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Any decision for or against the installation and operation of a biogas plant depends on various technical criteria as well as on a number of economic and utility factors. The quality and relevance of those factors are perceived differently, depending on the respective individual intrest:
- Users want to know what the plant will offer in the way of profits (cost-benefit analysis) and other advantages like reduced workload, more reliable energy supplies or improved health and hygiene (socioeconomic place value).
- Banks and credit institutes are primarily interested in the economic analysis as a basis for decisions with regard to plant financing.
- Policy-makers have to consider the entire scope of costs and
benefits resulting from introduction and dissemination, since their decisions
usually pertain to biogas extension programs instead of to individual plants.
Fig. 8.1: Basic elements of an economic analysis (Source: OEKOTOP)
The evaluation of biogas plants must include consideration not only of the monetary cost/ benefit factors, but also of the ascertainable nonpecuniary and unquantifiable factors. Time and again, practical extension work with the owners of small and medium-sized farms shows that a purely monetary approach does not reflect the farmers' real situation. For a farmer who thinks and works in terms of natural economic cycles, knowing how many hours of work he stands to save is often more important than knowing how much money he stands to gain. A similar view is usually taken of the often doubtful monetary evaluation of such a plant's qualitative and socioeconomic impact.
Figure 8.1 surveys the essential parts of an economic analysis. In practice, however, the collecting of information and data can present problems: experience shows, for example, that an exact breakdown of cost and benefits can hardly be arrived at until the plant has been in service long enough for the user to have gained some initial experience with its operation. Economic prognoses therefore should give due regard to such limitations by including calculations for various scenarios based on pessimistic, average-case and optimistic assumptions. Consequently, the data stated in the following calculations and considerations are intended to serve only as reference values. Any attempt to convert local plant & equipment costs into DM-values is seriously complicated by the fact that exchange rates are often set more or less arbitrarily and that the figures used may derive from unstable black-market prices.
For the users of family-size plants - primarily the operators of
small to medium-size farms - the following three elements of the biogas plant
evaluation have the most relevance:
- working-time balance
-
micro-economic analysis and
- socioeconomic and qualitative considerations.
Working-time balancing is most important when the farm is, at most, loosely involved in cash-crop markets, so that the cost/benefit factors are more likely to be reflected in terms of hours worked, as in money.
Table 8.1 exemplifies a comparison of time expenditures for a
farm with a biogas plant and for a similar one without a biogas plant. The unit
of calculation is hours worked per year (h/a) by the farmer and his family. Any
expenses for external assistance, e.g. "hired hands", appear only in the
monetary (cashflow) calculation (cf. chapter 8.3).
Table 8.1: Comparison of
working time with and without biogas utilization (Source: OEKOTOP)
|
Working time with biogas plant |
h/a |
Working time without biogas plant |
h/a |
|
Planning/know-how acquisition |
..... |
Mucking out the stables |
..... |
|
Plant construction and installation of appliances | |
Hauling off/disposal of organic wastes |
..... |
| |
..... |
Collecting, hauling and preparing fuel |
..... |
|
Feeding/collecting manure |
..... |
Cooking |
..... |
|
Fetching water |
..... |
Cleaning and repair of fireplace |
..... |
|
Cooking |
..... |
Spreading of NPK-fertilizer |
..... |
|
Maintenance and repair work |
..... |
Tending of animals |
..... |
|
Spreading of digested slurry/fertilizing |
..... | | |
|
Tending of animals |
..... | | |
|
Total |
..... |
Total |
..... |
The best indication of a successful biogas plant is a significant reduction in the average amount of time worked - especially by women and children who tend the plant and cook with the gas. If, for example, the family used to cook on wood gathered on the way back from the fields, a practice that involved little extra work, biogas technology can hardly expect to find acceptance under the heading "time saved".
The actual value of time saved depends not only on the quantity saved but also on the quality, i.e. whose workload is reduced at which time of day.
Real-time savings let the target group:
- expand their
cash-crop and/or subsistence production
- intensify and improve their
animal-husbandry practice
- expand their leisure time and have more time for
their children, education, etc.
