-year analysis, which tends to favor
diesel solutions. If natural gas is the preferred fuel choice and you Load Banking Diesel: Every three years
wish to illustrate that it can pay for itself, use a longer 20 or 25 year Diesel Fuel Polishing: Every two years, $1.00/gal
analysis, period. Natural gas fuel savings and reduced maintenance Installation Cost: $150/kW
with natural gas generators create benefits that accrue over time.
Run Hours (Standby Application): 20 hours no-load testing and 50
hours with load outage
Run Hours (Demand-Response Application): 20 hours no-load
EMISSIONS
testing and 250 hours with load
Emissions are typically not a hard cost within a total owning cost
Demand Response Electric Savings: $50/kW/year
comparison but are often evaluated as a soft cost in line with
corporate environmental policies. Natural gas generators that utilize

Standby Application
Life Cycle Total Owning Cost (x1000)

Power Rating Diesel Natural Gas

150kW $140 (1 x 150) $110 (1 x 150)

500kW $390 (1 x 500) $110 (1 x 500)

1200kW $925 (2 x 600) $110 (4 x 300)

2000kW $1,580 (1 x 2000) $110 (4 x 500)

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Total Cost of Ownership Diesel vs. Natural Gas Generators

Demand Response Application

Life Cycle Total Owning Cost (x1000)

Power Rating Diesel Natural Gas

150kW $105 (1 x 150) $(10) (1 x 150)

500kW $278 (1 x 500) $5 (1 x 500)

1200kW $690 (2 x 600) $30 (4 x 300)

2000kW $1,580 (1 x 2000) $10 (4 x 500)

Note: Negative number indicates a net positive cash flow resulting from electric savings

SUMMARY flow that can be used to help offset the cost of installing a standby
generator system. Demand response requires EPA stationary
Standby power has historically been dominated by diesel
nonemergency compliance, which is achieved with a minimal cost
generators, but natural gas is rapidly become a preferred solution
adder for natural gas generators. Diesel generators require
in many markets. Natural gas generators less than or equal to 150
expensive and complex Tier 4 aftertreatment, which adds 40 to 50
kW are an easy choice for minimizing total owning cost and
percent to the generator costs. It is not uncommon for these types
avoiding the hassles associated with onsite diesel. This advantage
of electric rate programs to allow natural gas generators to
can be extended to larger kW projects using integrated paralleling
approach a cost-neutral position over the life cycle of the
technology and 150 kW generators.
generator. The economics are not strong enough to justify
As natural gas generators become larger than 150 kW, the installing demand-response generators for purely financial
generators’ increased capital cost has tended to slow adoption in reasons. The economics do offer a compelling payback solution to
the standby market. More customers are taking a longer defer the sunk cost of a standby generator system while avoiding
perspective as the concerns with onsite diesel continue to grow in the hassles of onsite diesel.
the market. Natural gas generators provide a convenience and
Generac has made a fully customizable total cost of ownership
environmental impact that is extremely desirable. They also offer a
tool available at www.generatortco.com. Please utilize this tool to
cost-effective alternative to managing onsite diesel when
perform your own customized analysis for your unique situation.
evaluating across a 25-year life cycle.

Demand-response/interruptible electric rate programs exist in

many markets. These programs offer an ongoing positive cash

Generac Power Systems, Inc.

S45 W29290 Hwy. 59, Waukesha, WI 53189 | 1-888-GENERAC (1-888-436-3722) | 0187520SBY

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