Biogas Practice AreaBiogas Practice AreaBiogas Practice Area

Financial and economic performance of domestic

biogas installationsNot making money, still getting rich?

Compact Biogas CoursePPRE

February 27 04, 2011

Biogas Practice AreaBiogas Practice AreaBiogas Practice Area

Financial and economic performance of domestic biogas installations

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

Biogas Practice AreaBiogas Practice AreaBiogas Practice AreaImportance 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

Biogas Practice AreaBiogas Practice AreaBiogas Practice Area

Financial and economic performance of domestic biogas installations

Overview data origin

AsiaNepalVietnamCambodiaBangladeshLaosPakistanIndonesiaIndia**China**

AfricaRwandaEthiopiaTanzania Kenya UgandaBurkina FasoSenegalCameroon *Benin*

* Starting implementation in 2009** Partial data

Biogas Practice AreaBiogas Practice AreaBiogas Practice AreaAssessing valueCost-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 lifeOr a combination of the above?

Financial and economic performance of domestic biogas installations

Biogas Practice AreaBiogas Practice AreaBiogas Practice Area

Financial and economic performance of domestic biogas installations

Investment costsInvestment costs

-

200

400

600

800

1,000Ne

pal

Viet

nam

Cam

bodi

a

Bang

lade

sh

Laos

Paki

stan

Indo

nesia

Indi

a

Chin

a

Rwan

da

Ethi

opia

Tanz

ania

Keny

a

Ugan

da

Sene

gal

Cam

eroo

n

Beni

n

Asia Africa

Euro

Investment costs and share of GDP

-

200

400

600

800

1,000Ne

pal

Viet

nam

Cam

bodi

a

Bang

lade

sh

Laos

Paki

stan

Indo

nesia

Indi

a

Chin

a

Rwan

da

Ethi

opia

Tanz

ania

Keny

a

Ugan

da

Sene

gal

Cam

eroo

n

Beni

n

Asia Africa

Euro

0%

20%

40%

60%

80%

100%

120%

%

Investment

% of GDP

Investment costs, share of GDP and subsidy share,

-

200

400

600

800

1,000

Nepa

l

Viet

nam

Cam

bodi

a

Bang

lade

sh

Laos

Paki

stan

Indo

nesia

Indi

a

Chin

a

Rwan

da

Ethi

opia

Tanz

ania

Keny

a

Ugan

da

Sene

gal

Cam

eroo

n

Beni

n

Asia Africa

Euro

0%

20%

40%

60%

80%

100%

120%

%

Investment% of GDP% subsidy

Biogas Practice AreaBiogas Practice AreaBiogas Practice Area

Total Biogas Costs

-

5

10

15

20

25

Nepa

l

Viet

nam

Cam

bodi

a

Bang

lade

sh

Laos

Paki

stan

Indo

nesia

Indi

a

Chin

a

Rwan

da

Ethi

opia

Tanz

ania

Keny

a

Ugan

da

Burk

ina

Faso

Sene

gal

Cam

eroo

n

Beni

n

Asia Africa

Euro

/ G

J net

Financial and economic performance of domestic biogas installations

Total Biogas CostsParameters 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.)

Biogas Practice AreaBiogas Practice AreaBiogas Practice AreaDomestic fuel mix

Domestic fuel mix

0%

20%

40%

60%

80%

100%Ne

pal

Viet

nam

Cam

bodi

a

Bang

lade

sh

Laos

Paki

stan

Indo

nesia

Indi

a

Chin

a

Rwan

da

Ethi

opia

Tanz

ania

Keny

a

Ugan

da

Burk

ina

Faso

Sene

gal

Cam

eroo

n

Beni

n

Asia Africa

%

Electricity

Natural Gas

LPG

Kerosene

Coal

Fuelwood

Charcoal

Agric residue

Cow dung

Biogas Practice AreaBiogas Practice AreaBiogas Practice Area

Financial and economic performance of domestic biogas installations

Specific domestic energy costsSpecific domestic fuel prices (economic)

0

10

20

30

40

50

60

70

80Ne

pal

Viet

nam

Cam

bodi

a

Bang

lade

sh

Laos

Paki

stan

Indo

nesia

Indi

a

Chin

a

Rwan

da

Ethi

opia

Tanz

ania

Keny

a

Ugan

da

Burk

ina

Faso

Sene

gal

Cam

eroo

n

Beni

n

Asia Africa

Euro

/GJn

et

ElectricityNatural GasLPGKeroseneCoalFuelwoodCharcoalAgric residueCow dung

Biogas Practice AreaBiogas Practice AreaBiogas Practice AreaSubstitution assumption

