Bachelor of Science Thesis KTH School of Industrial Engineering and Management

Energy Technology EGI-2018 SE-100 44 STOCKHOLM

Small-scale biogas production in Kenya

Sofia Sundby Malin Söderberg

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TRITA-ITM-EX 2018:441

Sammanfattning

Syftet med denna kandidatexamensuppsats är att analysera de ekonomiska och tekniska aspekterna av biogasproduktion som hållbar energikälla i Kenya. Studien fokuserar på småskalig biogasproduktion på landsbygden. Biogasen produceras främst från kobajs och kycklingspillning och skall användas som bränsle vid matlagning. För att uppnå syftet med studien studeras två hållbarhetsaspekter, den ekonomiska och den tekniska. Den ekonomiska analysen involverar analys av återbetalningstid, nettonuvärde och internränta, detta för att kunna utvärdera den ekonomiska lönsamheten av en småskalig biogasanläggning i ett kenyanskt hushåll. Den tekniska analysen inkluderar analys av livslängd, internt gastryck och metanläckage hos olika biogasanläggningar. Detta görs för att kunna bedöma småskaliga biogasanläggningars potential att producera matlagningsbränsle i Kenya.

Bachelor of Science Thesis EGI-2018

Small-scale biogas production in Kenya

Sofia Sundby Malin Söderberg

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Approved

28-08-2018

Examiner

Dilip Khatiwada

Supervisor

Dilip Khatiwada

Commissioner Contact person

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Studien genomförs delvis som en fältstudie i Kenya. Fältstudien avser implementering av en småskalig biogasanläggning på landsbygden i Kenya. Fältstudien genomförs i två faser. I fas 1 analyseras start-up-företaget Swenya Biogas. Företaget säljer biogasanläggningar och håller för närvarande på att försöka etablera sig på den kenyanska biogasmarkanden. Analysen av Swenya Biogas görs för att få en överblick av den ekonomiska situationen hos företag som är aktiva på den kenyanska småskaliga biogasmarkanden. Vi erhåller information rörande försäljningspris för biogasanläggningar samt för tilläggsenheter, till exempel biogaslampor, biogasvärmare och biogasbrännare. I fas 2 undersöks implementeringen av en småskalig biogasanläggning för en av Swenya Biogas kunder. Kunden ifråga äger en gård i staden Malindi och kommer att använda kobajs och kycklingspillning som biomassa i biogasanläggningen. De resultat som erhålls från undersökningen i Malindi inkluderar återbetalningstid, nettonuvärde och internränta.

Vi studerar återbetalningstiden, nettonuvärdet och internräntan för en biogasanläggning på 5m3 där den hypotetiska kunden för närvarande använder ved, träkol, fotogen, gasol respektive elektricitet som bränsle. Återbetalningstiden för respektive bränsle är 1.91 år, 1.97 år, 0.76 år, 0.33 år and 0.07 år. Respektive nettonuvärde är 1 821.1 USD, 1 750.7 USD, 5 800.3 USD, 14 552.5 USD och 18 744.1 USD. Respektive internränta är 50.4%, 49.9%, 131.4%, 305.6% och 389.1%. Beräkningarna påvisar positiva nettonuvärden, höga internräntor och korta återbetalningstider, vilket indikerar att en småskalig biogasanläggning är ekonomiskt försvarbar. Om dessa beräkningar jämförs med beräkningarna för Swenya Biogas kund på gården i Malindi ser man kundens nettonuvärde och återbetalningstid i vissa fall blir negativa. Detta beror på höga kostnader för arbete och transporter som uppstår i samband med implementeringen av biogasanläggningen. Beräkningarna från gården påvisar dock att det går att uppnå högre nettonuvärden. Det högsta nettonuvärdet som påvisas på gården i Malindi är 47 901.5 USD. Detta nettonuvärde är ett resultat av att kunden i Malindi kan producera mer biogas av vad han behöver och därmed kan sälja överskottet och göra en stor vinst.

