B io g a s P ra c tic e A re a
Financial and economic
performance of domestic biogas
installations
Not making money, still getting rich?
Compact Biogas Course
PPRE
February 27 04, 2011
Content
1. Biogas cost & benefits, a global overview
– Investment, subsidy and GDPppp
– Specific biogas costs
– Specific energy costs
– Biogas substitution value
– Capital budgeting tools
2. Financial and economic performance
– Detailed example Rwanda
3. Shadow values
– Example Bangladesh
4. Sensitivity analysis
– Example Pakistan
Financial and economic performance of domestic biogas installations
B io g a s P ra c tic e A re a
Importance of financial and economical assessment
B io g a s P ra c tic e A re a
• 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
Overview data origin
B io g a s P ra c tic e A re a
Asia
Nepal
Vietnam
Cambodia
Bangladesh
Laos
Pakistan
Indonesia
India**
China**
Africa
Rwanda
Ethiopia
Tanzania
Kenya
Uganda
Burkina Faso
Senegal
Cameroon *
Benin*
Financial and economic performance of domestic biogas installations
*
**
Starting implementation in 2009
Partial data
Assessing value
B io g a s P ra c tic e A re a
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
Investment costs
B io g a s P ra c tic e A re a
Investment
costs,Investment
share
GDP
and of
subsidy
Investment
costsofand
costs
share
GDP share,
1,000
1,000
120%
120%
Investment
Investment
% of GDP
%%ofsubsidy
GDP
800
100%
100%
80%
80%
Euro
Euro
%%
600
600
60%
60%
400
400
40%
40%
200
20%
200
20%
Asia
Asia
Financial and economic performance of domestic biogas installations
Africa
Africa
Benin
Benin
Cameroon
Cameroon
Senegal
Senegal
Uganda
Uganda
Kenya
Kenya
Tanzania
Tanzania
Ethiopia
Ethiopia
Rwanda
Rwanda
China
China
India
India
Indonesia
Indonesia
Pakistan
Pakistan
LaosLaos
Bangladesh
Bangladesh
Cambodia
Cambodia
Vietnam
Vietnam
-
0%
Nepal
Nepal
-
0%
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
B io g a s P ra c tic e A re a
Total Biogas Costs
B io g a s P ra c tic e A re a
Euro / GJ net
Parameters used:
•Investment costs
•Maintenance costs (5% of investment p.a.)
•Biogas loan conditions (interest rate, maturity)
•Lifetime (15 yrs)
Total Biogas Costs
3
•Biogas production
25 (584 m biogas p.a.)
20
15
10
5
Asia
Financial and economic performance of domestic biogas installations
Africa
Benin
Cameroon
Senegal
Burkina Faso
Uganda
Kenya
Tanzania
Ethiopia
Rwanda
China
India
Indonesia
Pakistan
Laos
Bangladesh
Cambodia
Vietnam
Nepal
-
Domestic fuel mix
B io g a s P ra c tic e A re a
Electricity
Natural Gas
100%
LPG
Kerosene
80%
Coal
Fuelwood
60%
Charcoal
Agric residue
40%
Cow dung
20%
Asia
Africa
Benin
Cameroon
Senegal
Burkina Faso
Uganda
Kenya
Tanzania
Ethiopia
Rwanda
China
India
Indonesia
Pakistan
Laos
Bangladesh
Cambodia
Vietnam
0%
Nepal
%
Domestic fuel mix
Specific domestic energy costs
B io g a s P ra c tic e A re a
Specific domestic fuel prices (economic)
Electricity
Natural Gas
LPG
Kerosene
Coal
Fuelwood
Charcoal
Agric residue
Cow dung
Euro/GJnet
80
70
60
50
40
30
20
10
Financial and economic performance of domestic
Asiabiogas installations
Africa
Benin
Cameroon
Senegal
Burkina Faso
Uganda
Kenya
Tanzania
Ethiopia
Rwanda
China
India
Indonesia
Pakistan
Laos
Bangladesh
Cambodia
Vietnam
Nepal
0
Substitution assumption
B io g a s P ra c tic e A re a
Biogas replaces traditional domestic fuels proportionally …
Gross energy mix
Net energy mix
100%
100%
90%
90%
80%
80%
70%
70%
60%
Biogas
60%
Biogas
50%
Agric res
50%
Agric res
40%
Charcoal
40%
Charcoal
Firew ood
30%
Firew ood
30%
Electricity
20%
Coal
10%
Kerosene
0%
project
baseline
LPG
Electricity
20%
Coal
10%
Kerosene
0%
project
baseline
LPG
Biogas substitution value
Spec biogas prod
B io g a s P ra c tic e A re a
Biogas production
Substituted fuel
x
x
x
Livestock holding
Replacement ratio
Fuel prices
x
(Calorific value & stove efficiency)
Collection rate
Fuel mix
=
x
x
Biogas
substitution value
=
Correction factor
Substituted fuel
=
Biogas production
Biogas production by animal type
Substituted fuel
Pig
Dairy cattle
Non-dairy cattle
Buffalo
Annually:
0.39
0.20
1.25
Biogas substitution value
[Euro/m3]
[kg/plant/yr]
[m3/plant/day]
Agricultural residue
Fuelwood
Dung cake
LPG
1.84
687.49
Financial and economic performance of domestic biogas installations
664
1752
1095
51
Agricultural residue
Fuelwood
Dung cake
LPG
0.01
0.07
0.02
0.02
0.12
Euro/GJnet
Euro/GJnet
Euro/GJnet
Biogas Substitution Value (BSV)
B io g a s P ra c tic e A re a
Specific
Costs
and Benefits
(economic
& financial)
Specific
Costs
and
Benefits
(economic)
Specific
Total
Biogas
Costs
45
60
60
40
TBC
TBC
35
BSV eco
50
50
BSV eco
BSV fin
40
40
30
25
30
30
20
20
20
15
10
10
10
Asia
Asia
Asia
Financial and economic performance of domestic biogas installations
Africa
Africa
Afric a
Benin
Benin
Cameroon
Cameroon
Senegal
Senegal
Burkina
Burkina
Faso
Faso
Uganda
Uganda
Kenya
Kenya
Tanzania
Tanzania
Ethiopia
Ethiopia
Rwanda
Rwanda
China
China
India
India
Indonesia
Indonesia
Pakistan
Pakistan
Laos
Laos
Bangladesh
Bangladesh
Vietnam
Vietnam
Nepal
Nepal
0
Cambodia
Cambodia
5
00
“Capital budgeting instruments”
B io g a s P ra c tic e A re a
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:
Financial and economic performance of domestic biogas installations
Cash flow
Simple payback
B io g a s P ra c tic e A re a
Simple payback period
SPP tot
Years
8
SPP min sub
7
6
5
4
3
2
1
Asia
Financial and economic performance of domestic biogas installations
Africa
Benin
Cameroon
Senegal
Burkina Faso
Uganda
Kenya
Tanzania
Ethiopia
Rwanda
China
India
Indonesia
Pakistan
Laos
Bangladesh
Cambodia
Vietnam
Nepal
-
NPV example
B io g a s P ra c tic e A re a
CER value:
Crediting period:
Euro 30 per year
7 years
Cashflow
1
2
30
Total CER value:
3
30
4
30
Euro 210 ?