It should be noted that all time expenditures and time savings
pertaining to anyone participating in the farm/household work, and which can be
expressed in real monetary terms as cash-flow income or expenses must appear
both in the above working-time balance and in the following micro-economic
analysis (wage labor during the time saved by the biogas plant).
Fig.
8.2: Costs and benefits of a fixed-dome biogas plant (Source:
OEKOTOP)
The following observations regarding micro-economic analysis
(static and dynamic) extensively follow the methods and calculating procedures
described in the pertinent publication by H. Finck and G. Oelert, a much-used
reference work at Deutsche Gesellschaft fur Technische Zusammenarbeit (GTZ) GmbH
that should be consulted for details of interest.
Table 8.2: Investment-cost
comparison for various biogas plants (Source: OEKOTOP)
|
Cost factor |
Water-jacket. Plant |
Fixed-dome plant |
Plastic-sheet plant |
|
Cost per m³ digester (DM) |
200-400 |
150 - 300 |
80-120 |
|
including:Gasholder |
23 % |
(part of digester) |
8% |
|
Digester/slurry store |
35% |
50% |
42% |
|
Gas appliances/piping |
22% |
24% |
36% |
|
Stable modification |
8% |
12% |
- |
|
General engineering |
12% |
14% |
14% |
Surrey of the monetary costs and benefits of a biogas plant
Figure 8.2 shows a breakdown of the basic investment-cost factors for a - presumedly - standardized fixed-dome plant. The cost of material for building the digester, gasholder and displacement pit (cement, bricks, blocks) can, as usual, be expected to constitute the biggest cost item. At the same time, the breakdown shows that the cost of building the plant alone, i.e. without including the peripherals (animal housing, gas appliances, piping) does not give a clear picture.
For a family-size plant, the user can expect to pay between 80 and 400 DM per m³ digester volume (cf. table 8.2). This table shows the total-cost shares of various plant components for different types of plant. While the average plant has a service life of 10-15 years, other costs may arise on a recurrent basis, e.g. painting the drum of a floating-drum plant and replacing it after 4 - 5 years. Otherwise, the operating costs consist mainly of maintenance and repair work needed for the gas piping and gas appliances. At least 3% of the initial investment costs should be assumed for maintenance and repair.
The main benefits of a biogas plant are:
- savings attributable to less (or no) consumption of conventional energy sources for cooking, lighting or cooling
- the excess energy potential, which could be commercially exploited
- substitution of digested slurry in place of chemical fertilizers and/or financially noticeable increases in crop yields
- savings on time that can be used for wage work, for example.
Usually, a biogas plant will only be profitable in terms of money if it yields considerable savings on conventional sources of energy like firewood, kerosene or bottled gas (further assuming that they are not subsidized).
Financially effective crop-yield increases thanks to fertilizing with digested slurry are hard to quantify, i.e. their accurate registration requires intensive observation of the plant's operating parameters.
Such limitations make it clear that many biogas plants are hardly profitable in monetary terms, because the relatively high cost of investment is not offset by adequate financial returns. Nonetheless, if the user considers all of the other (non-monetary) benefits, too, he may well find that operating a biogas plant can be worth his while. The financial evaluation (micro-economic analysis), the essential elements of which are discussed in the following chapter, therefore counts only as one of several decision-making instruments to be presented to the potential user.
The main advisory objective is to assess the user's risk by calculating the payback period ("How long will it take him to get back the money he invested?") and comparing it with the technical service life of the plant. Also, the user must be given some idea of how much interest his capital investment will carry (profitability calculation).
The micro-economic analytical methods described in the following subsections require the highest achievable accuracy with regard to the identification of costs and benefits for the biogas plant under consideration. Chapter 10.4 in the appendix includes an appropriate formsheet for data collection. With a view to better illustrating the described analytical methods, the formsheet (table 10.10) includes fictive, though quite realistic, data concerning a familysize biogas plant. Those data are consistently referred to and included in the mathematical models for each of the various sample analyses.