Den tekniska analysen visar att modellen ” fixed dome digester”, med ett betyg på 7, är mest lämplig baserat på faktorerna livslängd, internt gastryck och metanläckage. Modellen ”floating drum digester” fick ett betyg på 6, modellen ”tube digester” fick ett betyg på 5 och modellen ”ballon digester” fick ett betyg på 4. Betygen motsvarar en skala där, 9: excellent, 7 – 8: mycket bra, 5 – 6: bra, 3 – 4: godtagbart och 0 – 3: ej godtagbart.

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Abstract

The purpose of this bachelor study is to analyse the economic and technical aspects of biogas production as a sustainable energy source in Kenya. The study focuses on small-scale biogas production in rural areas. The biogas is mainly produced from cow dung and chicken manure and is to be used as cooking fuel. In order to achieve the purpose of the study, two sustainable aspects (i.e. economic and technological) are investigated. The economic analysis involves studying payback time, NPV and IRR in order to investigate the economic feasibility of small-scale biogas plants in Kenyan households. The technological analysis involves studying the lifespan, gas pressure and methane leakage of different digesters in order to evaluate the potential of small-scale biogas technologies for producing cooking fuel in Kenya.

The study is partially carried out as a field study in Kenya. The field study regards implementation of a small-scale biogas system in rural Kenya and were executed in two phases. In phase 1 the start-up company Swenya Biogas is analysed. The company sells biogas digesters and is currently trying to establish itself on the Kenyan biogas market. This analyse is made in order to get an overview of the economical situation for companies active on the Kenyan small-scale biogas market. We retrieve information regarding the selling price of biogas digesters and additional biogas appliances such as biogas lamps, room heaters and burners. In phase 2 we examine the implementation of a small-scale biogas plant for one of Swenya Biogas’ customers. This customer owns a farm in the city of Malindi. The results derived from the implementation of biogas in Malindi include payback time, NPV and IRR considering chicken manure and cow dung as the mixed feedstock.

We study the payback time, the NPV and the IRR of a 5m3-biogas digester if the hypothetical customer currently uses fuelwood, charcoal, kerosene, LPG or electricity as fuel. The payback time for the fuels are in given order 1.91 years, 1.97 years, 0.76 years, 0.33 years and 0.07 years. The NPVs are 1 821.1 USD, 1 750.7 USD, 5 800.3 USD, 14 552.5 USD and 18 744.1 USD. The IRRs are 50.4%, 49.9%, 131.4%, 305.6% and 389.1%. The calculations show positive NPVs, high IRRs and short payback times which indicate that a small-scale biogas plant is economically viable. Comparing this result to the calculations regarding Swenya biogas’ actual customer at the farm in Malindi we find that the NPV and payback time occasionally turn out negative due to large costs in the form of labour and transportation costs induced by the implementation of a biogas system. However, the calculations made on the farm show that there are possibilities to achieve larger NPVs. The NPV reaches the maximum value of 47 901.5 USD at the farm in Malindi. This is a result of the fact that the costumer in Malindi can produce more biogas than needed and is therefore able to sell the remaining biogas and thus make a lager profit.

The technological analysis shows that the fixed dome digester is the most appropriate technology based on the factors lifespan, gas pressure and methane leakage since it got the highest grade of 7. Floating drum digester got a grad of 6, tube digester got a grade of 5 and balloon digester got a grade of 4. The grades correspond to a description according to 9: Excellent, 7 – 8: Very good, 5 – 6: Good, 3 – 4: Acceptable and 0 – 3: Not acceptable.

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Table of contents

Sammanfattning .............................................................................................................................................. 1

Abstract ............................................................................................................................................................ 3

List of figures ................................................................................................................................................... 5

List of tables .................................................................................................................................................... 5

Nomenclature and acronyms ........................................................................................................................ 6

Acknowledgment ............................................................................................................................................ 7

1 Introduction ................................................................................................................................................. 8 1.1 Purpose and objectives ........................................................................................................................ 9 1.2 The scope of the study - system boundray ...................................................................................... 9

2 Literature review ........................................................................................................................................ 10 2.1 Small-scale biogas production .......................................................................................................... 10 2.2 Cooking fuels in Kenya ..................................................................................................................... 13 2.3 Biogas production systems ............................................................................................................... 15

3 Initiatives for sustainable biogas production in Kenya ........................................................................ 19 3.1 Policy and support for renewable energy and biogas development in Kenya .......................... 19 3.2 The Sustainable Development Goals .............................................................................................. 20 3.3 Business models and market creation of biogas in Kenya ........................................................... 21 3.4 Sustainability aspects of biogas production systems ..................................................................... 22

