Subsidies
The economic benefits of a biogas plant can be quite modest, e.g. when it serves as a substitute for
wood that can be gathered for free. The overall benefits, however, including such environmental
factors as the protection of forests, can be very substantial. Consequently, the user of the plant
should be eligible for subsidies to make up the difference. Such subsidies may consist of:
- contributions to the cost of construction in the form of needed materials (metal gasholder,
cement, fittings, etc.), such frequently scarce goods and materials also including those needed
for repairs and replacements, e.g. rustproofing for the gasholder,
- free planning and consulting
- assumption of interest debt on loans.
- On the whole, however, subsidies have the following drawbacks:
- Market prices can become distorted, and needed capital can be falsely invested.
- Subsidies intended explicitly for the needy may end up in the hands of well-todo groups.
In addition, prior project experience has shown that user motivation is frequently lower in the case
of heavily subsidized plants than in the case of plants that have been evaluated and built on a
commercial basis.
Loans
The monetary returns from a biogas plant, particularly those from a small family-size one, are often
meagre in comparison to the cost of investment. In other words, the plant hardly pays for itself in
terms of real income. Additionally, since most small farmers have no access to commercial loans,
but should not be expected to accept an excessive risk of indebtedness, it can be quite difficult to
arrange biogas-plant credit financing for that group of users. The following conditional factors
therefore should be investigated prior to setting up any particular credit program:
- first, check out all other funding alternatives, e.g. owned capital;
- then, conduct a detailed socioeconomic analysis of the target group and farms, e.g. which farm
can afford how much debt burden?;
- next, clarify the institutional tie-in, i.e. involvement of rural development banks or credit unions;
- and, lastly, establish the program quality, e.g. isolated or integrated credit programs, the latter
including technical and economic extension services, training, plant maintenance and repair.
If the appraisal shows that there is available within the region a credit program that is open to the
financing of biogas plants and would offer favorable conditions, e.g. a soft-loan program, then the
biogas program should rely on it. Establishing an independent credit program without the assistance
of an experienced institution is usually so complicated as to overtax an individual project.
A pragmatic loan-tendering model could be designed along the following lines:
- Development-aid funds are put in a time-deposit account at a rural development bank. The
bank agrees to provide loans amounting to several times the deposited amount for the purpose
of financing biogas plants.
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