Biogas Project in Mozambique

Business Plan

Project Proponent
Action Group for Renewable Energies and Sustainable Development. General DEca Street, Nr. 214, P. O. Box 379, Maputo, Mozambique Tel: +258 21487721 Fax: +258-21487722 Email: office@ged.org.mz URL: http://www.ged.org.mz

Funded by
REEEP project: Securing financing for Renewable Energy and Energy Efficiency Projects in Southern Africa through Gold Standard CDM. Emily Tyler emily@southsouthnorth.org www.southsouthnorth.org

June 2007

TABLE OF CONTENTS
ABBREVIATIONS AND ACRONYMS ..............................................................................................3 Introduction ...................................................................................................................................4 Executive Summary .......................................................................................................................4 Project Contact Information .............................................................................................................4 Project Description .........................................................................................................................5 Project Status ................................................................................................................................6 Technology Description ..................................................................................................................6 Project Returns ..............................................................................................................................7 Cash Flow Analysis ........................................................................................................................7 Project Institutional Architecture ......................................................................................................8 Project Implementing Parties...........................................................................................................8 Risk Analysis .................................................................................................................................9 Analysis of Alternatives.................................................................................................................10 Project Financial Requirements .....................................................................................................11

ABBREVIATIONS AND ACRONYMS

GED SSN FUNAE INGC DNA NGO PV MOPH REEEP MICOA DNGA DNDR MPD UEM HDPE Action Group for Renewable and Sustainable Development South South Africa Energy Fund National Disaster Management Institute National Directorate of Water Non-Governmental Organization Photovoltaic Ministry of Public Works and Housing Renewable Energy and Energy Efficiency Project Ministry for Coordination of Environmental Affairs National Directorate of Environmental Management National Directorate of Rural Development Ministry of Planning and Development Eduardo Mondlane University High Density Polyethylene

Introduction
The following business Plan has been designed to provide basic information investors and financiers need in order to consider a project. This is a Biogas for Household Energy Project using biodigester to produce biogas which will be used as fuel for household and the sludge as fertilizer in the household farming fields. This is a renewable energy project which reduces emissions by offsetting the use of wood fuel and kerosene as well as avoiding methane emissions from swine manure. This is a social development project given its climate change characteristic and is elective as a public sector project. Another important aspect of the project of emissions reductions is that the project reduces deforestation which results from the use of wood as source of energy and for lighting.

Executive Summary
The project aims at using manure from livestock to generate household energy, at the Province of Tete (Changara District) where livestock is abundant and forests are becoming scarce. On the other side, for the household lighting, the most common fuel locally used is kerosene and, in second place, diesel. Both of them are fossil-based refined fuels and, therefore, potential CO2 emitters to the atmosphere. As CO2 from fossil fuels will be replaced and the management of swine manure will avoid CH4 emissions, the project activity will greatly contribute to the reduction of GHG. The present project activity will be based in bio-systems comprising bio-digesters in which the manure will be digested and methane produced. The fuel gas produced from manure fermentation inside the bio-digesters will be pipelined to household kitchens and living houses for cooking through gas stoves and lighting by using gas lights. The project will serve 20 rural small farmers and each biodigester will serve around 30-50 animals. The biogas produced will be used as fuel for household energy needs while the sludge is to be used as fertilizer in household farming fields increasing the income of the community.

Project Contact Information

The project is at the business plan stage and the community will receive it once we are financed and their details will then will available. There is a pilot project being implemented in Magude with funds already secured. The project information is contained below about the project proponents:

Contact Details:
GED

Eng. Alberto Tsamba - ajtsamba@zebra.uem.mz Zacarias Zandamela- zzandamela@gmail.com

www.ged.org.mz

SouthSouthNorth Steve Thorne steve@southsouthnorth.org Emily Tyler emily@southsouthnorth.org www.southsouthnorth.org

This investor profile has been produced under the REEEP funded project: Securing financing for Renewable Energy and Energy Efficiency Projects in Southern Africa through Gold Standard CDM, and the SSN Phase Two Project, Southern African Mitigation Programme