4 Methods and data sources ........................................................................................................................ 23 4.1 Technical analysis ............................................................................................................................... 24 4.2 Economic analysis .............................................................................................................................. 25

5 Implementation of a small-scale biogas system in rural Kenya .......................................................... 29 5.1 Phase 1 ................................................................................................................................................. 29 5.2 Phase 2 ................................................................................................................................................. 30

6 Result ........................................................................................................................................................... 33 6.1 Payback time, NPV and IRR ............................................................................................................ 33 6.2 Lifespan, gas pressure and methane emission ............................................................................... 34

7 Sensitivity analysis ...................................................................................................................................... 35

8 Discussion ................................................................................................................................................... 36

9 Suggestions for future projects ................................................................................................................ 41

10 Conclusion ................................................................................................................................................ 42

11 References ................................................................................................................................................. 43

12 Appendixes ............................................................................................................................................... 48 12.1 Appendix A: Unit cost for each item in the budget ................................................................... 48 12.2 Appendix B: Analysis of the items in the forecast income statement ...................................... 49 12.3 Appendix C: Forcast income statement of Swenya Biogas ....................................................... 53 12.3 Appendix D: Price information from ASCC ............................................................................... 55 12.4 Appendix E: calculating the sea shipment price .......................................................................... 56

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List of figures

Figure 1. The steps involved in anaerobic digestion. ............................................................................. 11 Figure 2. Cumulative biogas production from Lemon grass, Cow dung and Chicken droppings.. 12 Figure 3 Percentage Distribution of Cooking Fuel by Region ............................................................. 13 Figure 4. Fixed dome digester ................................................................................................................... 17 Figure 5. Balloon Digester ......................................................................................................................... 18 Figure 6. Tube Gas Digester ...................................................................................................................... 18 Figure 7. The energy ladder model ........................................................................................................... 38

List of tables

Table 1. Biogas usability and equivalent (Andriani et al. 2015) ............................................................. 13 Table 2. Characteristics for different cooking fuels (Hamid and Blanchard 2018) ........................... 14 Table 3. Characteristics of different biogas production systems .......................................................... 16 Table 4. Lifespan, gas pressure and methane leakage ............................................................................ 26 Table 5. Cooking fuels ................................................................................................................................ 27 Table 6. The biogas production at the farm ........................................................................................... 31 Table 7. Options for biogas utilization ..................................................................................................... 32 Table 8. Payback time, NPV and IRR ...................................................................................................... 33 Table 9. The Farm, Payback time, NPV and IRR .................................................................................. 34 Table 10. Ranking of digester technologies ............................................................................................. 34 Table 11. Sensitivity analysis ....................................................................................................................... 35 Table 12. SWOT-analysis ........................................................................................................................... 39 Table 16. Forecast income statement for Swenya Biogas ...................................................................... 53

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Nomenclature and acronyms

Name Designation Calorific Value CV Carbon dioxid CO2

Cash flow C Combined heat and power CHP Discount rate r Energy efficiency EE Hydrogen H2

Hydrogen Sulfide H2S Internal rate of return IRR Kenyan shillings KSh Liquified petroleum gas LPG Lower Calorific Value LCV Methane CH4

Moisture content MC Net present value NPV Number of time periods T Oxygen O2

Payback time PB Research, development and demonstration RD&D Research and development R&D Renewable energy RE Sulfur S2

Sustanable development goal SDG Strengths-Weakness-Opportunities-Threats SWOT Time period t Total initial investment C

United States dollars USD Water H2O

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Acknowledgment

We wish to express our sincere thanks to Dilip Khatiwada, our supervisor at KTH, for support and guidance throughout the project. We would also like to thank Karolina Hagegård, our supervisor in Kenya, for the expertise regarding biogas and for the interesting discussions that we had together. We also express our thanks to Engineers Without Borders Sweden, for connecting us with Karolina Hagegård and her project in Kenya. We thank Fahmi Ali Binnaji, for letting us visit his farm in Malindi and for taking such good care of us while we were there. We also thank Peter Hagström, course responsible, for advice throughout the project. Furthermore, we thank Dominic Wanjihia, founder of Flexi Biogas, for letting us visit his company and for showing us the features of his biogas units. Finally, we would like to thank Maria Höök, for the useful advice regarding travelling in Kenya.

