The objective is evaluating the proposed subsidy scheme for biogas plants and to recommend a scheme to be applied for 1999/2000 and onwards.
Two options – reduce the subsidy amount by NRs. 1,000 per plant across the board, and propose new subsidy rates according to geographical division and the size of the plants – have been evaluated to measure the efficiency of plants with these options. The internal rate of return (IRR) was used as method. This study shows a high IRR in Nepal, both financial and economic, even with a decline on the on-going subsidy rates by a flat amount of NRs. 1,000 per plant. The IRR of a plant is very high when we include the increased NPK in the slurry. The rates of return with the proposed subsidy rates and the inclusion of increased nutrients available in biogas slurry are always higher than 16 percent. Currently the Agricultural Development Bank (ADB/N), Nepal Bank Limited (NBL) and Rastriya Banijya Bank (RBB) – are involved in providing loans to the biogas sector.
There seem problems with the current subsidy channelling procedure, because a farmer (plant owner) can take double subsidy with the same biogas plant. The BSP Phase III Implementation Document states that the subsidy has to be reduced by NRs. 1,000 to be applied for the F/Y 1999/2000 and onwards. This study does not detect any problems with that proposal. Besides, this study has also considered another option of new subsidy rates according to geographical division
and size of plants.
This report assesses the advance subsidy payment in Nepal, its progress, implications and future improvements required. The study, based on analysis of field visits, showed that the advance subsidy payment initiated by Biogas Support Programme Nepal (BSP-Nepal) has indeed greatly supported companies in their working capital management.
An in-depth analysis indicated that companies receiving advance subsidy payments had the lowest amount of additional working capital requirements, compared to those that have not received the subsidy. This advance subsidy was seen as an incentive for serious companies who maintain a financial discipline. Overall, the working capital support of BSP has shown to positively impact biogas companies, which is why it was strongly recommended that the advance subsidy continued. Further, the little credit provided by the Nepal Biogas Promotion Group (NBPG) also had positive implications, and it was recommended for credit to be initiated with wider scope of support. Other recommendations to sustain the advance subsidy payment touched upon the categorizing of biogas companies to operate only in designated areas, etc. BSP-Nepal needed to also improve the subsidy claim processing as the faster the subsidy was released, the better it was for the working capital of companies.
Working capital shortage due to management deficiency of the companies themselves appeared to be a challenging issue that can be alleviated by designing proper costing and financial management capacity. Further recommendations and extensive analysis of plants costs, working capital support, workshop impact analyses and cash converting cycles (CCC) can be found in the report.
This report assesses the effectiveness of an increase in the present general subsidy (NRP1000) and additional subsidy (NRP 1500,2500,3500) as a way to benefit poorer households.
The government of Nepal increased the subsidy without consulting with donors which caused major dissatisfaction as donors were actually aiming for a decrease in order to achieve a sustainable market driven biogas system.
The household survey conducted indicated important findings in the areas of the rationale of the increase of general subsidy (e.g. sharp increase in plant construction costs called for immediate compensation), as well as its impact (e.g. withdrawal of general subsidy was said to definitely limit
the expansion of biogas programme in poor areas), regarding the rationale and effectiveness of the additional subsidy for the poor (e.g. the subsidy has had a tremendous positive impact on increasing the access of poor households to biogas within only one year, while enjoying all its benefits), the scaling up of biogas programme among the poor (e.g. the research found out that donors’ role is vital in the whole process and that their support for the increased subsidies should be gained at every cost), and regarding rate and delivery mechanism of subsidy and credit (e.g. it was found that the current rate of general and additional subsidies is fair and adequate as poor people have been able to own a plant with access to credit). Recommendations as to what future steps need to be taken on basis of these important findings are available in the report.
International workshop on financing of domestic biogas plants: country paper for Bangladesh.
This paper touches upon the different approaches of financing biogas plants and their implications in Bangladesh. After creating the first biogas plant, efforts were undertaken by EPCD, BCSIR, DANIDA, LGED, DLS and Grameen Bank of which the largest dissemination came from BCSIR - 21,858 plants constructed.