Project Description
Project beneficiaries for each project will be the community families that use the energy services including households and farmers Project baseline would have to be deducted from the two scenarios: the first is the one in which the swine manure are left to decay releasing methane and nitrous oxide. The second is the one in which lighting would be secured through the use of either kerosene or diesel. In fact, according to the IPCC revised guidelines of 1996, manure management is one of the main methane sources from livestock The project aims at using manure from livestock to generate household energy, at the Province of Tete (Changara District) where livestock is abundant and forest are becoming scarce. Indeed, in Tete, as it happens countrywide, the families rely on firewood for cooking and kerosene for lighting. Although forest biomass is definitely a renewable resource, it is important to note that unmanaged use or abuse of forest resources together with drought and uncontrolled forests burning make the forest resources lesser and lesser available to the local communities. In practice, uncontrolled forest clearing represents a great loss in CO2 sink capability, which could mean that indirect accumulation of carbon dioxide is to be considered as being caused by this negative practice. Further, unmanaged swine manure is definitely a great source of methane emissions which have much higher GWP compared to carbon dioxide. On the other side, for household lighting, the most common fuel locally used is kerosene and, in second place, diesel. Both of them are fossil-based refined fuels and, therefore, potential CO2 emitters to the atmosphere. Based on the above listed facts, the project activity will avoid methane and nitrous oxide emissions as well as replacing the increasingly intensive use of firewood and liquid fossils, for cooking and lighting, respectively. Being biogas a renewable energy source, net CO2 emissions are inexistent and, the

baseline will be mostly considered from what would happen in absence of this initiative. In fact, the most probable scenario would be to improve the release of methane from anaerobic degradation of swine manure. Also and as an indirect consequence, the use of kerosene or any other fossil based liquid fuel for lighting while, for cooking, the scarcity of firewood in the vicinity of major villages would result in an increased demand for the LPG. Far away from the villages, this would result in fuel switching to petroleum-based stoves. Forest clearing is taking place which contributes for shortening the raining season and affecting negatively the biodiversity of the affected areas. This project will serve 20 small farms of the Changara district in the province of Tete, these families have already be identified and a community leader will be involved in the management of the project in order to ensure its success and replication. One digester one householder but the community will be vigilant.

Project Status
The project so far is still at the PIN stage and the present Business Plan presents the feasibility studies towards financing the projects. Substantial stakeholder consultation has occurred and a well infrastructure already in place. The community were consulted through local authority and GED has good experience at dealing with communities. All project implemented by GED involve the community and are then managed by the community in partnership with government agencies that are GEDs current funders. The sites where the project will be implemented were identified by GED in partnership with the government both central and local. GED has full support of the community as well as the government. The project will bring welfare, benefits for the health and environment. Therefore, the local communities will be asked to be part of the project managers through their local government authority, the district administrator whose decision authority has been enhanced by central government in the new decentralized development policy. The proposed project still needs a technical feasibility studies whose financial feasibility studies is part of this business plan.

Technology Description
The technology to be used in this project is locally available and there is considerable number of suppliers near the site of implementation at reasonable prices; A small procurement process will be launched locally for the best offers and below is the composition of the technology: Bio-digesters (concrete and PVC): PVC deposits (available in country); Concrete: cement available outside the site but reachable; Piping, gauge and safety systems: also available;

As biodigesters, two types are to be considered, according to the availability of space or the underground water level. Where space is available, horizontal lined biodigester made from HDPE (high density polyethylene) is to be used as it is superficial. This is also recommended where local average temperatures are not higher enough to thermally enhance the fermentation. Where space is not available or the temperatures are good enough to assist the fermentation process, concrete biodigesters are to be erected. The average nominal capacity of each biodigester will be around 10-15m3, taking in account the maximum number of to be allocated to each biodigester system.

Project Returns
The proposed project among many other benefits will deliver the following outputs: gaseous bio fuel for meeting household energy demand; methane emissions avoidance; better manure management resulting in diseases and water contamination avoidance; and, appropriate technology dissemination contributing to poverty alleviation in rural communities

Biogas a clean energy source compared to diesel systems which would ordinarily be used with these boreholes and reduction in transport emissions associated with kerosene and also deforestation avoided. Job opportunities will be created in maintaining and installing renewable energy technologies. The locals will be involved in the construction of the system lowering or even removing the installation costs. Farmers and their householder will contribute to the project cost whereas 30% will be set as the minimal contribution for initial investment which will be beared by the financier. Along the project savings from kerosene and part of the farm product selling income will be captured by the project through community committees.

