Costs of a Biogas Plant

Overview

Exact estimations for the construction and operation of biogas plants serve the following purposes:

to compare the costs of alternative models (optimal project selection) for the information of the users as far as future financial burdens are concerned the calculation of financing needs including public subsidies (budget planning)

As far as costs are concerned there are three major categories:

Production Costs

The production costs include all expenses and lost income which are necessary for the erection of the plant e.g.: the land, excavation-work, construction of the digester and gas-holder, the piping system, the gas utilization system, the dung storage system and other buildings. The construction costs comprise wages and material.

The production costs of biogas plants are determined by the following factors:

• purchasing costs or opportunity costs for land which is needed for the biogas plant and slurry storage;
• model of the biogas plant;
• size and dimensioning of the biogas unit
• amount and prices of material
• labor input and wages
• the degree of participation of the future biogas user and his opportunity costs for labor.

Total Costs

To gain a rough idea of the typical costs of a simple, unheated biogas plant, the following figures can be used: total cost for a biogas plant, including all essential installations but not including land, is between 50-75 US Dollar per m³ capacity. 35 - 40% of the total costs are for the digester.

The specific cost of gas production in community plants or large plants is generally lower compared with small family plants. The cost for the gas distribution (mainly piping) usually increases with the size of the plant. For communal plants with several end-users of biogas, the piping costs are high and compensate the degression by 'economics of size' partly or wholly. In regions where plant heating is necessary, large-scale plants would be more economical .

To keep the construction costs low, labor provided by the future biogas users is desirable. Often, the whole excavation work is done without hired labor. On the whole, a reduction of up to 15% of the wages can be effected by user-labor. If periods of low farm activities are chosen for the construction of the biogas plant, opportunity costs for labor can be kept low.

Running Costs

The operation and maintenance costs consist of wage and material cost for:

• acquisition (purchase, collection and transportation) of the substrate;
• water supply for cleaning the stable and mixing the substrate;
• feeding and operating of the plant;
• supervision, maintenance and repair of the plant;
• storage and disposal of the slurry;
• gas distribution and utilization;
• administration.

The running costs of a biogas plant with a professional management are just as important as the construction costs, for example for operation, maintenance, expenses for painting, service and repair.

Large-scale Biogas Plants

Large-scale biogas plants have a high water consumption. Investigations are necessary, if the water quantity required causes additional costs in the long run. These could be construction costs for water piping or fees for public water supply. The question of water rights has to be clarified. Steps to be taken to cover the demand for water during dry periods require thorough planning.

Capital Costs

Capital costs consist of redemption and interest for the capital taken up to finance the construction costs. For dynamic cost comparison the capital fixed in the plant is converted into equal annual amounts (see dynamic annuity calculation of costs).

Interest Rate

The capital cost, apart from the depreciation rates or length of amortisation, is dependent on the interest rate at which the capital is provided. In each case current interest rates are to be laid down for the cost calculation, which reflect the opportunity costs of the invested capital. To avoid distortions of the financing costs the comparisons should always be calculated with the same interest rate.

Lifetime of Plants

In calculating the depreciation, the economic life-span of plants can be taken as 15 years, provided maintenance and repair are carried out regularly. Certain parts of the plant have to be replaced after 8 - l0 years, e.g. a steel gas holder. The steel parts need to be repainted every year or every second year. As a rule, real prices and interest rates should be used in the calculations. For cost calculation inflation rates are irrelevant as long as construction costs refer to one point of time. However, in calculating the cash reserves put aside for servicing and repair the inflation rate must be considered.

Average Costs

The cost per cubic meter of digester volume decreases as volume rises. Therefore, the appropriate size of the biogas plant should be estimated. For simple, unheated plants in tropical countries, the digester size is roughly:

• 120-fold the quantity of substrate put in daily at average expected digester temperatures over 25°C and
• 180-fold the quantity of daily feeding for temperature between 20 and 25°C.

Since the final method of construction is only determined during the first years of a biogas project, it is impossible to exactly calculate the building costs ahead of the actual implementation. The GTZ computer program called "BioCalc" (produced by BioSystem), can only provide an idea as it is based on only one type of plant. Consequently, the following system is sufficient for a rough calculation:

• the cost of 6.5 sacks of cement x m³ digester volume plus
• the cost of 5 days work for a mason x m³ digester volume plus
• the costs of 100 m gas pipes (1/2"), plus
• the costs of two ball valves (1/2"), plus
• the cost of gas appliances which are feasible for this size.

The individual prices are to be determined for the project location. The sum then includes material and wages. The distance from the biogas plant to the point of gas consumption was assumed as being 25 m (the 100 m used in the calculation include costs for connectors and wages). Where greater distances are involved, the cost for gas pipes will have to be increased in proportion.

Cost and Benefit Relation of Biogas Plants

As soon as the cost and benefit of a of a Biogas Plant biogas plantin 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
• 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

Economic Viability

As soon as the cost and benefit components of a biogas plant in planning can be quantified, and as soon as other important parameters (time horizon, interest rate, annual allowances, exchange rates, inflation rates) are determined, the economic viability of a biogas plant can be calculated.

Typically, the financial analysis of projects points out the financial viability of investment alternatives.

Three types of questions need to be answered:

1. Which project is the least expensive among an array of options that produce the same output (least cost analysis)?
2. Which project shows the highest net benefit (benefit minus cost) among an array of options (cost benefit analysis)?
3. Is a project a financially viable solution to the problem on hand? (absolute viability, i.e. the question is dealt with whether the project's revenues are sufficiently high to meet capital cost and operating cost), and:

Is a specific project more economical than others? (relative viability).

Procedure of Dynamic Approach

Due to the fact that the same amount of a credit or debit can have a very different value depending on when the transaction takes place, dynamic analysis differ from the static methods.

The need for a dynamic approach results from the fact that, as the costs and benefits of each option arise in different years, it is necessary to make them comparable.

The value which says how much a future or past payment is worth at the present time is described as its present value (PV).

Example

Given an investment of a biogas plant of 2000 US$ in two years (discounting), having paid three years ago 120 US$ for the necessary landed property (compounding), with a given interest rate of 8%, the PV is as follows:

PV = [2000/(1,08)² + 120*(1,08)³]

It is calculated from its past amount by compounding or from the future amount by discounting with the aid of a factor which depends on the interest rate adopted and the length of time between the payment and the present period.

Investment Criteria

The dynamic approach deals with a consideration of benefits and costs over several years and therefore shall be pointed out more detailed:

Investment criteria are, as follows:

Net Present Value (NPV)

The most common investment criteria is the NPV and is defined as follows:

NPV - Net Present Value
C_t - Costs in year t
B_t - Benefits in year t
k - discount rate
t - number of years from the present
n - total number of the years of the analysis period

Further Information

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

Biogas Box

Collection of literature on Financing a Biogas Plant