Biogas - Costs and Benefits

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Economy and Financing

Techno-economic Assessment

Before a biogas plant is built or a biogas program is implemented, a techno-economic assessment should be made.

For this, two sets of cost-benefit analyses have to be carried out:

The macro-economic analysis (economic analysis) which compares the costs of a biogas program and the benefits for the country or the society. The micro-economic analysis (financial analysis) which judges the profitability of a biogas unit from the point of view of the user.

In judging the economic viability of biogas programs and -units the objectives of each decision-maker are of importance.

Biogas programs (macro-level) and biogas units (micro-level) can serve the following purposes:

• the production of energy at low cost (mainly micro-level);
• a crop increase in agriculture by the production of bio-fertilizer (micro-level);
• the improvement of sanitation and hygiene (micro and macro level);
• the conservation of tree and forest reserves and a reduction in soil erosion (mainly macro-level);
• an improvement in the conditions of members of poorer levels of the population (mainly macro-level);
• a saving in foreign exchange (macro-level);
• provision of skills enhancement and employment for rural areas (macro-level).

Comparison with Other Alternatives

After selecting objectives and counterchecking if biogas technology can fulfill the objectives at an acceptable cost-benefit ratio, it is still not certain, that expenses are invested in the best possible way. For this, a comparison with other alternatives to biogas programs and biogas plants is necessary. The expected cost and benefits are to be shown in the form of suitable investment criteria to allow statements regarding the economic advantage of the project. Often, alternatives to biogas have only a 'benefit-overlap' with biogas and several alternatives have to be combined to 'produce' the same quantity and quality of benefits.

On the other hand, alternatives to biogas programs may have benefits that a biogas program cannot deliver. Afforestation programs, for example, deliver energy and soil protection, but also building material.

Apart from the viability of the project, its financial effects on the decision-makers and the parties it touches financially are important: are a certain group of farmers able to invest in a long-term project like biogas generation? The cost per m³ of biogas and the cost for the same amount of alternative energy forms the basis for most economic comparisons.

Considering Development Tendencies

The economic analysis should not only be limited to the initial period of operation of a biogas plant. Development tendencies should also be considered which influence the amount and structure of the costs and benefits set against the economic lifetime of the plant. Here, special attention should be paid to the development in supply from other sources of energy which compete with biogas. The national economic development of the country in question features in as well. If import substitution to save foreign currency is one of the primary objectives, biogas energy and biogas fertilizer may be valued highly. If a stronger world market integration is envisaged energy and fertilizer from biogas has to compete directly with internationally traded energy and fertilizers.

Economic Evaluation of a Biogas Plant

The benefits for individual households (biogas, biodung, etc.) Costs of a biogas plant (production, running and capital costs) Cost and benefit relation Macro-economic evaluation (ecological and social effects, etc.) Financing and public support

Social Policies

Biogas technology not only supports national economies and the environmental protection, but as its main outcome for the local population it provides for a wide range of improvements in overall living conditions. Sanitary and health conditions improve and the quality of nutrition is enhanced by an improved energy availability. Through the provision of lighting and the reduction of time-consuming fuel gathering cultural and educational activities are supported.

Employment, professional qualification and overall food supply of the local population can be improved as well. But biogas technology can also contribute to an accentuation of existing differences in family income and property. Establishing community-level biogas systems is a way to ensure that the technology benefits a greater number of residents.

If social policies of a developing country are clearly focusing on poverty alleviation, biogas technology may not be the first choice among other "village technologies". It's place is shifting rather towards the rural agricultural middle class, communities (for waste water treatment) and industries.

Benefits for Health Sector

In order to estimate the impacts on the health sector, benefits arise on the individual level, as well as on the level of the society.

Biogas plants serve as methods of disposal for waste and sewage and in this way directly contribute to a better hygienic situation for individual users. By collecting centrally dung and by connecting latrines, open storage is avoided. Apart from this, pathogenes are extensively eliminated during the digestion process. All in all quite an improvement of sanitation and hygiene is achieved and therefore a biogas plant can contribute to a higher life expectancy.

In the People's Republic of China this effect became apparent in the bilharziosis, worm and gastro-disease endangered areas where the number of people suffering was greatly reduced. Theoretically, a reduction in the frequency of disease comprises economically a saving in medicine and consultation costs. Regarding the leakage of health services in rural areas, another approach to savings is suggested: Labour productivity rises due to elimination of potential disease-causing agents due to the better hygiene situation in consequence of biogas plants.

Applied to individual biogas projects, these economic effects cannot be credited directly to biogas projects in monetary terms, as there are plenty of influences on the health sector.