Cash Flow Analysis

Under this section costs and income are captured and financial techniques are used to bring the project to a more realistic cash analysis. Cost of technologies corresponds to purchase, transport and installation of all the concrete and pumping components which include PVC deposits, cement, and Piping, gauge and safety systems. This technology is all procured locally. Operational costs comprise costs of maintenance costs, monitoring costs during the estimated life of project analysis. The life of the project to be considered in the calculation of cash flow is 10 years. The Net Present Value will be calculated at 14% (10.75% risk free plus spread of 3%)1.
Discounted cash flow analysis (in USD)
1

Source: Central Bank of Mozambique

Assumptions and Variables Exchange rate Inflation Years Capital costs $86,400 Technology Training and commissioning Installation costs Insurance Provision for contingencies Sub-total $3,000 $5,000 $1,100 $2,500 $91,500 $1,100 $1,100 $1,100 $1,100 $1,100 $1,100 $1,100 $1,100 $1,100 0 5% 1 2 3 4 5 6 7 8 9

$3,000

$3,000

$3,000

$3,000

$3,000

$3,000

$3,000

$3,000

$3,000

Operating costs
Maintenance & labour $3,456 $3,456 $3,456 $3,456 $10,456 $3,456 $3,456 $3,456 $3,456 $3,456 $10,4560 $3,456 $3,456 $3,456 $3,456 $3,456 $10,456 $3,456 $3,456 $3,456

Sub-total Income
Sale of product Carbon credit Other income $29,4002

$4,500

$4,500

$4,500

$4,500

$4,500

$4,500

$4,500

$4,500

$4,500

$4,500

$14,000 $23,500 $18,500

$14,000 $18,500

$14,000 $18,500

$14,000 $18,500

$14,000 $18,500

$14,000 $18,500

$14,000 $18,500

$14,000 $18,500

$14,000 $18,500

$14,00 $18,50

Sub-total
Accounting for tax Total

Internal Rate of Return Net Present Value (@14%) Nominal Payback Period

15% $14,246.76 6

Project Institutional Architecture

This project will involve apart from the designers the community and local government. A pilot project is being implemented in the district of Magude where a bio system was installed in one householder. The community was able to see how the project and the benefits that brings, more householders are interested in having one as well. Now the project is at the monitoring stage and good results proving the feasibility of this project the farm communties.

Project Implementing Parties

GED is the project owner and designer and will be implementing partner, REEEP has funded the Business Plan and further steps will be undertaken by SSN until full financing of the project. GED was set up in 2002 specifically to address issues of energy and climate change in Mozambique is well networked amongst government, NGOs and academia both nationally and regionally.
2

30% of community contribution towards Capital costs

GEDs staff members are skilled in the areas of renewable energy technologies, climate modelling, adaptation and mitigation of the impacts of climate change, greenhouse gas inventories, and the CDM. Other institutions that will be involved in the success implementation of the project include National Disaster Management Institute (INGC), the National Directorate of Water (DNA), the National Directorate of Environmental management (DNGA), the National Directorate of Rural Development (DNDR), and the Energy, Environment and Climate Research Group. Most of these institutions work with the authorities and communities at local level: The Energy Fund (FUNAE) is a governmental agency with the task to implement renewable energy projects in rural areas, like electrification of schools, clinics, communities, small scale enterprises, among others. FUNAE has a vast experience in undertaking water pumping projects, using solar and wind technologies. The National Disaster Management Institute (INGC) has long experience in dealing with disaster issues, like droughts, floods, cyclones, etc., in the country. As mentioned in previous sections, droughts are cyclic phenomena in Mozambique. The National Directorate of Water (DNA), in the Ministry of Public Works and Housing (MOPH), has a large department dealing with rural water issues. Activities include harnessing of groundwater resources, among others, whereby DNA contributed for the drilling of a significant number of boreholes. The National Directorate of Environmental Management (DNGA), in the Ministry for Coordination of Environmental Affairs (MICOA), is the one dealing with the implementation of major issues related to conventions, like the United Nations Framework Convention on Climate Change, including the Kyoto Protocol, the Convention on Biodiversity and the Convention on Droughts and Desertification. Right now DNGA is involving in community projects related with the synergies of the three conventions. The National Directorate of Rural Development (DNDR), in the Ministry of Planning and Development (MPD), supervises all projects implemented in the rural context. DNDR has vast experience in social issues for implementation of rural projects.

