For those considering bioenergy, there are typically three boxes that must be checked off: the technological case, the social case, and finally, the business case. Now it’s down to economics, and perhaps more importantly, explaining the economics of bioenergy systems to decision-makers, or at least the folks that write the checks.
Just as the technological side of bioenergy systems is a bit complex in comparison to other forms of renewable energy generation, the economics can be less than intuitive. Bioenergy systems are typically capital intensive, and often rely on multiple value streams to paint a complete picture. However, with a little exploration and groundwork upfront, project developers and financiers find the economics to be reliable and predictable.
While each case is different, here are the first three steps you can take to analyze the business case for your situation. We’ll explore the next three steps in our next post.
Step 1: Know thyself
For starters, you really need to understand what organic materials you’re managing or have access to, and their associated energy value. All bioenergy systems create fuel, typically some form of carbon-based gas or liquid. So, it’s particularly important to understand the carbon content of feedstock materials, how readily the carbon within those materials can be accessed, and what other constituents may be in the feedstock that either help or hamper the conversion to carbon fuel.
For example, the carbon content of sawdust is quite high, but the form of the carbon (lignocellulosic) is not as conducive to anaerobic digestion as things like food waste and manure. Likewise, solid waste may have a reasonable amount of more accessible carbonacous materials, but other constituents may greatly add to the complexity and severity by which the fuel must be refined for use. Proper determination of the fuel-making potential, or biomethane potential (bmp), will tell you the volume and quality of the fuel you will produce, and therefore indicate value. This step should go beyond a simple laboratory test that reveals carbon content, as the bmp is dependent on the manner in which the feedstock is collected and converted to fuel.
Step 2: Start negative, go positive
Chances are, if you’re considering bioenergy system development, you’ve identified a source or organic materials that have a big cost associated with their current manner of management or disposal. That’s a great place to start, and you should compile a description of these costs. A common mistake I see made is the incomplete description of these costs, based solely on the tipping fee at the scale or other direct point of expense.
Does the material have to be transported? If so, at what cost? Are there regulatory fees associated with the current processes that will change (up or down)? What about staff time, lab fees, insurance costs, and other management fees? Typically, organic waste managers or generators have a fairly complex management system in place, and the true costs must be described for the business case to be properly made.
I find it best to fully describe the current costs of managing these materials, rather than simply trying to credit a delta. In many instances, this is where a business case evaluation “blows up” as an eager bioenergy system advocate promises big savings on waste disposal costs, only to learn that there are four more pages of added expenses the accounting team uncovered that you did not. Unanswered questions and doubt are the enemies of business case evaluations, so be thorough.
Step 3: Don’t fear the cost of something new
Armed with a clear understanding of the current costs associated with the feedstock, it’s time to explore the costs of implementing a bioenergy system. It should be understood that if this is an early evaluation of the business case, the costs may not be fully understood. Given this, conservatism is advised, as well as describing the sensitivities of the costs. Be prepared – and don’t lose your cool – if at this point it seems the comparative costs are moving in the wrong financial direction. The cost comparison is only part of the story.
In our next post, we’ll see explore three other questions you need to explore, and you’ll start to see how the numbers start to make more sense.