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1 Introduction

The Republic of Kenya has a population of 48.5 million, living on an area of 580 000 m2. More than 60% of the population work in agriculture. Since plant based products are the country’s most important export goods, Kenya is fully dependent on agriculture (Globalis 2016). An estimate of 36.1% of the population live below the overall poverty line. People who live in overall poverty have a monthly consumption expenditure of less than KSh 3 252 ($32) in rural areas and less than KSh 5 995 ($59) in urban areas (Kenya National Bureau of Statistics 2018). In Kenya, climate changes cause persistent drought and unreliable precipitation. Forest areas disappear, which makes it difficult for the population to maintain their livelihood (Naturskyddsföreningen 2018). Furthermore, warm winters cause alterations to the ranges of agricultural pests and diseases, which in turn could cause infestations of locusts, whiteflies, and aphids, leading to “extensive losses of crop yields”. This in turn can reduce the rural households’ ability to purchase modern energy services or technologies (Sovacool, Kryman and Smith 2015). In 2015, 46% of the population had access to electricity compared to 26% in 2011 (Power Africa 2016). The electricity in Kenya is generated from hydro, thermal, geothermal and wind but the country utilizes only a fraction of these energy sources (Institute of Economic Affairs 2015). The country gained independence from Britain in 1962 resulting in the current immature governmental structure (Globalis 2016). The lack of electricity is a result of poor decentralization policies, these policies would facilitate the provision for electrical and mechanical power systems in rural areas (Sovacool, Kryman and Smith 2015). A rather small portion of the population is able to rely on electricity for cooking, the majority instead relies on biomass and fossil fuels. The type of cooking fuel used by households is related to its socio-economic status. Households with higher levels of income have a lager access to clean energy sources such as electricity, and lower income households often use simpler fuels, such as fuelwood or charcoal (Society for International Development 2013). Among the problems with fuelwood is that it is time-intensive and tedious to collect and difficult to burn during inclement weather (Njagi 2016). Charcoal is considered the major cause of deforestation due to unsustainable harvesting and inefficient production techniques (Iiyama et al. 2014). By implementing biogas one creates a sustainable and reliable energy cycle. Biogas can thus make households self-reliant energy wise. This is one of the most important advantages with biogas. The self-reliance however comes with several conditions such as feedstock availability and conversion technologies etc. Furthermore, eliminating the need for fuelwood and charcoal also eliminates problems, such as deforestation and air pollution, associated with these fuels. A successful implementation of biogas also means that households no longer have to carry out the time-intensive activity of collecting traditional fuels, primarily fire wood from the forest, thereby reducing deforestation and indoor air pollution in rural households. This opens up the possibility of spending that time on other activities, for example farming, starting a business or pursuing an education.

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As for the potential of implementing biogas, estimations show that at least 18.5 million African households have the technical potential to implement biogas systems (Sovacool, Kryman and Smith 2015). Given this large potential and the advantages of biogas, this renewable fuel is seemingly a suitable source of energy in Kenya. It is thus interesting to examine the sustainability aspects of biogas production from cow dung and chicken manure. It is also interesting to examine how biogas implementation would affect the economic situation of a rural Kenyan household. Furthermore, which type of biogas digester is most suitable for this household? This therefore study investigates the economic and technical feasibility of small-scale biogas plants and the use of biogas for cooking in rural villages in Kenya.

1.1 Purpose and objectives

The purpose of this bachelor study is to analyse the economic and technical aspects of small-scale biogas production from cow dung and chicken manure as a sustainable energy source in Kenya. To achieve the purpose, two objectives are presented. Economic:

- Investigate the economic feasibility of a small-scale biogas plant in Kenyan households by studying payback time, NPV and IRR and exemplifying this by studying a farm in Malindi

Technological: - Evaluate the suitability of small-scale biogas technologies for producing cooking fuel in

Kenya by comparing design features and configurations such as lifespan, gas pressure and methane leakage of different digesters.

