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

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

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

Financial and economic performance of domestic biogas installations 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

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

Investment costs

Financial and economic performance of domestic biogas installations 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 m 3 biogas p.a.)

Domestic fuel mix

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

Substitution assumption Biogas replaces traditional domestic fuels proportionally …

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

Biogas Substitution Value (BSV)

Financial and economic performance of domestic biogas installations Summary indices (RBV = BSV – TBC)

“Capital budgeting instruments” 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 Net Present Value (NPV): Present value (future) cash inflows minus initial investment Interesting project: NPV > 0 Parameters used: Cash flow Discount rate Financial and economic performance of domestic biogas installations Simple Payback Period (SPP): Annual (net) income divided by investment Parameters used: Cash flow

Simple payback Financial and economic performance of domestic biogas installations

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

NPV Financial and economic performance of domestic biogas installations

IRR example Financial and economic performance of domestic biogas installations 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 incomeEuro 8,090 (400 x – 400)

IRR Financial and economic performance of domestic biogas installations

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

Considerations (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

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

Example for Rwanda Financial and economic performance of domestic biogas installations

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

Economic analysis Financial and economic performance of domestic biogas installations

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

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