The National Domestic Biogas and Manure Programme (NDBMP) is established to target the potential 950.000 households, who meet the requirements for using biogas. Until 1994 biogas plants were financed by subsidy where BCSIR presented the concept of owner’s equity and subsidy was limited to Taka 7,500 per plant. IDCOL-SNV biogas program created a soft-credit approach in financing plants, where subsidy is Taka 7,000, household contribution is 15% of the plant cost and the rest is a micro-credit loan from MFIs at a flat rate of 10-14%. Similar approaches were undertaken by GTZ and GoB. The previous BCSIR and LGED models had higher subsidy component, needed higher equity investment and no credit facility was attached. The current IDCOL-SNV program has a credit component attached, which makes biogas technology affordable to mass people. Subsidy, however, has been reduced significantly, plant cost has doubled, making credit terms less attractive. The base analysis for saved biomass shows a financial internal rate of return (FIRR) of 13,52% which is lower than the 17% expected.
This report recommended linking subsidy to plant owners with revised plant construction costs and credit terms to offer working capital finance to small MFIs creating Sustainable Energy Fund using carbon credit.
This paper looks in depth into the current status of domestic biogas in China, where the National Loan Subsidy Program (NLSP) is responsible for nearly half of the funding for the National Biogas Programme (NBP). Various case studies confirmed the positive impact of the biogas programme not only in terms of cooking and lighting but also on environment, sanitation, ecology and agricultural level.
The study presents an in-depth SWOT analysis of the financial instrument (investment subsidy) where one of the main strengths appeared to be the centralization of the programme managed by the government as it allowed for extension of biogas technology and guaranteed financing for sustainable development. Further, the rural energy, sanitation and ecology situation was tremendously improved which was another of the many benefits listed. On the other hand, the quick development by the government in domestic biogas extension was likely to bring problems of digester construction quality because of the insufficient fermentation of raw materials. The main opportunities NBP presented were the use of a carbon rebate (CDM) as a very strong promoter to improve the instrument functioning and bring more benefits in economy, as well as the exchange of information and international cooperation with internal and external parties. The change of government policy exhibited itself as the main threat to the financing instrument. Slow-down of the speed of the rapid growth of the domestic biogas programme was also necessary for quality control of construction and manufacture of biogas appliances, as well as for post services.
This report analyzes the financial side of the Domestic Biogas Programme (DBP) in India by reviewing the financial instruments applied in the programme (based on various published reports and information from involved institutions).
A SWOT analysis evaluated the different aspects of the instruments and recommendations on improvement were provided respectively. Subsidy provided by the National Biogas and Manure Development Programme (NBMMP) played an important role in motivating prospective farmers. Institutional financing was another financial instrument applied, where the Reserve Bank of India (RBI) and the National Bank for Agriculture and Rural Development (NABARD) supported the biogas programme. Other institutions providing financial support included Local Bodies, International NGOs, the Clean Development Mechanism (CDM), Climate Exchange and the International Development Bank. The study has estimated that the percentage of subsidy received appears to be too low to attract more farmers. Further, the institutional financing was more popular among farmers due to the increase in the cost of plants and the increasing need to borrow. The carbon rebate has also increased in popularity, due to the projects undertaken by CDM and Chicago Climate Exchange NGO.
Key recommendations based on the SWOT analysis of individual financial products included the need to bring the investment subsidy to a level that decreased the payback period to less than 3 years, the need for more carbon rebate projects and more international support involvement. The rationale behind each recommendation, as well as additional detailed recommendations can be found in the report.
This paper analyzes the two main financial instruments used to finance domestic biogas plants – subsidy and credit fund (field studies, focus groups discussion, observation, etc.).
Apart from the standard subsidy provided, an additional subsidy for the poor in collaboration with Grameen Bikas Bank (GBBs) was also in place. Biogas Credit Unit (BCU) provided a wholesale lending facility with funding support from the German Credit Institution of Reconstruction (KfW) to the Microfinance Institutions (MFIs). In the report, important information about the return from bio-gas plants to households, society and MFIs is also available (see Annex).
