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:



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



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 the Environment

For many years the rational behind using biogas technology (or anaerobic technology) was the search for renewable sources of energy. In the meantime, other environmental protection aspects gain additional importance: A technology which previously just filled a "niche" is now becoming a key environmental technology for integrated, solid and liquid waste treatment concepts and climate protection both in industrialized and developing countries. Biogas technology is linked to the atmospheric budgets of many greenhouse gases. Another major environmental target is the mitigation of deforestation and soil erosion through the substitution of firewood as an energy source. The of living conditions macro-economic benefits from biogas use in this field should be approached within the scope of the specific condition in the household energy sector and possible alternative protection measures.


Overview

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:


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.

Further Information


References

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