Economic analysis

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Summary and conclusions of a full-scale village-community plant
Conclusion from the chinese experience
Problems in evaluating the community indian plants
Organic feedstocks
Labour time involved in collection of organic materials and water, digester operation and maintenance
Maintenance
Economic evaluations

A simple economic model was used to examine the feasibility of the "Thermophilic Anaerobic Digestion of Agricultural Wastes" Pants. We examined different sizes of plants suitable for different slaughter houses ranging from slaughter- houses that slaughter 100 to 1,000 heads of cattle per day, 5 days a week. Based on previous experience and know-how, quantities of wastes generated by 100 head were estimated (Table 11.6). Quantities can vary according to cattle weight and local feeding and slaughtering regulations. We examined four sizes of slaughter-houses slaughtering 100, 300, 500 and 1,000 head per day. For each of them the quantities of wastes were estimated (Table 11.7) and the proposed plant was planned, and the estimated investment defined accordingly (Table 11.8). This estimated cost of the plant must be examined on site in the light of local conditions. The quantities of the products of the different pants. (Table 11.9) were calculated on the basis of the schematic mass balance diagram presented. The description of the plant outputs are reviewed in the background material. The uses of the liquid fraction were not taken into account although in many countries it is considered a valuable fertilizer. The annual expenses of the "Thermophilic anaerobic digestion" systems are based on our experience from similar systems in operation (Table 11.10). In the calculations we took into account 12% interest and a 7-year depreciation time. Both are quite high for such a project and take into consideration the risk of a new technology. We included in the expenses some money for additional water treatment and, in the event of a breakout of Salmonella or other pathogenic bacteria infection, an organic acid treatment that we examined as an efficient way of decontamination. The feasibility calculations were done first in a simple way in which the different-sized plants were examined for their annual profit according to several income and expense alternatives (Table 11.11). An example of the Net Present Values and the Internal Rate of Return for some different sized plants are given in Tables 11.12, 11.13, 11.14 and 11.15). The average profit minus the average expense was used for these calculations. The calculations were first performed for a plant that is not obliged to pay fines or levies to the local municipality and then at several levels of levies.

Table 11.11: Feasibility calculations for a communal several sized systems

Table 11.12: Net present values and internal rates of return for a plant where 100 heads of cattle are slaughtered per day with several benefits from saving levies.

Table 11.13: Net present values and internal rates of return for a plant where 300 heads of cattle are laughtered per day with several benefits from saving levies.

Table 11.14: Net present values and internal rates of return for a plant where 500 heads of cattle are laughtered per day with several benefits from saving levies.

Table 11.15: Net present values and internal rates of return for a plant where 1000 heads of cattle are slaughtered per day with several benefits from saving levies.

Summary and conclusions of a full-scale village-community plant

1. Based on the economic feasibility study performed , we can conclude that an anaerobic digestion system in a farm is economic when:

1.1 It can sell the Peatrum (the solid fraction of the digested slurry at a reasonable price to gardening, greenhouse or mushroom producers; or:

1.2 When fines or levies are paid to the local health authorities. The higher this amount, the more the system returns.

2. The liquid fraction of the digested slurry has value as a fertilizer or as a digestion accelerator, but since this is still in the research and development stage, no commercial value has been attributed.

3. The reduction by several orders of magnitude of pathogenic bacteria and the elimination of Salmonella by the thermophilic anaerobic process is a great advantage which has not been calculated in the "saving" of money.

4. The lower the fines and levies at a plant, the lower the initial investment that can be considered.

5. The main income from this plant, apart from the savings in fines and levies, is from the peatrum, which is a substitute for enriched peatmoss in nurseries, or casing soil for the mushroom industry.

6. When a system is considered for a feedlot , an intensive initial survey must be performed to examine all aspects of such an integrated project.

Conclusion from the chinese experience

1. From the economic analysis we notice that simple biogas pit plant involving low investment, quick returns and a short pay back period offers the highest economic benefit, but it requires much maintenance and renewal work, while its management is complex. Consequently, it is unsuitable for consideration in long term development.

2. The household cement biogas pit also offers a high economic benefit. It is now the popular design in rural areas in China. However, it does not meet the need of the new situation in rural areas, as the farmer's income increases and production becomes more specialized.

3. Centralized biogas supply systems are an important method of supplying energy for living in a modernized rural area in the future. At present, however, its economic benefit is low. It is necessary to study new fermentation processes, to increase its economic benefit.

