Financial and economic performance of domestic biogas installations

1. Financial and economic performance of domestic biogas installations Not making money, still getting rich? Compact Biogas Course PPRE February 27 04, 2011

2. Content • Biogas cost & benefits, a global overview • Investment, subsidy and GDPppp • Specific biogas costs • Specific energy costs • Biogas substitution value • Capital budgeting tools • Financial and economic performance • Detailed example Rwanda • Shadow values • Example Bangladesh • Sensitivity analysis • Example Pakistan Financial and economic performance of domestic biogas installations

3. Importance of financial and economical assessment Complicated No fun (for most people) Without sound financial/economic assessment no funding from governments for biogas programs Decision whether or not to implement in specific country Without clear information it is hard to make people purchase the biogas installation

4. Overview data origin Asia Nepal Vietnam Cambodia Bangladesh Laos Pakistan Indonesia India** China** Africa Rwanda Ethiopia Tanzania Kenya Uganda Burkina Faso Senegal Cameroon * Benin* * Starting implementation in 2009 ** Partial data Financial and economic performance of domestic biogas installations

5. Assessing value Cost-based approach: • Investment and repair costs, divided by total (expected) gas production; • Interest, depreciation and repair costs over its lifetime, divided by the total (expected) gas production; • Total operating and maintenance labour expected over its lifetime, divided by the total (expected) gas production; • Benefit-based approach: • Total value of substituted fuels divided by the corresponding amount of biogas generated of that period; • Total value of increased agricultural produce and substituted fertilizer; • Total value of (productive) time saving resulting from operating a biogas plant as compared with using traditional fuel; • Total value of improved health and sanitation conditions; • Total value of a better life Or a combination of the above? Financial and economic performance of domestic biogas installations

6. Investment costs Financial and economic performance of domestic biogas installations

7. Financial vs. Economic costs and the gigajoule • Financial costs: for the project/individual • Economic costs: for the society/country G Gas: 33.38 MJ/m3 One gigajoule is approximately 30 m3 G Gas Steven’s financial GJ costs for gas: €16.5/GJ Average Dutch household uses1576 m3 (52.53 GJ) Financial & economic performance of domestic biogas plants

8. Total Biogas Costs • Parameters used: • Investment costs • Maintenance costs (5% of investment p.a.) • Biogas loan conditions (interest rate, maturity) • Lifetime (15 yrs) • Biogas production (584 m3 biogas p.a.) Financial and economic performance of domestic biogas installations

9. Domestic fuel mix

10. Specific domestic energy costs Financial and economic performance of domestic biogas installations

11. Substitution assumption Biogas replaces traditional domestic fuels proportionally …

12. = Biogas production Biogas substitution value Biogas production Substituted fuel x x x Spec biogas prod Livestock holding Replacement ratio Fuel prices x (Calorific value & stove efficiency) = x Biogas substitution value Collection rate Fuel mix x = Correction factor Substituted fuel Financial and economic performance of domestic biogas installations

13. Biogas Substitution Value (BSV) Financial and economic performance of domestic biogas installations

14. “Capital budgeting instruments” Simple Payback Period (SPP): Investment divided by annual (net) income Parameters used: Cash flow Net Present Value (NPV): Present value (future) cash inflows minus initial investment Interesting project: NPV > 0 Parameters used: Cash flow Discount rate Internal Rate of Return (IRR): Discount rate resulting in a nett present value of zero after a series of cash flows Interesting project: IRR > interest rate alternative investments Parameters used: Cash flow Financial and economic performance of domestic biogas installations

15. Simple payback Financial and economic performance of domestic biogas installations

16. NPV example CER value: Euro 30 per year Crediting period: 7 years Total CER value: Euro 210 ? According to NPV at 7% discount rate: NPV: Euro 146,05 Financial and economic performance of domestic biogas installations

17. NPV Financial and economic performance of domestic biogas installations

18. IRR example Investment: Euro 400 Net savings: Euro 150 per year Economic lifetime: 10 years Total income: Euro 1,100 (10 x 150 – 400) IRR: 36% IRR income Euro 8,090 (400 x 1.3610 – 400) Financial and economic performance of domestic biogas installations

19. IRR Financial and economic performance of domestic biogas installations

20. And now … … is this all true? well … Financial and economic performance of domestic biogas installations

21. Considerations (so far) • The cost side: • what is the actual price paid for the installation • local material and labour pricing • in-kind contribution of the household • Plant financing costs • The benefit side: • correcting for energy pricing increase • differences in energy pricing between areas • are households actually paying for their domestic fuel? • are households actually feeding the plant • and … : • to which extent does the investor reap the benefits • to which extent pays the investor for the “real” value Financial and economic performance of domestic biogas installations

22. Financial and economic performance Financial and economic performance of domestic biogas installations

23. Example for Rwanda Financial and economic performance of domestic biogas installations

24. Shadow values (Bangladesh example) Cost / benefit calculations on biogas

25. Economic analysis Financial and economic performance of domestic biogas installations

26. Sensitivity analysis (Pakistan example) Cost / benefit calculations on biogas

27. Thank you for your attention. Any questions? Financial and economic performance of domestic biogas installations