The study also presents the institutional aspects of a biogas company using the SWOT (Strengths-Weakness-Opportunities-Threats) approach.

1.2 The scope of the study - system boundary

The study will focus on small-scale biogas production in rural areas in Kenya. In this thesis, small-scale biogas production considers production and use of biogas in local households. The biogas is mainly produced from cow dung and chicken manure and is to be used as a cooking fuel. The digesters investigated in this thesis are fixed dome digesters, floating drum digesters, balloon digesters and tubular digesters. In order to examine the implementation of a small-scale biogas system in rural Kenya, the study is based on information extracted form the company Swenya biogas and its costumer in the city of Malindi. The implementation study is carried out in two phases. Phase 1 examines the economic situation of Swenya biogas. Price related data of biogas digesters and biogas appliances is extracted from phase 1. This information is used in phase 2 in order to implement a biogas system for a specific costumer in Malindi.

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2 Literature review

2.1 Small-scale biogas production

Biogas is a renewable energy resource that mainly consists of methane. Biogas is produced from biodegradable material and the generated energy can be used in various ways, for example in electricity generation or for heating (Energimyndigheten 2017). It has a lower calorific value of 6.1 kWh/Nm3 (Banks 2009). Biogas is produced by the bacterial degradation of biomass, a process that takes place in biogas plants under anaerobic conditions. Different types of biomass can be used in the production of biogas, these types can be sorted into three categories (Da Costa Gomez 2013);

1. Farm originated substrate. For example, liquid manure, energy crops as well as food and harvest waste.

2. Waste from households and municipalities. For example, organic waste, market waste and food waste.

3. Industrial by-products. For example, glycerine, waste from fat separators as well as by-products of food processing (Da Costa Gomez 2013).

These different kinds of organic substances can be converted into biogas by bacteria in a chemical process of several steps in airtight digesters. The biogas generated in this process essentially consists of flammable methane (CH4), the methane content (between 50% and 75%) depends on which organic substance that was used. The second main component in biogas is carbon dioxide (CO2), the share varies between 25% and 50%. Biogas also consists of water (H2O), oxygen (O2) as well as traces of sulphur (S2) and hydrogen sulphide (H2S) (Da Costa Gomez 2013). Before the biogas can be converted into electricity and heat it has to go through a simple process of desulfurization and drying. It can thereafter be converted to electricity and heat in so called cogeneration units, combined heat and power (CHP). The biogas can also be burned in order to produce heat. The biogas can also be upgraded to so-called biomethane, in a process where the methane content is raised to 98%. Biomethane has the same properties as natural gas and can be used in all applications known for natural gas. Both biogas and biomethane are renewable fuels that can be stored. The two fuels can be used to produce motor fuel, electricity and heat, which makes them important when it comes to sustainable energy. Furthermore, biogas can also replace carbon compounds in plastic products (Da Costa Gomez 2013).

2.1.1 The chemical process of biogas generation As stated above, biogas is produced by the bacterial degradation of biomass under anaerobic conditions. “Anaerobic conditions” means that the process takes place in the absence of free oxygen. The anaerobic digestion involves a bacterial fermentation of organic material. The fermentation leads to the breakdown of complex biodegradable organics. This breakdown takes place in a four-stage process, which is illustrated in figure 1 (Abbasi, Tauseef and Abbasi 2012).

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Figure 1. The steps involved in anaerobic digestion (Abbasi, Tauseef and Abbasi 2012).

The four stages in the breakdown process are as follows;

1. Hydrolysis. Large protein macromolecules, carbohydrate polymers and fats (such as starch and cellulose) are broken down to sugars, amino acids and long-chain fatty acids.

2. Acidogenesis. The sugars, amino acids and fatty acids are fermented to form volatile fatty acids, mainly lactic, propionic, butyric, and valeric acid.

3. Acetogenesis. Bacteria consume the fermentation products and generate acetic acid, carbon dioxide (CO2) and hydrogen (H2).

4. Methanogenic. The acetate, hydrogen and some of the carbon dioxide are consumed by methanogenic organisms, methane (CH4) is produced (Abbasi, Tauseef and Abbasi 2012).