4. The direct economic benefit of biogas electric generation is not high with present techniques. It can be built suitably when its indirect economic benefit, or social benefit is taken into account. It can be popularized only when more efficient gas producing equipment is developed, the utilization rate of generating facilities increased and the economic benefit of biogas generation are improved.

Problems in evaluating the community indian plants

For a plant in India or other Developing country land costs have been specified in some detail by KVIC for the full range of sizes of the only design promoted on a large scale in India. The total (KVIC estimated) construction costs of a plant are very high (Rs 2,332 for 2 m at 1975 market prices), and proponents of biogas plants reduce these costs in economic analyses by presuming that land for the site and labour used in construction have no opportunity cost. Except in the most densely settled villages, land can be treated at no cost since the area involved are so small. However, the assumption of a zero shadow wage of labour will be valid only when labour is completely idle because of the lack of work opportunities, not through choice.

Evidence on adoption behaviour suggests that in practice the financial cost of construction materials in relation to farm cash incomes is the most important factor. To make these costs manageable, KVIC has organized subsidies to farmers. Since no farmer can purchase a plant without a loan, it means in effect that at current construction costs they are only accessible to a few farmers. The one thing that practically all analysts agree upon is the urgent need to reduce costs, if the program is going to have any opportunity to involve poorer households.

Organic feedstocks

In India these consist primarily of cow dung. The correct social opportunity cost of dung is its value in the best alternative use; this is usually assumed to be as fertilizer. This simplifies the analysis because fertilizer is both an input and output of the system and the costs and benefits largely offset each other.

Bhavani (1976) gave a composite estimate based on uses of dung for both fuel and fertilizer. She concluded that "it is obvious that the whole economics of biogas plants depend on the proportion of cow dung which is used as fertilizer before the introduction of biogas plants". Therefore the price of dung must be taken as fertilizer and as cakes. This assumption does not improve the economics of biogas plants, rather the reverse, for it means that the replacement costs of the biogas plant output should be valued in the same way as the dung input. In practice, most Indian farm households are not able to afford the investment anyway, and for the few that can, the assumption of a market value for dung is reasonable.

Labour time involved in collection of organic materials and water, digester operation and maintenance

Since it is usually assumed that an equal amount of labour is required to collect dung for traditional uses (fuel or manure) as for the biogas plant, frequently no extra value is assigned in financial analysis or labour costs to dung collection. With the larger farmers who have biogas plants, cow dung is often collected only from the farmyard, and it is more convenient to aggregate this labour requirement with other labour uses. A constant water supply is a requirement which often restricts possible plant locations since many villages do not have adequate year round supplies. The other main tasks are mixing water and dung, feeding the plant, stirring, and spreading an equivalent amount of slurry from the plant onto the compost pit (Berger, 1976 for Nepal and for China, van Buren, 1979). In a social cost-benefit analysis, the labour to run the plant is more plausibly valued at zero in contrast to the labour used in construction.

Maintenance

Poor maintenance has been said to be the single most important cause of plant failure in the digesters' design, particularly the failure to paint the gas holder to avoid corrosion. According to a survey by Moulik et al. (1978) for KVIC system, the major item of expense was the gas holder. Survey evidence suggests that access to technical assistance is a major determinant of plant performance, and yet social benefit-cost studies rarely consider this as a cost item. The development of Biogas Offices for helping the farmers maintain the plants was a key in the special rural development in both China and India. Marchaim, during his tour in China (1990), found that most families expressed their thanks to the extension biogas officers.

Economic evaluations

A consensus on methodology should be developed to allow economic data to be compared among various applications, under varying circumstances, and to enable rigorous economic comparisons between biogas and other renewable energy technologies, or with conventional energy sources.

The financial viability of biogas plants depends on whether output in the form of gas and slurry can substitute for fuels, fertilizers or feeds which were previously purchased with money. If so, the resulting cash savings can be used to repay the capital and maintenance costs, and the plant has a good chance of being financially viable. However, if the output does not generate a cash inflow, or reduce cash outflow, then plants lose financial viability. Finally, if broader social criteria are used to evaluate biogas, conclusions will be more favourable than a strictly financial analysis. Social viability is difficult to evaluate because of problems in valuing secondary benefits.

The financial viability of community scale plant" is limited by similar considerations as household units, although economies of scale will tend to make them a better prospect financially. However, it appears that the primary barriers to diffusion are not economic or technical, but rather social and organizational. Since the benefits from a community plant can be shared by poorer households that would not be able to afford the investment and operating cost of household units, community plants may be more socially viable than the smaller units.

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