The comprehensive SWOT analysis prepared with regards to the subsidy and credit fund revealed important data about the viability and progress of the two financial instruments. The transparent subsidy policy and the subsidy for the poor were seen as one of the main advantages, while the expansion of networks to MFIs was seen as a positive side of the credit scheme. However, there was lack of effective monitoring and coordination of the subsidy, and inadequate credit facilities
due to lack of capable MFIs. There were also substantial opportunities identified for both instruments-the potential of the subsidy was high and there was an increased interest of commercial banks to expand microfinance to the biogas sector. The main threats were the political instability in the region (subsidy) and Government’s controversial policy to write-off loan provided on priority sector (credit).
Extensive recommendations based on the status of the financial instruments are also provided.
This country paper on Rwanda presents the manner in which financial aspects to help farmers get access to biogas technology were taken in consideration by developing a microfinance loan product. The study describes an investment subsidy, a carbon rebate, and a bank loan as the main mechanisms used to finance the biogas plants, where Banque Populaire du Rwanda was the main financial institution.
A comprehensive SWOT analysis of the current financial instruments is presented in this study (interviews, observations, and a desk study were conducted). It revealed that some of the main benefits were the motivation farmers got to invest in biogas (investment subsidy), ensured payment to the programme (carbon rebate), and low interest rates (bank loan). Among others, the main investment subsidy weakness was its fixed amount. Some of the drawbacks of the bank loan were the repayment risk associated, and for the carbon rebate that it was not easily understood. The opportunities associated with the both the subsidy and the bank loan included the ability to adjust the terms according to individual needs, and with the carbon rebates-investment from big companies. Threats existed as well: the real possibility for the subsidy to be lowered after the first phase, the methodology used for the carbon rebate was becoming obsolete, and for bank loans - that they relied on subsidised sources of finance in Rwanda.
Based on the SWOT analysis, thorough recommendations as to the next step in the biogas programme in Rwanda are presented.
SNV Netherlands Development Organisation, with the financial support of the Netherlands Directorate-General for International Cooperation (DGIS), organised a two-day international workshop on ' the Financing of Domestic Biogas Plants' during the period 23-24 October, 2008. The workshop conducted in Bangkok, Thailand, was attended by 68 participants from 21 different countries in Asia, Africa, Central America and Europe.
The overall objective of the international workshop was to exchange a maximum of information about the use of financial instruments for financing domestic biogas plants among the participants, practitioners, bankers, researchers and policy makers, and to arrive at clear status of the strengths, weaknesses, opportunities and threats of the use of the various financial instruments among the participants.
This brief report summarises the purpose, schedule, presentations and outcome of discussions related to the workshop. The workshop proceeding includes the summary of plenary presentations, Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis carried out by the participants on different aspects of financing domestic biogas plants (e.g. investment subsidy and credit).
Further there was a presentation of country papers by participants of China, India, Nepal, Bangladesh, Cambodia, and Rwanda. Additionally, two papers on carbon credit and financing biogas plants were presented. Finally, Country action plans were prepared by respective participants. The evaluation results clearly indicated that the workshop has been highly successful in achieving its objectives.
Participants of an international workshop on domestic biogas, organised by SNV in cooperation with the Asian Development Bank and Hivos/Indonesia Domestic Biogas Programme, in Bandung, Indonesia, discussed the possible transformation of national biogas programmes in Asia towards a commercial biogas sector. The 68 participants from 18 countries represented government institutions, private and civil society organisations, knowledge centres, development agencies, multilateral banks and international donors.
The key questions of the workshop were:
The workshop provided a dedicated forum for in-depth discussion on the possible transformation of national biogas programmes towards commercial biogas sectors and on the feasibility of the proposed Asian Rural Biogas Facility. The Facility which will consist of two separate funds: a regional structured debt fund initiated by the German Development Bank (KfW) and the ADB and a regional basket grant fund to further develop biogas markets in both existing and new biogas countries.
The report hosts information on the plenary and parallel session, which focused on different topics and functions in national biogas programmes. Lessons learned were discussed, as well as main constraints and recommendations. A list of participants and the workshop agenda are included.