If the main goal of a biogas plant is to achieve a higher standard of hygiene, one possible method of shadow pricing would be the answer to the question:Which alternative investment in providing the same result of hygiene equals the positive hygiene results of a biogas plant?. The evaluation of sanitary and hygienic effects can be made i.e. by means of the alternative costs for a purifying plant.

But the incisive doubts of "correct" shadow pricing the benefits in the health sector remain.

Benefits for Biogas Users

Individual households judge the profitability of biogas plants primarily from the monetary surplus gained from utilizing biogas and bio-fertilizer in relation to the cost of the plants.

The following effects, to be documented and provided with a monetary value, should be listed as benefits:

• expenditure saved by the for Biogas Users#Energy substitution of other energy sources with biogas. If applicable, income from the sale of biogas;
• expenditure saved by the substitution of mineral fertilizers with bio-fertilizer. Increased yield by for Biogas Users#Bio-fertilizer using bio-fertilizer. If applicable, income from the sale of bio-fertilizer;
• savings in the for Biogas Users#Saved disposal cost as benefit cost of disposal and treatment of substrates (mainly for waste-water treatment);
• for Biogas Users#Time consumption time saved for collecting and preparing previously used fuel materials (if applicable), time saved for work in the stable and for spreading manure (if this time can be used to generate income).

Monetarizing Individual Benefits

The economic evaluation of the individual benefits of biogas plants is relatively simple if the users cover their energy and fertilizer demands commercially. In general, the monetary benefits from biogas plants for enterprises and institutions as well as from plants for well-to-do households should be quite reliably calculable. These groups normally purchase commercial fuels e.g. oil, gas and coal as well as mineral fertilizers. In industrialized countries, it is common practice to feed surplus electric energy, produced by biogas-driven generators, in the grid. Biogas slurry is a marketable product and the infrastructure allows it's transport at reasonable cost. Furthermore, treatment of waste and waste water is strictly regulated by law, causing communes, companies and farmers expenses which, if reduced with the help of biogas technology, are directly calculable benefits.

In contrast, small farmers in developing countries collect and use mostly traditional fuels and fertilizers like wood, harvest residues and cow dung. No direct monetary savings can be attributed to the use of biogas and bio-fertilizer. The monetary value of biogas has to be calculated through the time saved for collecting fuel, the monetary value for bio-fertilizer through the expected increase in crop yields.

Both in theory and in practice, this is problematic. In practice, a farmer would not value time for fuel collection very highly as it is often done by children or by somebody with low or no opportunity costs for his/her labor. In theory, it is difficult to define the value of unskilled labor. Similarly, the improved fertilizing value of biogas slurry will not be accepted by most farmers as a basis for cost-benefit analysis. They tend to judge the quality of slurry when counting the bags after harvest. Because a monetary calculation is not the only factor featuring in the decision to construct and operate a biogas plant, other factors come in which are less tangible: convenience, comfort, status, security of supply and others that could be subsumed under 'life quality'.

Acceptance by the Target Group

Besides the willingness and ability to invest considerable funds in biogas technology, there is a complex process of decision making involved when moving from traditional practices to a 'modern' way of producing fertilizer and acquiring energy. Hopes and fears, expected reactions from the society, previous experiences with modern technology, all these feature in a decision. For a biogas program, it is important to realize that economic considerations are only part of the deciding factors in favor or against biogas technology. All these factors can be subsumed under acceptance.

Acceptance is not a collection of irrational, economically unjustifiable pros and cons that a biogas extension project is called upon to dissolve. Rural households, as a rule, take rational decisions. But rural households and biogas programs often have information deficits that lead to non-acceptance of biogas technology by the target groups. Bridging this information gap from the farmer to the project and vice versa is a precondition for demonstrating the economic viability in a way that is understandable, relevant and acceptable to the farmer.

Energy

The main problem in the economic evaluation is to allocate a suitable monetary value to the non-commercial fuels which have so far no market prices. For the majority of rural households biogas is primarily a means of supplying energy for daily cooking and for lighting. They use mainly firewood, dried cow dung and harvest residues as fuel. But even if the particular household does not purchase the required traditional fuel, it's value can be calculated with the help of fuel prices on the local market. Theoretically, the firewood collector of the family could sell the amount that is no longer needed in the household

As an example, the rural households in India use the following quantities of non-commercial fuel per capita daily:

- firewood: 0.62 kg
- dried cow dung: 0.34 kg
- harvest residues: 0.20 kg

For rural households in the People's Republic of China the daily consumption of firewood is similar: between 0.55 - 0.83 kg per person.

