Companies often lament regulations that impact their business and tout free markets, but here’s a case of a company applauding tougher regulations that could boost the market for its products. Power Solutions International claims to be the world’s largest alternatively-fueled engine manufacturer and sees pending diesel emissions limits as an opportunity for on- and non-road natural gas-powered engines.
The US Environmental Protection Agency’s national program to reduce diesel emissions from nonroad engines intensifies from Tier 3 to Tier 4 after the 2014 model year. “These regulations will drive the energy America uses from diesel to propane or natural gas,”PSI Chief Operating Officer Eric Cohen recently told Breaking Energy.
PSI manufactures engines used to power fork lifts, aerial lifts, aircraft ground support vehicles, wood chippers, agricultural vehicles and systems used in numerous other applications. Not only is diesel fuel currently more expensive than energy-equivalent volumes of natural gas, but building bulkier emission compliant diesel engines is capital intensive.
The cost increase associated with Tier 3 emissions compliance was between 30% to 100% and Tier 4 compliance will require engines to be 35% larger, according PSI. “Caterpillar spent $8 billion over the past 5 years complying with regulations,” said PSI Chief Financial Officer Daniel Gorey.
Not afraid to call out the competition, Cohen said, “Our solutions are relatively inexpensive compared to Cummins or Westport.” PSI’s engines typically feature an 18 month payback period, he said.
The company’s manufacturing operations are located in the Chicago area and the representatives said they are “staffing up significantly.” They expect to produce about 80,000 engines next year from about 40,000 now.
Other potential applications for PSI’s power solutions include pipeline compressor stations that often run on diesel and port facilities where air quality is an issue due to high diesel engine traffic.
Labor is one challenge PSI faces as they look to expand. “Hiring the right people is harder because it’s a new industry and you don’t have a lot of people qualified on natural gas engines,” said Cohen. A deviation from current commodity price trends could also present a challenge if diesel were to become less expensive while natural gas prices increased. Advances in diesel engine technology that help reduce emissions could also pose a challenge to PSI’s business model.