Calculation of the static payback period according to the cumulative method (data taken from the appendicized formsheet, table 10.10).
Input parameters:
- investment costs
- annual
revenues
- less the yearly operating costs
- less the external capital
costs
- annual returns
The cumulative method allows consideration of different annual returns.
Calculatory procedure: The investment expenditures and annual returns are added together until the line-3 total in table 8.3 either reaches zero (end of payback period) or becomes positive.
Evaluation: As far as risk minimization is concerned, a short
payback period is very valuable from the standpoint of the plant's user ("short"
meaning significantly less than 10 years, the data listed in table 8.3 pegs it
at 5.5 years). Should the analysis show a payback period of 10 years or more,
thus possibly even exceeding the technical service life of the plant, building
the plant could not be recommended unless other important factors are found to
outweigh that disadvantage. 
Table
8.3: Schedule of data for calculating the plant payback period (with case
example; data taken from the appendicized formsheet, table 10.l0) (Source:
OEKOTOP)
Static calculation of profitability (data taken from table 10.10 in the Appendix)
Input parameters:
- average capital invested per time
interval, KA
- net profit, NP = annual return
- less the external capital
servicing costs
- less the depreciation
Calculatory procedure: The profitability, or return on investment, ROI, is calculated according to the following formula
The linear annual depreciation amounts to:
The technical service life of a biogas plant generally amounts to 10-15 years. It is advisable to calculate twice, one for a pessimistic assumption (10-year service life) and once for an optimistic assumption (15-year service life). Similarly, the net profit should also be varied under pessimistic and optimistic assumptions.
Evaluation: The user can at least expect the biogas plant to yield a positive return on his invested capital. The actual interest should be in the range of locally achievable savings-account interest. Also, the results of profitability calculation can be used to compare the financial quality of two investment alternatives, but only if their respective service lives and investment volumes are sufficiently comparable.
Calculating the profitability using the appendicized data
Initial investment, Io = 1100
Average capital invested, KA
=Io / 2 = 550
Annual returns = 200
Loan servicing costs = none (internal
financing)
Depreciation for 10 year service life = 110(case
1)
Depreciation for 15 year service life = 73.3 (case 2)
Net profit, NP1,
for case 1 = 90
Net profit, NP2, for case 2 = 126.7
Return on investment
in case 1 = NP1 /KA = 16%
Return on investment in case
2 = NP2 /KA = 23%
Thus, this sample calculation can be expected to show positive results regarding the achievable return on invested capital.
Dynamic methods of micro-economic analysis are applied to biogas plants primarily by:
- extension officers, for the purpose of checking, by a dynamic technique, their own results of static monetary analysis (cf. chapter 8.3), as already explained to the small farmers and other users of biogas plants
- banks, as a decision-making criteria in connection with the granting of loans
- operators of large-scale biogas plants, for whom the financial
side of the investment is an important factor in the decision-making
process.
Table 8.4: Schedule of data for net-present-value calculation (with
case example, data taken from the appendicized formsheet, table 10.10; Source:
OEKOTOP)
The importance of the dynamic methods lies in the fact that the results obtained using the simpler static methods of calculation described in chapter 8.3 can become problematic, if the point in time at which payments become due is of increasing importance. Any investor naturally will set a lower valuation to revenues that are due a decade from now than to those which are coming in at present. Consequently, he would want to compound past payments and discount future payments to obtain their respective present values.
Net-present-value method
The most commonly employed method of dynamic micro-economic analysis is the net-present-value method used by many extension officers. It enables evaluation of both the absolute and relative advantages of a biogas-plant investment (as compared to other investment alternatives) on the basis of the anticipated minimum interest rate above and beyond the net present value of the investment. Simultaneously, the netpresent-value method also serves as a basis for calculating the dynamic payback period and for calculations based on the annuities method. (For details on the net-present-value and other dynamic methods of calculation, please refer to the aforementioned publication by Finck/Oelert.)