Which sources of energy have been used so far and to what extent they can be replaced must be determined for the economic evaluation of biogas by means of calorific value relations. The monetary benefits of biogas depend mainly on how far commercial fuels can be replaced and their respective price on the market.

1 m³ Biogas (approx. 6 kWh/m³) is equivalent to:

• Diesel, Kerosene (approx. 12 kWh/kg) 0.5 kg
• Wood (approx. 4.5 kWh/kg) 1.3 kg
• Cow dung (approx. 5 kWh/kg dry matter) 1.2 kg
• Plant residues (approx. 4.5 kWh/kg d.m.) 1.3 kg
• Hard coal (approx. 8.5 kWh/kg) 0.7 kg
• City gas (approx. 5.3 kWh/m³) 1.1 m³
• Propane (approx. 25 kWh/m³) 0.24 m³
  

Bio-fertilizer

If and to which extent biogas slurry can be monetarized as benefit, depends largely on the previous use of the substrate to be digested. The more wasteful the present method of utilizing farmyard manure is, the easier it is to monetarize benefits. In most traditional systems, for example, the urine of livestock is not collected as manure. Often, the dung and fodder residues are heaped in the open, leading to heavy losses of minerals through sun radiation and wash-out by rain.

The following seven steps can lead to an approximate assessment of the monetary value of bio-fertilizer:

1. Assess quantities (tons dry matter) of farmyard manure which reaches the fields per year.
2. Analyze a cross section of the farmyard manure for plant macro-nutrients (N, P, K) per kg dry matter shortly before the manure is spread on the field.
3. Calculate the amount of NPK which is available for the farm from 'traditional' farmyard manure.
4. Assess quantities of biogas slurry (tons of dry matter) to be expected with the given numbers of livestock, amounts of plant residues to be digested and numbers of persons using the latrine attached to the biogas plant.
5. Analyze the biogas slurry of a comparable biogas owners nearby for plant macro-nutrients (N, P, K) per kg dry matter.
6. Calculate the amount of NPK which would be available on the farm through commercial slurry.
7. To value the monetary difference in NPK availability, the most commonly used fertilizer in the area should be chosen which can close the nutrient gap. If compost or other organic fertilizers are traded, they should be given preference (and a nutrient analysis undertaken beforehand).

The analysis above is obviously a method which cannot be employed for every potential biogas user as it is expensive and time-consuming. A biogas program would analyze the monetary value of bio-fertilizer exemplary for a number of cases and approximate others on this basis. This method, however, is superior to judging increased crop yields with the help of bio-fertilizer. Crop yields depend on a multitude of factors, the fertilizer being only one of many.

Depending on the topography, distributing slurry can save labor or add to the labor demand. The additional time needed or savings in time must feature in the calculation. In some cases, it is not possible to spread the slurry in liquid form, it has to be dried or composted first. In this case, NPK contents have to be measured in the compost or dried slurry and labor for composting or drying recorded.

Increased Yield

Biogas programs, however, should not neglect the argument of improved yields. Increases in agricultural production as a result of the use of bio-fertilizer of 6 - 10 % and in some cases of up to 20 % have been reported. Although improved yields through biogas slurry are difficult to capture in a stringent economic calculation, for demonstration and farmer-to-farmer extension they are very effective. Farmers should be encouraged to record harvests on their plots, before and after the introduction of biogas.

Statements of farmers like: "Since I use biogas slurry, I can harvest two bags of maize more on this plot" may not convince economists, but they are well understood by farmers.

Saved Disposal Cost as Benefit

Saving disposal cost as a benefit of a biogas system applies mainly in countries where the disposal of waste and waste water is regulated by law and where disposal opportunities exist. In industrialized countries, these costs are known and calculable.

In developing countries, industrial waste or waste from large agricultural enterprises are being taken increasingly serious. But often it is only after creating a conflict with local authorities or the local population, that the management is forced to consider proper waste disposal. The cost of continued conflict may be high and go as far as a forced closure of the enterprise. The entrepreneur will search for the cheapest acceptable solution to treat the waste. Taking the energy generation of anaerobic digestion into account, biogas technology may indeed offer the most economic solution.

In rural households, human feces are collected in pit latrines. Once the pit latrines are full, they are filled with soil and a new pit is dug. Normally, this happens every two years. Excavation costs and costs for shifting or casting the slab can be saved and calculated as benefit. If a septic tank is used, the emptying cost can be counted as benefit. The saved construction cost of the septic tank can only be counted as benefit, if the toilet connection to the inlet of a biogas digester competes with the construction of a septic tank, i.e. the septic tank has not been built yet.

