Cost-benefit Analysis and Financial Viability of Household Biogas Plant Investment in South Ethiopia

Abstract

This study investigates the cost–benefit analysis and financial viability of biogas plant investment in South Ethiopia. A multi-stage sampling technique was employed to select sample households. A total of 105 adopter households were selected for household survey using a purposive sampling technique. All the households adopting biogas technology were considered. Besides, a biogas plant with 6 m3 and 8 m3 sizes were selected because they were the most commonly used size in the study area. Data were collected from the household survey, key informant interviews, focus group discussion and market price assessment. The installation cost took the largest share of the total cost of construction and was one of the main constraints that hindered adoption. The findings of the study indicate that the production of biogas increased household income by reducing the costs incurred for buying firewood, kerosene and chemical fertilizers. Relatively, lower plant size was more profitable than larger plant size. Installation under the subsidy scheme was more financially viable at 10% discount rate than its counterparts. Subsidy is important to enhance biogas plant investment, particularly for larger biogas plant sizes. Nevertheless, both plant sizes, installed without subsidy, had smaller NPV values and UDBP greater than 1 year, making this scenario financially less viable. Installation of low cost plants could more attract the engagement of a large number of rural households with low economic capacity. However, both plant sizes (6 m3 and 8 m3) are financially viable and profitable at 10% discount rate. Moreover, the profitability of biogas investment is highly sensitive to variation in discount rates, level of expenditure savings and input prices.