Mark Sinclair's Blog: 24 February 2010 - Return of the prodigaL(PG)?
24 February 2010
Mark Sinclair is boss of leasing firm Alphabet
One anniversary that I suspect they won't be celebrating in Westminster this year is due to fall on 5 March.
It will be five years to the day since the Powershift scheme for converting cars to run on LPG stopped handing out grants.
The move, which happened with very little notice, did more than merely disappoint thousands of vehicle owners. Confidence in LPG vaporised - especially in the fleet sector, where there is scant room for vehicles whose residual value yo-yos up and down on the whim of the Government.
To put it politely, the Powershift saga was a 'learning experience'. For one thing, the Government learned that, if you offer people £1,000 to switch to a fuel that is nominally half the price of petrol, you're likely to get knocked down in the rush for grants. It's also a good idea to check whether the grants will comply with EU state-subsidy rules before you start to hand them out.
As it happened, the Government was already shifting its green transport agenda towards biofuels, which it saw as being easier and cheaper to inject into the road fuel supply chain since they are simply mixed into petrol and diesel without the need for engine conversions and separate pumps at forecourts.
Despite these setbacks, LPG today retains a small but committed following among fleets and private drivers in the UK. The fuel has lost some of its economic advantages, thanks to a slimmer duty differential and today's more efficient petrol and diesel engines, but there are over 150,000 LPG and dual fuel vehicles on Britain's roads and nearly nine million in Europe as a whole.
And now we may be about to find out whether LPG will remain a niche product or whether some fleets, at least, are preparing to welcome it back like the prodigal son in the parable.
Birmingham City Council recently announced that it will buy only LPG or electric vehicles for its 1,250-strong fleet from 2015 onwards. Given the gradual pace of electric car development, the decision will result in a good number of LPG vehicles hitting Birmingham's streets - and where a major local authority such as Birmingham goes, others are likely to follow.
The council said that the primary motivation behind the shift away from petrol and diesel is environmental. It will also be looking at other alternative fuels such as CNG as well as LPG. Nevertheless, the move could be prescient.
On 9 February, a consortium of business leaders including Sir Richard Branson and Stagecoach Group CEO Brian Souter claimed that Britain will be hit by a major oil supply crunch in or around (coincidentally) 2015.
Should they turn out to be right, the resulting price shock would be felt across all forms of energy. It's probable, though, that fleet users of fuels like CNG (which is wholly derived from natural gas) and LPG (partly derived from natural gas) would fare better, financially and operationally, than fleets dependent on conventional oil-based fuels.
At the moment, the issue of fuel security has yet to show up on most fleets' radar screens. Hopefully, it never will. Over the short to medium term, fleet strategy needs to focus on managing whole life costs while closely monitoring and controlling fuel purchasing and mileage, rather than planning a foray into niche fuels such as LPG or biodiesel.
But, as the advert used to say, nine million users can't all be wrong. This may be the fifth anniversary of the Government's conversion to biofuels but it's much too early to write off LPG yet. With a different kind of power shift coming up in Westminster soon, who knows what might happen to the Cinderella of fleet fuels?