Time Consumption

A critical shortage of energy, primarily of firewood, is reflected less in the market prices than in the time the households - especially women and children - need to collect fuelwood. The time commonly spent for collection varies from several hours per week to several hours per day. In some areas of Africa and Asia, firewood collection is the single most time consuming activity for a housewife. The open fire has to be attended almost permanently, in particular if low grade fuels like cow-dung or straw is burnt. Additional work is caused by the soot of an open fire - clean, shiny pots are a status symbol in many cultures. Compared to this, the time needed to operate a biogas plant is normally low so that in most cases a considerable net saving can be realized.

A financial evaluation of this time-saving is not easy. If the additional time can be used for productive purposes, the wages or the value of the contribution to production can be calculated. Frequently there are - in the short run - no suitable employment opportunities for women or children. To come to a proxy value of the saved time either the value of the collected firewood or the most likely employment opportunity can be employed for calculation.

Even if there is no income generating utilization of time saved there is a benefit to the individual and the household which could provide a convincing argument. The utilization of biogas saves time but also makes cooking more comfortable in comparison to the traditional methods, smoke and soot no longer pollute the kitchen. Especially in the morning rush, a biogas flame is much easier to start than an open fire. Again, it is a question of life quality, something which cannot be valued in monetary terms, but for which people are willing to pay.

Improvement of Sanitary and Health Conditions

Reduction of the Pathogenic Capacity

The processing of animal and human excrement in biogas systems obviously improves sanitary conditions for the plant owners, their families and the entire village community. The initial pathogenic capacity of the starting materials is greatly reduced by the fermentation process. Each new biogas system eliminates the need for one or more waste/manure/latrine pits, thereby substantially improving the hygiene conditions in the village concerned. From a medical point of view, the hygienic elimination of human excrement through the construction of latrines, connected directly to the biogas systems constitutes an important additional asset. In addition, noxious odors are avoided, because the decomposed slurry stored in such pits is odorless.

Reduction of Disease Transmission

Since biogas slurry does not attract flies or other vermin, the vectors for contagious diseases, for humans and animals alike, are reduced. Furthermore, eye infections and respiratory problems, attributable to soot and smoke from the burning of dried cow dung and firewood, are mitigated.

Gastrointestinal Diseases

In the rural areas of China and numerous other subtropical countries, gastrointestinal diseases are the most widespread type of affliction. Epidemics of schistosomiasis, ancylostomiasis, dysentery and others are caused by the transmission of pathogens via ova contained in fecal matter. Contagion is pre-programmed by the farmers themselves when they use night soil or liquid manure to fertilize their fields. As long as inadequate sanitary and hygienic conditions prevail, the health of the rural population will remain threatened. The anaerobic digestion of human, animal and organic wastes and effluents extensively detoxifies such material by killing most of the ova and pathogenic bacteria. It is not surprising, that the widespread popularization of biogas in China has had immediate beneficial effects on the sanitary conditions of the areas concerned. As soon as the introduction of biogas technology fully covered an area, no more human, animal or organic wastes were deposited in the open. This eliminated some of the main sources of infectious diseases. Schistosomiasis, previously a widespread, menacing disease in rural China, was reduced by 99% through the introduction of biogas technology. The number of tapeworm infections has been reduced to 13% of the pre-biogas level.

Economic Value of Disease Reduction

For the user of biogas technology, health effects are tangible with regards to the smoke reduction in the kitchen. The reduction of parasitic diseases can only be felt if the numbers of biogas systems in an area reaches a critical threshold. Similarly, for a larger entity like village, district or nation, health impacts of biogas systems do not grow as a linear function of the numbers of biogas units installed. Biogas subsidies can compete with expenditures for other forms of health care only, if the funds are substantial enough to reach a high coverage with biogas units.

As morbidity is, generally, a multi-factor issue, impacts of widespread biogas dissemination can only be assessed by an ex-post analysis: expenditures for the treatment of key diseases before and after the widespread introduction of biogas technology. Analyses of that kind can - with caution - be used to estimate the value of health benefits in a comparable region that is targetted for a biogas program.

Nutrition

The permanent availability of cooking energy in a household with a well functioning biogas plant can have effects on nutritional patterns. With easy access to energy, the number of warm meals may increase. Whole grain and beans may be cooked longer, increasing their digestibility, especially for children. Water may be boiled more regularly, thus reducing water-borne diseases.

Culture and Education

The use of biogas for lighting can lead to profound changes in the way families integrate in the cultural and educational sectors. Biogas lighting makes it possible to engage in activities at night such as reading or attending evening courses. The women and children, of whom it was previously expected that they gather fuel, now have more free time and are more likely to attend school. Experience also shows that the use of biogas systems gives women more time to devote to the upbringing of their children.

