Financing & Public Support of Biogas Plants
Sources of Financing
The cost necessary for the construction of biogas plants frequently exceeds the means at the disposal of the investor, in other words he cannot cover them from his regular income or savings. This could also apply to the larger replacement investments occurring at certain intervals during the economic lifetime of the plant. Besides the non-recurring i.e. a-periodical costs, the running costs of the plant have to be borne. This solvency outflow however, is set against solvency inflow in the form of regular revenue. A solvency analysis can show how far the net solvency outflow has to be financed and how much scope there will be from net solvency inflow. Usually the construction and operation of biogas plants involve a demand for financial means which can only be covered by borrowed capital. In general the following can be seen as sources:
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The various sources have to be individually examined for their ability to provide the means.
Running, Maintenance and Repair Costs
The financing of investments and of the operation of the plant should be clearly settled at the preplanning stage. It has to be ensured that the quota derived from public funds is firmly planned in the budget. Special attention has to be paid to the question of how the running, maintenance and repair costs can be financed. Means for servicing and repairing are of essential importance and have to be available in sufficient quantity and in good time in order to make full use of the possible lifetime of the plant and also to insure the confidence of the user in the reliability of the plant.
Financing by Credit
When financing by credit the questions of liability and debt provisions should be clarified. The borrower should always be able to bear the possible risk or be immune to this risk by having state credit guarantees. The debt provisions should be worked out so that they conform to the development of cost and yield. Credit repayment terms are frequently much shorter than the lifetime of a project e.g. 5 years compared to 15 - 20 years. The bringing up of capital often becomes an invincible barrier for the investor.
State Support
When the profitability of biogas plants are negative on a private scale, but on a national scale lead to positive results, state support measures are required.
On principle the following can be seen as starting points for the distribution of biogas plants to such an extent that would make them macro-economically feasible and socio-politically desirable:
- the creation or alteration of structural conditions for individual investment decisions in favour of biogas plants, e.g. more critical control of firewood consumption and tree-felling, regulations concerning the treatment and disposal of substrates (waste water, faeces)
- the subsidising of private and institutional community biogas plants by means of grants or inexpensive credits
- the construction and operation of biogas plants as public utility enterprises especially as municipal community plants, in appropriate instances by allocation of appropriated means to the municipalities.
Families with Low Incomes
The more plants are extended to families with low incomes, the less can the costs for construction and operation of the plant be met by contributions from the users. On village community plants in India providing energy for the households practical experience has indicated that not even the running costs can be met by user fees. Consequently, not only the investment costs but also a proportion of the running costs has to be covered by general tax revenue. The resolution of the Indian Government provides a guideline for the extent of public support whereby from case to case 50 to 100% of the cost for community biogas plants are subsidised.
Since the implementation of biogas plants necessitates considerable investment from public funds, sufficient public means for parallel socio-techno-economic investigations should be provided for, which allow a suitable feedback to promotion and distribution strategy.
Revenues
A biogas plant can generate revenues in the following ways:
- sale of electricity
- sale of heat
- sale of gas
- revenues from disposal of digestion substrates
- sale of digestate
- reduction of costs for disposal of agricultural residues
- Carbon emission reduction (CDM)
The principal source of revenue for biogas plants, apart from those which feed gas into a grid, is the sale of electricity. As the level of payment and the duration of the entitlement to payment are regulated by law, revenues from the sale of electricity can be projected without risk depending on the country of implementation.
In Germany, depending on the type and quantity of substrates used, the output of the plant and fulfilment of other requirements for payment of bonuses, the tariff for power generation is subject to considerable variation between roughly 8 and 30 ct/kWh. Bonuses are paid for various reasons, including for the exclusive use of energy crops and manure, meaningful use of the heat arising at the plant, use of innovative technology, and compliance with the formaldehyde limits laid down in TA Luft (cf. Section 7.3.3.3). The tariff arrangements are dealt with in detail
In rare cases, a disposal fee can be charged for substrates used in the plant. However, such a possibility must be carefully examined and, if necessary, contractually secured before being factored into the cost/revenue projections.
Financing of project implementation
From energypedia:
The cost necessary for the construction of biogas plants frequently exceeds the means at the disposal of the investor, in other words he cannot cover them from his regular income or savings. This could also apply to the larger replacement investments occurring at certain intervals during the economic lifetime of the plant. Besides the non-recurring i.e. a-periodical costs, the running costs of the plant have to be borne. This solvency outflow however, is set against solvency inflow in the form of regular revenue. A solvency analysis can show how far the net solvency outflow has to be financed and how much scope there will be from net solvency inflow. Usually the construction and operation of biogas plants involve a demand for financial means which can only be covered by borrowed capital. In general the following can be seen as sources:
|
The various sources have to be individually examined for their ability to provide the means.
Financing by credit
When financing by credit the questions of liability and debt provisions should be clarified. The borrower should always be able to bear the possible risk or be immune to this risk by having state credit guarantees. The debt provisions should be worked out so that they conform to the development of cost and yield. Credit repayment terms are frequently much shorter than the lifetime of a project e.g. 5 years compared to 15 - 20 years. The bringing up of capital often becomes an invincible barrier for the investor.
State support
When the profitability of biogas plants are negative on a private scale, but on a national scale lead to positive results, state support measures are required.
On principle the following can be seen as starting points for the distribution of biogas plants to such an extent that would make them macro-economically feasible and socio-politically desirable:
Since the implementation of biogas plants necessitates considerable investment from public funds, sufficient public means for parallel socio-techno-economic investigations should be provided for, which allow a suitable feedback to promotion and distribution strategy.
