Economic Aspects of Biogas

Overview

Economically, electricity from biogas has to mainly compete with electricity generation from fossil fuels. Supporting factors are rising prices of fossil fuels, low reliability of electricity provision from national grids with persistent risk of power cuts.

Economic feasibility of a biogas plant depends on the economic value these are electricity or mechanical power biogas, heat co-generated by the combustion engine, sanitation effect with COD and BOD (chemical and biological oxygen demand) reduction in the runoff of agro-industrial settings and slurry used as fertilizer. Statements on the economic feasibility are contradictory or inconsistent. Many press releases and information from biogas power plant producers refer to payback periods of only 1.5 – 2.5 years. In these cases, the electricity from biogas plants can be compared to the price of electricity provided through the national grid or the price of bottled LPG. More realistic figures seem to be the ones calculated by experts in Kenya for medium and large plants (>50kW): They are expecting “payback periods for plants under the DBFZ tariff scheme [~0,15 US$/kWh] of 6 years for very favourable conditions, and 9 years for unfavourable but still economically viable investments .

The investment costs for a gasification plant vary significantly. Data from Sri Lanka to European countries range from EUR 150/kWel to EUR 3,000/kWel. Locally manufactured gasifier technology (eg. Cambodia) is claimed to be cheaper than imported (eg. from India). However, frequently low quality is reported for gasifiers from local production. It is likely that the cheap gasifiers from local production require far more maintenance and that these costs are often not documented and calculated correctly. In general, the small-scale power-gasifier technology proved to be unreliable and expensive. Even when plants are operational from the technical perspective, it turned out that communal organisations were not the ideal operators. Instead, commercial operators with more ownership have been proposed.

The economic benefits of small-scale power gasifiers depend on the potential savings of switching from high-cost commercial fuel to locally available low-cost biomass. The potential fuel cost savings have to compensate the higher costs for the initial investment, labour, operation and maintenance. Little reliable operating data on the economy of gasification plants is available.

• Operational costs seem to vary considerably and are reported to be between US$0.03/kWh and US$0.27/kWh. But most of these calculations are rather based on theoretical reflections than on monitored data.
• Many projects show that even in cases where capital costs did not have to be covered by the users, the system’s profitable operation is difficult. Only in remote places with little energy alternatives and gasifiers integrated in biomass processing industry, like rice mills, did a profitable operation seem possible. In most other cases, no or only marginal profitability has been reported.
• Recent studies in Germany also do not show more than a “theoretical” profitability due to all the costs for development and maintenance work by highly qualified engineers and technicians. Within the German context, gasifier plants only make sense in settings where the produced heat can be used beneficially and increase the creditable efficiency. However, apart from a few industrial applications, there seems to be rarely any chance for this in most developing countries.
• Cases from Asia demonstrate that the procurement of wood as feedstock was more difficult and costly than expected. Many community based approaches did not work well. Time and effort for collection, transport and conditioning of the wooden sticks were perceived as too high.

In spite of this theoretical profitability, recent examples from Africa show that electricity generation from biogas has not really captured the market as a “profitable” technology. All of the plants presented here would not have been installed without international technical and financial support.This is due to the pilot stage of the market and barriers like a lack of awareness, experience, local capacity, upfront financing for project development (for own consumption projects, i.e. where there is no feed-in component) and the existence of policy barriers in case where feed-in is required.

Many new studies come to the conclusion that biogas power plants are not commercially viable without subsidies or guaranteed high (~0,20US$) prices for the produced outputs. In Germany and other industrialized countries, only the guaranteed feed-in tariffs led to a breakthrough. Almost all well-known biogas power plants in developing countries depend on financial support from a third international party. Little experience is available about the possibilities for using biogas power plants to cover basic energy needs of the rural population. Most biogas power plants are connected to agro-industrial facilities and do provide electricity only to very few immediate neighbours. But calculations show that biogas could play a role in supplying isolated grids, where it represents a least cost option.