Biogas replaces traditional domestic fuels proportionally …

Gross energy mix

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

project baseline

Biogas

Agric res

Charcoal

Firew ood

Electricity

Coal

Kerosene

LPG

Net energy mix

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

project baseline

Biogas

Agric res

Charcoal

Firew ood

Electricity

Coal

Kerosene

LPG

Biogas Practice AreaBiogas Practice AreaBiogas Practice AreaBiogas substitution value

Spec biogas prod

Livestock holding

x

Collection ratex

Correction factor

x

Biogas production

=

Biogas production

(Calorific value & stove efficiency)Replacement

ratio

x

Fuel mixx

=Substituted fuel

Biogas production by animal type[m3/plant/day]

Pig - Dairy cattle 0.39 Non-dairy cattle 0.20 Buffalo 1.25

1.84 Annually: 687.49

Substituted fuel[kg/plant/yr]

Agricultural residue 664Fuelwood 1752Dung cake 1095LPG 51

Substituted fuelx

Fuel prices

Biogas substitution

value

=

Biogas substitution value[Euro/m3]

Agricultural residue 0.01Fuelwood 0.07Dung cake 0.02LPG 0.02

0.12

Financial and economic performance of domestic biogas installations

Biogas Practice AreaBiogas Practice AreaBiogas Practice Area

Financial and economic performance of domestic biogas installations

Biogas Substitution Value (BSV)

Specific Total Biogas Costs

0

10

20

30

40

50

60

Nepa

l

Viet

nam

Cam

bodi

a

Bang

lade

sh

Laos

Paki

stan

Indo

nesia

Indi

a

Chin

a

Rwan

da

Ethi

opia

Tanz

ania

Keny

a

Ugan

daBu

rkin

aFa

soSe

nega

l

Cam

eroo

n

Beni

n

Asia Africa

Euro

/GJn

et

Specific Costs and Benefits (economic)

0

10

20

30

40

50

60

Nepa

l

Viet

nam

Cam

bodi

a

Bang

lade

sh

Laos

Paki

stan

Indo

nesia

Indi

a

Chin

a

Rwan

da

Ethi

opia

Tanz

ania

Keny

a

Ugan

daBu

rkin

aFa

soSe

nega

l

Cam

eroo

n

Beni

n

Asia Africa

Euro

/GJn

et

TBCBSV eco

Specific Costs and Benefits (economic & financial)

05

1015202530354045

Nepa

l

Viet

nam

Cam

bodi

a

Bang

lade

sh

Laos

Paki

stan

Indo

nesia

Indi

a

Chin

a

Rwan

da

Ethi

opia

Tanz

ania

Keny

a

Ugan

daBu

rkin

aFa

soSe

nega

l

Cam

eroo

n

Beni

n

Asia Africa

Euro

/GJn

et

TBCBSV ecoBSV fin

Biogas Practice AreaBiogas Practice AreaBiogas Practice Area

Financial and economic performance of domestic biogas installations

Summary indices(RBV = BSV – TBC)

Summary indices

-

0.20

0.40

0.60

0.80

1.00

inde

x GDPi

RBVi

Biogas Practice AreaBiogas Practice AreaBiogas Practice Area“Capital budgeting instruments”

Internal Rate of Return (IRR): Discount rate resulting in a nett present value of zero after a series of cash flowsInteresting project: IRR > interest rate alternative investments

Net Present Value (NPV): Present value (future) cash inflows minus initial investmentInteresting project: NPV > 0

Parameters used: Cash flow

Parameters used: Cash flowDiscount rate

Financial and economic performance of domestic biogas installations

Simple Payback Period (SPP): Annual (net) income divided by investment

Parameters used: Cash flow

Biogas Practice AreaBiogas Practice AreaBiogas Practice AreaSimple payback

Financial and economic performance of domestic biogas installations

Simple payback period

-

1

2

3

4

5

6

7

8Ne

pal

Viet

nam

Cam

bodi

a

Bang

lade

sh

Laos

Paki

stan

Indo

nesia

Indi

a

Chin

a

Rwan

da

Ethi

opia

Tanz

ania

Keny

a

Ugan

da

Burk

ina

Faso

Sene

gal

Cam

eroo

n

Beni

n

Asia Africa

Year

s

SPP tot

SPP min sub

Biogas Practice AreaBiogas Practice AreaBiogas Practice AreaNPV example

CER value: Euro 30 per yearCrediting period: 7 years

Cashflow1 2 3 4 5 6 7

30 30 30 30 30 30 30

Total CER value: Euro 210 ?

