Cost and Benefit Relation of Biogas Plants

Overview

This article describes the methods that can be used to calculate the cost and benefit relation of a biogas plant.

Methods

As soon as the cost and benefit of a biogas plant in plan can be expected, collected and analysed, and as soon as a rate of interest for the calculation is determined it can be worked out with the assistance of a dynamic investment calculation if the plant is economical or not. Where there are several alternatives relative advantage can be ascertained.

There are three generally accepted methods for this:

• the capital value or discounting method
• the internal rate of interest method
• the annuity method

These methods are principally equivalent. The selection is effected according to the purpose and plausibility, e.g. distinctness of each advantage key. In practice the discounting method is used most frequently. According to this method the cost and benefit of different periods of time are concentrated onto one point in time, normally the current value or cash value, discounted and so made comparable. When comparing alternatives with different economic lifetimes and investment costs the annuity method is especially suitable. For the calculation of user fees the annuity method should be used. According to this method the non-recurring and aperiodical investment costs are converted into equal constant annual amounts for the economic lifetime of the plant and related to the quantity of gas distributed. This occurs by means of a capital return factor which states the annual amount of depreciation an interest which has to be used at the end of each year during n years to regain the original capital with interest and compound interest.

Difficulties

In order to avoid misinterpretations the basic weakness of efficiency calculations from a micro as well as macro-economic point of view have to be pointed out. For reasons of operational ability these calculations extensively comprise monetary effects. This means that cost and benefit are only determined with a view to monetary aims. There are, then, 'intangible' aims and thus, 'intangible' cost and benefit for which a final valuation lies within the judgement of the decisionmaker.

Further difficulties arise with the uncertainties combined with the determining of most of the basic influencing factors involved in the economic and financial profitability of biogas plants. To pinpoint the importance of possible fluctuations of any exceptions or data for the profitability calculated, sensitivity analyses should be carried out.

The extent of any effects on the result of the profitability calculation should be investigated especially for the following factors:

• available quantity of substrates
• expected gas production, especially the reduction for colder seasons
• the proportion of effectively utilizable gas production on total production
• type and quantity of replaceable fuels
• price of the fuels replaced (also in time-lapse)
• type and quantity of the replaced mineral fertilizer
• price of the mineral fertilizer (also in time-lapse)
• extent of the increase in agricultural production as a result of biodung
• economic lifetime of the plant, respectively its most important components
• rate of interest for capital invested
• amount and development of the running costs

Observation of the Development

It would be practical to observe the development of the most important determinants in the profitability over a period of time and compare them now and again with the assumptions made at the planning stage. A year after being taken into operation the plant should be subjected to a renewed assessment concerning the economic advantage and the financial productivity.

Further Information

H. Finck, G. Oelert: A guide to the financial Evaluation of Investment projects in energy supply. GTZ No/63.