According to NPV at 7% discount rate:
NPV:
Euro 146,05
Financial and economic performance of domestic biogas installations
5
30
6
30
7
30
30
NPV
B io g a s P ra c tic e A re a
Euro
Net Present Value
700
600
500
400
300
200
100
200Asia
300Financial and economic performance of domestic biogas installations
Africa
Benin
Cameroon
Senegal
Burkina Faso
Uganda
Kenya
Tanzania
Ethiopia
Rwanda
China
India
Indonesia
Pakistan
Laos
Bangladesh
Cambodia
Vietnam
100-
Nepal
-
IRR example
B io g a s P ra c tic e A re a
Investment:
Net savings:
Economic lifetime:
Year
0
Cashflow
IRR
(400)
Euro 400
Euro 150 per year
10 years
1
2
3
4
5
6
7
8
9
10
Total
150
150
150
150
150
150
150
150
150
150
1,100
143
143
194
337
263
600
357
958
485
1,443
659
2,101
894
2,995
1,213
4,208
1,647
5,855
2,235
8,090
8,090
36%
IRR income
8,490
Income
Cumulative income
Total income:
IRR:
IRR income
Euro 1,100
36%
Euro 8,090
Financial and economic performance of domestic biogas installations
(10 x 150 – 400)
(400 x 1.3610 – 400)
IRR
B io g a s P ra c tic e A re a
%
Internal Rate of Return
60%
50%
40%
30%
20%
10%
Asia
Financial and economic performance of domestic biogas installations
Africa
Benin
Cameroon
Senegal
Burkina Faso
Uganda
Kenya
Tanzania
Ethiopia
Rwanda
China
India
Indonesia
Pakistan
Laos
Bangladesh
Cambodia
-10%
Vietnam
Nepal
0%
And now …
… is this all true?
well …
Financial and economic performance of domestic biogas installations
B io g a s P ra c tic e A re a
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
B io g a s P ra c tic e A re a
Financial and economic performance
Household
Society
Economic
Financial
Costs
B io g a s P ra c tic e A re a
Benefits
Investment at subsidized rate
Fuel savings
Repair and maintenance
Time savings
Time for plant operation
Fertilizer value (?)
Financing
Avoided health expenses
Full investment
Fuel savings
Repair and maintenance
Time savings
Time for plant operation
Fertilizer value
Financing
Local employment generation
Subsidy
Avoided health expenses
Programme support
GHG reduction
Environment improvement
Financial and economic performance of domestic biogas installations
Example for
Rwanda
Financial and economic performance of domestic biogas installations
B io g a s P ra c tic e A re a
Shadow values (Bangladesh example)
B io g a s P ra c tic e A re a
Cost/Benefit Breakdown
Financial
(Taka)
EF*
(%)
Economic
(Taka)
Costs
cement
materials
labour
appliances
fees & charges
Total Capital Costs
Ann. Maintenance Costs
4200
8445
5550
2595
4210
0.6
0.75
0.75
0.9
1
25000
500
2520
6333.8
4162.5
2335.5
4210
19561.8
391.2
Benefits (/yr)
biomass savings
kerosene savings
nutrients
labour time
tons CO2-eq reduced
toilet attachments
smoke reduction
employment
3500
0
547.5
1
1.1
1
0.75
1
0
1
0
3500
0
1971
410.625
1600
0
400
0
Cost / benefit calculations on biogas
Total Annual Benefits
4047.5
7881.625
Economic analysis
B io g a s P ra c tic e A re a
EIRR analysis (B'desh
70%
60%
EIRR
50%
40%
30%
20%
10%
0%
saved biomass
+saved domestic +saved nutrients
labour
Financial and economic performance of domestic biogas installations
+indoor smoke
reduction
+reduced carbon
emissions
Sensitivity analysis (Pakistan example)
B io g a s P ra c tic e A re a
IRR sensitivity
45%
Investment rebate
Biogas value
40%
Carbon revenue
IRR [%]
35%
30%
25%
20%
-50%
Cost / benefit calculations on biogas
-25%
nominal value
+25%
+50%
Thank you for your attention.
B io g a s P ra c tic e A re a
Any questions?
Financial and economic performance of domestic biogas installations