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METHANE RECOVERY FROM ANIMAL MANURES: THE CURRENT OPPORTUNITIES CASEBOOK of the first year of a project and are never discounted. In a financing evaluation, it is possible to have cash receipts in “time-zero” that are placed in discountable future years of a project. Hence, an economic evaluation is a much more conservative approach for evaluating investment opportunities. Quite simply, some projects in this world are financed that do not appear to be cost-effective. 3.1 Covered Anaerobic Lagoon Digester Profile This section provides a detailed economic profile of one type of digestion system that could be found on many swine farms: a covered anaerobic lagoon. The digester was assumed to be located in North Carolina, a major swine-producing state. Electricity generation with waste heat recovery was assumed to be the end-use application of the biogas manufactured by the anaerobic process. The first objective of the profile is to develop an estimate of its cost and energy production 2 potential. This was primarily accomplished by using the EPA’s AgSTAR FarmWare computer program. A second study objective was to evaluate the life-cycle economic performance of the digestion system, and to conduct a sensitivity analysis of two key economic performance statistics as functions of electricity rates. To accomplish the second objective, the digester cost and energy production data, as well as © additionalvariables,werelinkedintoCashFlow ,amodelthatprovidestheinvestmentmerit statistics NPV, IRR, SPP, and cumulative cash flow (CCF). The variables used in the analyses are listed in Table 3.1 and include nominal growth rate in O&M expenses, nominal growth rate in energy expenses, nominal discount rate, percent combined tax rate, depreciation of system capital costs method, and project life. The values for nominal growth rates in energy expenses were based on the 5-year moving average 3 of the percentage change in the national retail prices of electricity sold by electric utilities. 4 NominalO&Mexpenseswerebasedona5-yearmovingaverageoftheProducerPriceIndex for motor generator sets and switchgear equipment. As shown, the major materials required for O&M rose at a positive rate slightly higher than energy prices. It was beyond the scope of this section to delineate the “true” discount rate for livestock producers, so the discount rate was assumed to be the prime interest rate plus 6%. This “rule-of- thumb” helps to simplify the issue of how to incorporate investment risk. At the time this study section was written, the prime rate of interest was 8.25%. Thus, the nominal discount rate used was 14.25%. Another significant assumption used was in the area of depreciation of capital equipment. Following the expiration of the business and energy tax credits with the passage of the federal 2 Environmental Protection Agency. EPA-430-B-95-015. U.S. Environmental Protection Agency (1995). FarmWare User’s Manual Version 1.02. Washington, DC: U.S. 3 Energy Information Administration (1995). Annual Energy Review 1994. Washington, DC: U.S. Department of Energy. 4 U.S. Bureau of Labor Statistics (1995). Producer Prices Indexe. Washington, DC: U.S. Department of Commerce. 3-3PDF Image | Methane Recovery from Animal Manures The Current Opportunities Casebook
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