According to NPV at 7% discount rate:NPV: Euro 146,05

Financial and economic performance of domestic biogas installations

Biogas Practice AreaBiogas Practice AreaBiogas Practice AreaNPV

Financial and economic performance of domestic biogas installations

Net Present Value

300-

200-

100-

-

100

200

300

400

500

600

700Ne

pal

Viet

nam

Cam

bodi

a

Bang

lade

sh

Laos

Paki

stan

Indo

nesia

Indi

a

Chin

a

Rwan

da

Ethi

opia

Tanz

ania

Keny

a

Ugan

da

Burk

ina

Faso

Sene

gal

Cam

eroo

n

Beni

n

Asia Africa

Euro

Biogas Practice AreaBiogas Practice AreaBiogas Practice AreaIRR example

Financial and economic performance of domestic biogas installations

Investment: Euro 400Net savings: Euro 150 per yearEconomic lifetime: 10 years

Total income: Euro 1,100 (10 x 150 – 400)IRR: 36%IRR income Euro 8,090 (400 x 1.3610 – 400)

Year 0 1 2 3 4 5 6 7 8 9 10 Total

Cashflow (400) 150 150 150 150 150 150 150 150 150 150 1,100

IRR 36%

IRR income 8,490

Income 143 194 263 357 485 659 894 1,213 1,647 2,235 8,090 Cumulative income 143 337 600 958 1,443 2,101 2,995 4,208 5,855 8,090

Biogas Practice AreaBiogas Practice AreaBiogas Practice AreaIRR

Financial and economic performance of domestic biogas installations

Internal Rate of Return

-10%

0%

10%

20%

30%

40%

50%

60%Ne

pal

Viet

nam

Cam

bodi

a

Bang

lade

sh

Laos

Paki

stan

Indo

nesia

Indi

a

Chin

a

Rwan

da

Ethi

opia

Tanz

ania

Keny

a

Ugan

da

Burk

ina

Faso

Sene

gal

Cam

eroo

n

Beni

n

Asia Africa

%

Biogas Practice AreaBiogas Practice AreaBiogas Practice AreaAnd now …

Financial and economic performance of domestic biogas installations

… is this all true?

well …

Biogas Practice AreaBiogas Practice AreaBiogas Practice AreaConsiderations (so far)

Financial and economic performance of domestic biogas installations

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

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

and … :

• to which extent does the investor reap the benefits

• to which extent pays the investor for the “real” value

Biogas Practice AreaBiogas Practice AreaBiogas Practice AreaFinancial and economic performance

Financial and economic performance of domestic biogas installations

Costs BenefitsInvestment 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

Fina

ncia

l

Hous

ehol

d

Econ

omic

Soci

ety

Biogas Practice AreaBiogas Practice AreaBiogas Practice AreaExample for Rwanda

Financial and economic performance of domestic biogas installations

Biogas Practice AreaBiogas Practice AreaBiogas Practice Area

Cost / benefit calculations on biogas

Shadow values (Bangladesh example)Cost/Benefit Breakdown

Financial EF* Economic(Taka) (%) (Taka)

Costs

cement 4200 0.6 2520materials 8445 0.75 6333.8labour 5550 0.75 4162.5appliances 2595 0.9 2335.5fees & charges 4210 1 4210

Total Capital Costs 25000 19561.8Ann. Maintenance Costs 500 391.2

Benefits (/yr)

biomass savings 3500 1 3500kerosene savings 0 1.1 0nutrients 1 1971labour time 547.5 0.75 410.625tons CO2-eq reduced 1 1600toilet attachments 0 0smoke reduction 1 400employment 0 0

Total Annual Benefits 4047.5 7881.625

Biogas Practice AreaBiogas Practice AreaBiogas Practice AreaEconomic analysis

EIRR analysis (B'desh

0%

10%

20%

30%

40%

50%

60%

70%

saved biomass +saved domesticlabour

+saved nutrients +indoor smokereduction

+reduced carbonemissions

EIRR

Financial and economic performance of domestic biogas installations

Biogas Practice AreaBiogas Practice AreaBiogas Practice Area

Cost / benefit calculations on biogas

Sensitivity analysis (Pakistan example)

20%

25%

30%

35%

40%

45%

-50% -25% nominal value +25% +50%

IRR

[%]

IRR sensitivity

Investment rebate

Biogas value

Carbon revenue

Biogas Practice AreaBiogas Practice AreaBiogas Practice AreaThank you for your attention.

Any questions?Financial and economic performance of domestic biogas installations