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METHANE RECOVERY FROM ANIMAL MANURES: THE CURRENT OPPORTUNITIES CASEBOOK 3.0 ECONOMIC EVALUATION OF ANAEROBIC DIGESTION It is helpful to evaluate AD technologies using objective economic criteria. Options can then be ranked in terms of their relative cost-effectiveness, leading to rational deployment decisions. This section presents some economic evaluations of three types of digestion systems commonly found “McGuire, what’s with you? Everybody else here seems to have a perfectly clear idea of what ‘cost-effectiveness’ means.” © September 1986 by The New Yorker on dairy and swine farms; covered lagoon, plug-flow, and complete-mix. The digesters were assumed to use the biogas manufactured from the AD process to generate electricity. Before proceeding, some preliminary economic concepts should be briefly discussed. The interrelationship of investment merit statistics is at the center of economic evaluation. The most readily understood statistic is cash flow. Cash flow is a schedule of annual net profit (or loss) resulting from an investment and can take into account such factors as amortization or the inflation rate for displaced fuels. The important point about cash flow is that “less money spent” is equal to “more money made.” However, cash flow does not account for the time value of money. The time value of money concept asserts that a current dollar is more valuable than a future dollar. To assess true profitability, cash flows must be adjusted by the discount rate to put dollars into a consistent present value. The discount rate can be interpreted as the interest rate anticipated on an alternate investment opportunity, against which the original opportunity is compared to evaluate the financial consequence of going with the original. The interrelationship of these investment merit statistics is discussed below. Simple payback period (SPP) is often used as a criterion for determining investment acceptability. From cash flow, a SPP for the investment can be quickly calculated. SPP is the “break-even” length of time necessary to recover the initial investment through positive cash flow. Many businesses will only undertake investments with a 2-year SPP. However, although payback may be useful in measuring the liquidity of an investment, it offers no real insight on profitability because the analysis is incomplete. Neither the time value of money nor positive cash flow occurring after the payback period is accounted for. Hence, for mutually exclusive projects with equal cash flows, the project with an infinite lifetime would receive the same ranking as a project with a very short lifetime if both had the same payback period. Net present value (NPV) is an investment merit statistic that accounts for the time value of money by describing the present worth of an investment in dollars. It is calculated by the compound 3-1PDF Image | Methane Recovery from Animal Manures The Current Opportunities Casebook
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