The inflation problem: Either the entire calculation is based on nominal incomes and expenditures, and market interest rates (= calculatory interest) are assumed, or the income and expenditures are presumed to remain constant, and the calculation is based on the real interest rate. The latter is calculated according to the following formulae (p = market rate of interest and a = rate of inflation):
Example: market rate of interest = 48%; rate of inflation = 34%
i = [(100 + 48)/(100 +34)]* 100-100=10.4%
Discounting factors: The compounding and discounting factors for
the net-present-value method are shown in table 10.11 (Appendix) for interest
rates of 1-30% and service lives of 1-15 years.
Calculatory procedure: The
following information is drawn from the appendicized data survey: calculatory
rate of interest, i (item 1.3); investment costs, I (item 2) and the returns
(item 8). Much like the static mathematical models discussed in chapter 8.3, the
calculatory procedures are again made more readily understandable by inserting
the appropriate data from the formsheet (table 10.10, Appendix). In a real case,
those data naturally would have to be replaced by the actual on-site data.
Results: The biogas plant can be regarded as profitable, if its net present value is found to be equal to or greater than zero for the minimum acceptable interest rate, e.g. i= 10%. The net present value is arrived at by cumulating the cash-flow value. Among several alternative investments, the one with the highest net present value should be chosen.
Sample calculation: For a plant service life of 10 years (conservative estimate), the cash flow values reflecting the annual returns times the discounting factor need to be determined and cumulated (cf. table 8.4). In this example, the net present value, at 129, would be positive, i.e. the potential investment would be worthwhile. The effects of discounting future income to its present value are substantial. For example, the return listed as 200 in item 10 would have a cash-flow value of 77 for a calculatory interest rate of 10°,to.
Biogas plants have numerous direct and indirect advantages -
and, under certain circumstances, disadvantages - that cannot be expressed in
terms of money, but which can be very important for the user. Even when a biogas
plant is not financially profitable, meaning that it costs the user more than it
yields, it can still have such a high socioeconomic value as to warrant its
installation. Table 8.5 lists the essential socioeconomic biogas-plant
evaluation factors, including plus, neutral and minus symbols to allow
individual-aspect evaluation.
Table 8.5: Socioeconomic
benefits and drawbacks of biogas production and utilization (Source:
OEKOTOP)
|
Benefits |
Possible drawbacks | |
|
Assured, regular supply of energy rating: + o - |
Direct handling of feces rating: + o - | |
|
Improved hygienic conditions through |
Limited communication potential, e.g. no | |
|
better disposal of feces, no smoky cooking fires, less nuisance from flies rating: + o - |
more gathering of wood together rating: + o - | |
|
General improvement of the agricultural production conditions, e.g. better live stock hygine/care, improved soil structure | |
|
|
rating: + o - |
| |
|
Upgrading of women's work | | |
|
rating: + o - |
| |
|
Better lighting |
| |
|
rating: + o - |
| |
|
Higher prestige |
| |
|
rating: + o - |
| |
|
+ applicable |
o possibly applicable |
- not applicable |
The main quantifiable macro-economic benefits are:
- national energy savings, primarily in the form of wood and charcoal, with the latter being valued at market prices or at the cost of reforestation
- reduced use of chemical fertilizers produced within the country.
Additionally, foreign currency may be saved due to reduced import of energy and chemical fertilizers.
Macro-economic costs incurred in local currency for the construction and operation of biogas plants include expenditures for wages and building materials, subsidy payments to the plant users, the establishment of biogas extension services, etc. Currency drain ensues due to importing of gas appliances, fittings, gaskets, paints, etc.
In addition to such quantifiable aspects, there are also qualitative socioeconomic factors that gain relevance at the macroeconomic level:
- autonomous decentralized energy supply
- additional demand
for craftsmen's products (= more jobs)
- training effects from exposure to
biogas technology
- improved health & hygienic conditions, etc.
Considering the present extent of biogas-plant diffusion, such effects should be viewed realistically, i.e. not overvalued. While a substantial number of biogas plants may be installed in one or more regions of a given developing country, they cannot be expected to have much impact at the national level. At the regional and local levels, however, the multipartite effects described in this subsection are definitly noticeable.
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