The investment costs necessary for the construction of biogas plants frequently exceed the means at the disposal of the investor. They cannot be covered from his regular income or savings. This could also apply to the larger investments occurring at certain intervals during the economic lifetime of the plant. Besides the non-recurring, periodical costs, the running costs of the plant have to be borne. These expenditures, however, should be set against income in the form of regular revenue. A liquidity analysis can show how far the net expenditures have to be financed from outside and how much contribution can be expected from the expected income. Usually the construction of biogas plants demands financial means which can only be covered by outside capital. In general the following can be seen as sources:
The financing of investments and of the operation of the plant should be realistically assessed at the planning stage. It has to be ensured that the quota derived from public funds is carefully calculated in the budget. Special attention has to be paid to the question of how the running, maintenance and repair costs can be financed. Funds for servicing and repairing are often forgotten but are of essential importance in order to make full use of the economic lifetime of the plant and also to insure the confidence of the user in the reliability of the plant.
When financing by credit the questions of liability and debt provisions should be clarified. The borrower should always be able to bear the possible risk or be immune to this risk by having state credit guarantees. The debt provisions should be worked out so that they conform to the development of cost and yield. Credit repayment terms are frequently much shorter than the lifetime of a biogas plant e.g. 5 years compared to 15 - 20 years. The re-payment of credits in this rather short time often becomes an invincible barrier for the farmer.
When the profitability of biogas plants is negative on a private scale (financial analysis), but are favorable on a national scale (economic analysis), state support measures would make sense economically.
In principle, the following measures can be seen as supportive measures for the dissemination of biogas systems to an extent that would make them macro-economically feasible and politically desirable:
The more biogas plants are constructed by families with low income, the less can the costs for construction and operation of the plant be met by contributions from the users. With village community plants in India, providing energy for households, practical experience has indicated that not even the running costs can be met by user fees. Consequently, not only the investment costs but also a proportion of the running costs has to be covered by general tax revenue. The resolution of the Indian Government provides a guideline for the extent of public support whereby from case to case 50 to 100% of the cost for community biogas plants are subsidized.
Financial promotion from public or development funds is always necessary for research and development and for the organizations concerned with the implementation of biogas programs. Only in exceptional cases have private companies carried out research and product development, but even then, they sometimes relied on assistance from external donors. Research and development on the following aspects of biogas technology are particularly worthy of sponsorship:
Subsidies for biogas plants may consist of grants, low-interest or no-interest loans and/or supplies in kind (materials). The response of the target group will usually depend to a large extent on the types of subsidies, the amounts available, and bureaucratic obstacles in gaining access to funding. The popularization of a subsidy program naturally plays an important role, too. The perceived reliability of the subsidy program is essential. Subsidy arrangements should therefore be underpinned by binding agreements with several years validity.
Graduated subsidies, the granting of which depends on, for example, the type of fuel in use prior to system installation or on the social situation of the applicant, are conceivable. In practice, this leads to socially justifiable differentiation in the extent of support granted.
The most important incentive for any potential investor are the monetary returns to be gained by installing a biogas system. Promotional programs and subsidies for biogas systems should therefore be oriented along the lines of the benefits to be expected.
The economics of a biogas system depend, first, on the type of construction and cost of operation and, second, on the resultant benefits and/or cost savings provided by the system. Since the savings can be quite considerable in relation to the cost to the individual, even modest subsidies can yield a net economic advantage for households considering biogas as an option. If, on the other hand, individual expenditures for fuel and fertilizer were relatively low, higher subsidies will be required. Thus, the subsidies should be geared to the respective regional and social situation. Financial assistance for individual households should not be based on fictitious market values for gas and fertilizer, but rather on the actual costs and benefits involved.
As a rule of thumb, financial incentives can be regarded as an essential prerequisite for the success of a large scale biogas program. If at least 70% of all households within the target area are to be supplied with biogas, all investors should be granted special allowances. The process of discussion requisite to defining the range of participation within the target area or community can, in itself, have a favorable impact on the project. Nonetheless, the maximum possible personal contribution should, as a matter of principle, be demanded of each household involved in a subsidized program. A maximum of contribution from the owner during construction of the biogas plant is conducive to the personal involvement of the system's future owner.