The Energy, Environment and Climate Research Group, based in the Faculty of Sciences of the Eduardo Mondlane University (UEM), is the leading research group in matters related to climate studies and modelling, environmental pollution studies

Risk Analysis
This section intends to demonstrate to the reader that there is awareness of the risks associated to the project and below are the risk categories with some likelihood of occurrence and how to mitigate them. Construction- For the implementation of the project, the technology is available both locally and international. For the purpose of the project only piping, gauge and safety systems will be procured outside the country and the rest part of the technology exist in house. The barrier is the cost of acquisition of the technology. Operation and Maintenance- The cost of running the project will be supported by the funder or financier and need to be specified right at the

beginning of the project. These costs include salary of the technician, insurance and maintenance of the modules. This section does not pose significant level of risk if the community is trained properly however underestimation can jeopardise the smooth implementation of the project. Financial At the country level the project has potential to be funded but as a development project. FUNAE and other Ministries are already funding some of GEDs projects. Exchange Rate- It poses some risks in the fact the budget is in USD and material and technology procured locally will be in local currency. The exchange rate fluctuates a lot, this risk can be minimised at the budgeting stage through provisions for differences in currency. Demand for the projects product- the demand for the project is unquestionable, energy is still a scarce good and still will be in the next decade and clean energy is favourable even where there is electricity. The project incorporates a replication component in order to target more people. Ownership The project will be owned by the communities and the community leaders have to take the management responsibility. Public ownership may pose challenges but since the community will be trained and sensitized the public goods management risk will be minimized. Legislative- No regulation obliges the use of biogas or any renewable energy source thus there is no legal risk associated to the project. Location- TETE PROVINCE-Changara District, where livestock is abundant and forest are becoming scarce thus the project need.. Country risk- these constraints make the investment in this technology risky and, so far, there is no particular incentive in the country for anyone to embark on the biogas for household energy. Investment environment - this is a sustainable project which reduces greenhouse gas and adds value to the community such as Provision of clean and renewable energy for communities. Lowered costs for fuel (currently estimated at 30% or more of household incomes), Increased health benefits due to a decrease in use of wood kerosene. Empowerment for communities through training and development of skills. Balance of Payments benefits from the reduction of kerosene imports Institutional Capacity - there is capacity in-house; GED personnel have long experience in undertaking renewable energy projects their level of motivation which will contribute to remove most of the barriers. GED is now undertaking a Biogas project in Magude. Availability of resources - PVC deposits, cement for concrete are available in country and only piping, gauge and safety systems will be imported. These resources are environment risk free and renewable.

Analysis of Alternatives
The alternative project to this would be what is happening on sites and almost everywhere which is the use of fuel and wood. For household lighting, the most common fuel used is the kerosene and, in

second place, diesel. Both of them are fossil-based refined fuels and, therefore, potential CO2 emitters to the atmosphere.

Project Financial Requirements

This project is a public sector project, with possible revenue stream from savings the families will have for not spending money on kerosene. The income from the farmers will lower or even cover the operational costs of the project. The families of the community that will benefit from the project will contribute toward the capital costs by 30% through community committee which will be responsible in collecting the contributions. With the increase of the productivity of the farmers more contribution from them will be expected and a contribution. By offsetting the use of wood fuel and kerosene, avoiding methane emissions from swine manure the project will reduce 2,800 tonnes of CO2 per annum which through carbon market can generate income of about $14,000. This is the main source of income in this project given that the savings from families for not using kerosene and wood is not easy to quantify though a contribution of $4,500 is expected as the minimum price per annuam.