2.1.2 Different types of biomass used for biogas generation As stated above, biogas can be produced from many different biomasses, such as manure, energy crops and organic waste. As for this project, the digesters involved are mainly going to run on cow dung and chicken manure. What follows is therefore a closer examination of those two substances. Dung from cattle produces less gas in a biogas plant than manure from poultry and pigs. The reason for this is that the feed has already been degraded anaerobically in the stomachs of the ruminants (Bioenergiportalen 2012). The amount of produced gas can be increased by mixing the dung or manure with other energy material, such as waste from households (Bioenergiportalen 2012). It is estimated that the solid manure production is 38-43 kg/day/head for dairy cows and 21-26 kg/day/head for beef cows (World Bank Group 2018). The manure excreted by 1000 birds per day is approximately 120 kg for layer chickens and 80 kg for meat chicken (Williams 2010).

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There are several factors that determine the level of success of the anaerobic digestion. Some of the many aspects that have to be kept in view in order to generate methane-rich biogas of high quality are temperature, pH and loading rate (Abbasi, Tauseef and Abbasi 2012). The actual produced amount of biogas may therefore differ from time to time. The study examined below provides an understanding of how much biogas that can be expected to be obtained from a certain input of cow dung and chicken manure. The study in question was carried out in Nigeria in 2014. The study examined the production of biogas from lemon grass, cow dung and poultry droppings. Standard methods were used to pre-ferment the three substances. Six kg of each pre-fermented substance was then mixed with water (with a ratio of 1:1) in order to form slurry, which then was digested for 30 days. The result showed that a total of 0.125 m3 (0.000694 m3/kg/day), 0.191 m3 (0.001061 m3/kg/day) and 0.211 m3 (0.001172 m3/kg/day) of biogas were respectively produced from the lemon grass, cow dung and poultry droppings (Alfa et al. 2014) - see figure 2 below. (As for this project, the results regarding the cow dung and chicken droppings are the most useful). The design of the digesters used in this study was based on Ajoy Karki’s Biogas model (Alfa et al. 2014), which in turn is based on a fixed dome plant (Karki, Shrestha and Bajgain 2005).

Figure 2. Cumulative biogas production from Lemon grass, Cow dung and Chicken droppings (Alfa et al. 2014).

The factors that determine the amount of produced biogas also determine the quality of the obtained gas. Hence, the quality of the gas may also differ from time to time resulting in variations in its sufficiency. Table 1 provides an understanding of the usability of 1 m3 of biogas. In this thesis, we have used a daily production of 0.001172 m3 biogas per kg chicken manure and 0.001061 m3 biogas per kg cow dung, resulting in 0.002233 m3 biogas produced per kg mixed chicken manure and cow dung at an equal proportion mix (i.e. 50% chicken manure and 50% cow dung by mass content).

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Table 1. Biogas usability and equivalent (Andriani et al. 2015)

Application 1 m3 biogas equals

Lighting 60 - 100 W bulb for 6 hours

Cooking can cook 3 meals for a family of 5 - 6

Electricity generation can generate 1.25 kWh of electricity

2.2 Cooking fuels in Kenya

The Kenyan households rely on three main sources of energy for cooking, these are biomass, fossil fuels and electricity (Hamid and Blanchard 2018). There are variations in the distribution of the different cooking fuels across the country. In rural areas fuelwood is the most common cooking fuel while kerosene dominates the cooking fuel market in the urban areas. Figure 3 depicts the precentageshare of cooking fuels by region in Kenya.

Figure 3 Percentage Distribution of Cooking Fuel by Region (Hamid and Blanchard 2018)

What follows is a closer description of the different types of cooking fuels and table 2 describes some of the characteristics for the different cooking fuels.