Distribution of Income

One possible drawback of the introduction of biogas technology could be an accentuation of existing differences in family income and property holdings. Poor tenant farmers could be coerced into selling - or even delivering free of charge - their own manure supplies to the landlord or other more prosperous farmers for use in their biogas plants. Obviously, this would be of great disadvantage with respect to the already low yields and energy supplies of small and/or tenant farmers.

If the benefits of biogas technology are not to be limited to farmers with a number of livestock of above four TLUs (Tropical Livestock Units), biogas programs will have to consider biogas systems that integrate neighborhoods or villages, e.g. by building and operating community biogas systems.

Regional Employment

The construction phase of biogas systems provides short-term employment and income due to the need for excavation, metal-work, masonry and plumbing. As documented in reports from China, the construction of biogas systems encourages local industries to manufacture the requisite building materials and accessories. Practically every district in question has its own enterprises for the production of cement, lime, bricks, plastic pipes, T-bars, plugs, stoves, lamps, gas lines, etc. Obviously, the subsequent operation and maintenance of the finished systems can have long-term beneficial effects on regional employment and income. Skilled craftsmen can be recruited not only for construction, but for service and repair. Community plants require a permanent staff for plant administration, raw material procurement, plant operation and maintenance, distribution of the gas yield and disposal of the effluent sludge.

Improvement of Living Conditions

For the poor, the main advantage of higher crop yields is that they improve the family's nutritional basis and reduce the danger of famines. The more prosperous farmers can sell their excess crops, thereby increasing their income. This has a snowball effect in that those farmers subsequently expand their mode of living and begin to spend more on such things as household appliances. Consequently, local and/or regional employment and income also benefit. However, the number of existing biogas systems has not yet become large enough to allow accurate quantification of the type and extent of the individual effects.

Rural-urban Migration

To the extent that the introduction of biogas technology generates jobs and higher income while improving living conditions, it may be assumed that fewer rural inhabitants will be drawn away to urban centers in search of employment. While, as mentioned above, no accurate quantification is as yet possible concerning the effects of biogas technology on rural-urban migration, most Indian experts agree that the available information indicates a real and noticeable influence. Further investigation is required for obtaining reliable data on the nature and extent of such effects.

Reduced Deforestation

Well functioning biogas plants can replace the entire consumption of firewood or charcoal of an individual household by biogas. In macro-economic cost-benefit analyses the amount of firewood or charcoal saved is often directly translated into hectares of forest lost. The monetary benefit of biogas would then be reflected in re-afforestation costs.

This simplistic approach is questionable for four reasons:

1. Rural populations use, as much as possible, dry firewood. Live trees are only harvested, if no dead wood is available. But even then, careful pruning of trees instead of felling may not cause extensive damage.
2. Afforestation sites or firewood plantations can by no means replace a natural forest. They can not re-establish the bio-diversity of a natural forest nor can they provide for the multitude of forest products that rural populations depend on for their nutritional, medical and other needs.
3. Between the destruction of a natural forest and the re-establishment of some form of tree cover lies a time gap with negative, often irreversible effects on soils, river beds, fauna and flora.
4. Firewood harvesting does not proceed by clear-felling hectare after hectare. First, dry branches, then dry twigs and leaves are collected. Then, the first green branches are harvested, followed by the cutting of smaller trees. Gradually, a large area is thinned out. Until a certain minor degree of destruction, natural regeneration is still possible, provided there is adequate protection. In this case, it is the cost of protection that determines the value of biogas.

For national or regional planning, however, the reduction of deforestation and consequent soil erosion is one of the main arguments to allocate public funds for the dissemination of biogas technology. While a ready-made formula cannot be offered to calculate the monetary value of biogas in terms of reducing deforestation, some guiding questions may assist the planner to realistically assess the profitability of biogas compared to other environmental interventions.

• What part of the household energy needs is covered by green wood? How much is from forests, how much from sustainable plantations?
• What part of the household energy needs of the area in question could realistically be covered by biogas?
• Which interventions of damage-prevention would have similar effects (e.g. improved stoves, forest protection, firewood plantation, solar and other alternative technologies, etc.)?
• Which interventions of damage repair would have similar effects (reforestation, erosion control, protection of reforestation sites, etc.)?
• How do we value the difference in 'environmental quality' which exists between a preserved natural forest and an area, once bare of trees and now replanted with trees?

Further Information

• Cost Competitiveness of Rural Electrification Solutions
  
• Cost and Benefit Relation of Biogas Plants