Financing of plant operation
Running, maintenance and repair costs
The financing of investments and of the operation of the plant should be clearly settled at the preplanning stage. It has to be ensured that the quota derived from public funds is firmly planned in the budget. Special attention has to be paid to the question of how the running, maintenance and repair costs can be financed. Means for servicing and repairing are of essential importance and have to be available in sufficient quantity and in good time in order to make full use of the possible lifetime of the plant and also to insure the confidence of the user in the reliability of the plant.
Economic optimisation
Economic optimisation is aimed at reducing costs and increasing yields. Like technical optimisation, economic optimisation can be applied to all sub-processes. In this case, too, the first step is to identify the substantial cost factors so that the related costs can be reduced accordingly. Specific variables such as electricity generation costs (e.g. in €/kWh) or specific investment costs (in
€/kWel inst.) serve as the basis for an initial guide to plant performance as a whole. There are comparative studies for these (for example German biogas measuring programme, ), thus enabling the overall economic performance of the plant to be graded. To conduct an in-depth study it is advisable to analyse and compare the following economic data:
- Operating costs
- Personnel costs
- Maintenance costs
- Repair costs
- Energy costs
- Cost of upkeep
- Investment costs (depreciation), repayment, interest
- Substrate costs (linked to substrate quality and substrate quantities)
- Revenue for generated electricity and heat
- Revenue for substrates
- Revenue for fermentation residues/fertiliser
Economic Consideration
Economically, electricity from biogas must compete with electricity generation from fossil fuels and other renewable energies such as hydro power. Supporting factors are:
- Rising prices of fossil fuels
- Low reliability of electricity provision from national grids with persistent risk of power cuts and vulnerability of hydro power to drought.
Inhibiting factors are:
- Relatively low prices of fossil fuels
- Need to buy high quality components from industrialised countries
- Unfavourable conditions for selling electricity
- Lack of awareness, capacity and experience preventing the economic operation of in-frastructure components.
The economic feasibility of a biogas plant depends on the economic value of the entire range of plant outputs. These are:
- Electricity or mechanical power
- Biogas;
- Heat, co-generated by the combustion engine
- The sanitation effect with COD and BOD (chemical and biological oxygen demand) reduction in the runoff of agro-industrial settings
- Slurry used as fertiliser.
Most of the commercially run biogas power plants in developing countries are of medium size and are installed in industrial contexts, primarily using organic waste material from agro-industrial production processes such as cow, pig and chicken manure, slaughterhouse waste, or residues from sisal and coffee processing.
Assessments of 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 such cases, the electricity from biogas plants can be compared to the price of elec-tricity provided through the national grid or the price of bottled LPG.
However these figures are unrealistic, except for direct thermal energy use as for cooking energy, or in very few locations with extremely expensive diesel fuel.
More realistic figures seem to be those calculated by GTZ experts in Kenya for medium and large plants (>50kW): They anticipate payback periods for plants under the DBFZ tariff scheme (~0.15 US$/kWh) of 6 years under very favourable conditions, and 9 years for unfa-vourable but still economically viable investments.
In spite of this theoretical profitability, recent examples from Africa show that electricity gen-eration from biogas has not really captured the market as a ‘profitable’ technology. None of the plants described here could have been installed without international technical and finan-cial support. This is due to the pilot status of the market and barriers such as a lack of awareness, experience, local capacity, upfront financing for project development (for own consumption projects, i.e. where there is no feed-in component) and the existence of policy barriers in cases where feed-in is required.
Many new studies come to the conclusion that biogas power plants are not commercially viable without subsidies or guaranteed high prices (~0,20US$) for the produced outputs. In Germany and other industrialised countries, only guaranteed feed-in tariffs have led to a breakthrough. Almost all well-known biogas power plants in developing countries depend on financial support from a third international party.
Framework Conditions
In Germany, power generation from biogas is only profitable due to grid connection and sup-porting feed-in tariffs. By contrast, power generation in most developing countries seems to be especially profitable in settings far away from the national grid and other energy sources, as the legal framework conditions and the lack of appropriate feed-in tariffs do not support feeding into the grid. However, there are the first signs of financial and legal support for feed-ing in electricity from biogas power plants in countries such as Brazil. Output-oriented support schemes (such as the German EEG) have proved to be more successful than investment-oriented financial support.
Direct subsidies and public financial contributions to installation costs have been crucial for the installation of some pilot plants. However, they have not provided incentives for proper and efficient operation. By contrast, the establishment of appropriate feed-in tariffs stimulates the construction of efficient plants and their continuous and efficient operation.
Through its projects and programmes, GTZ therefore recommends the establishment of guaranteed feed-in price schemes similar to the one in Germany.
However, besides price considerations, there remain many barriers to market penetration and development of the biogas sector:
- Lack of awareness of biogas opportunities
- High upfront costs for potential assessments and feasibility studies
- Lack of access to finance
- Lack of local capacity for project design, construction, operation and maintenance
- Legal framework conditions that complicate alternative energy production and com-mercialisation: for example, the right to sell electricity at local level has to be in place.
As long as the national framework conditions are not favourable, electricity generation from biogas will remain limited to a few pilot applications.
Toolkit
Excelsheet for detailed financial calculation
Biogas Box
DMS folder for further reading on financing.
Web
Energypedia for financing domestic biogas applications
Profitability Calculator (KTBL)
Presentation on how to create a business plan for a biogas plant