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Table 2. Characteristics for different cooking fuels (Hamid and Blanchard 2018)

Fuelwood (MC 20%)

Charcoal Kerosene LPG Biogas

Price [€/kg] 0.088 0.17 0.65 1.65 0.55

Calorific Value (LCV) [kWh/kg]

4.10 8.05 11.80 12.90 7.00

Stove efficieny [%] 0.10 0.28 0.50 0.49 0.55

2.2.1 Fuelwood The share of fuelwood is 86% of the total cooking fuel in rural Kenya (Hamid and Blanchard 2018). Fuelwood consists of any unprocessed woody biomass. The fuelwood is either self-collected or purchased from small dealers (May-Tobin 2011). Fuelwood is time-intensive and tedious to collect and difficult to burn during inclement weather. Replacing fuelwood with biogas reduces the workload for women and children who often are the ones collecting the fuelwood (Njagi 2016). Surprisingly, the reduction of workload sometimes may cause problems with unemployment since some of the fuelwood collectors lack other work skills (Wanjihia 2018). One major environmental problem in Kenya is deforestation, each year Kenya loses about 12 000 hectares of forest through deforestation, primarily as a result of conversion of forests to agriculture or for public or private development projects. The remaining forests are degraded due to unsustainable utilisation, illegal logging, uncontrolled grazing and exploitation for charcoal (Kenya Forest Service 2010). The illegal deforestation led to soil erosion that has resulted in the abandonment of large areas (Globalis 2016). Legislation however restricts timber harvesting by stating that “except under a licence or permit or a management agreement issued or entered into under this Act, no person shall, in a public or provisional forest fell, cut, take, burn, injure or remove any forest produce” (FAO 2016).

2.2.2 Charcoal Approximately 34% of the total cooking fuel in rural Kenya is charcoal (Hamid and Blanchard 2018). Charcoal is a fuelwood made from burning wood in a low-oxygen environment (May-Tobin 2011). The production of charcoal is considered the major cause of deforestation, this is due to unsustainable harvesting and inefficient production techniques (Iiyama et al. 2014). Kenya has unsuccessfully tried to ban charcoal production in order to protect the forests. Therefore, the more recent efforts have focused on adopting policies and regulatory frameworks to formalize the charcoal sector (Nyambane and Wanjiru 2016).

2.2.3 Kerosene Kerosene or paraffin is a clear and flammable liquid distilled from petroleum (Vulimiri et al. 2011). In Kenya kerosene is supplied and distributed by multinational oil companies as well as smaller oil companies. The fuel has an extensive and effective distribution chain involving retailers and middlemen which ensures the commodity reaches even the country’s most remote areas (Gamata 2014). The Energy Regulatory Commission in Kenya has decided to phase out the product from the local market in favour of alternative fuels such as solar for lighting and LPG for cooking. With

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this action the nation also hopes to overcome the problem of fuel adulteration that damage vehicles and affect the export markets (Daily Nation 2018).

2.2.4 Liquefied petroleum gas (LPG) Liquid petroleum gas is a highly flammable mixture that consists of hydrocarbon gases. The mixture is synthesized by refining petroleum that is derived from fossil fuels. Due to high initial costs of acquiring equipment like cookers and gas cylinders as well as the price of the fuel, the use of LPG is constrained. The advantage with LPG is that it is more environmentally friendly and efficient in comparison to wood extracted fuels (Chephirchir 2016). All the LPG sold in Kenya is imported, either in its pure form or in the form of crude oil from the Middle East (Total Kenya Limited 2018).

2.2.5 Biogas Biogas is a renewable energy source obtained from biomass feedstock or bioresources (e.g. waste and manure). Kenya has plenty of feedstock required for the production of biogas. Thus, developing biogas as an energy source in the residential sector would reduce the need for charcoal and fuelwood. Exploitation of biogas would thereby reduce the strain on Kenya’s forests (Kenya Forest Service 2010), which in turn would address the country’s problem with illegal deforestation. This thesis investigates the sustainability of biogas production and use as a cooking fuel in Kenya. As mentioned previously, it is common to use raw biomass as fuel for cooking and heating in rural areas. This fuel produces high levels of household air pollution (Wachera 2014). Since women and children spend more time near the domestic hearth, they are exposed to particularly high amounts of pollutants. Biogas technology can thereby play an important role in providing a clean source of energy that is free from smoke and soot (World Health Organization 2018). Lastly, biogas development can contribute to economical sustainability for households. The production and use of biogas not only promotes environmental/ health impacts and save productive time but it also helps expand income and generate economic savings. An important feature of biogas technology is that virtually the entire cost is expended on installation with very low operating costs. However, the construction of small-scale biogas plants requires land security, technology (digesters), technical know-how (skilled technicians) and logistics, which may lead to a high initial investment. The low operating cost is a result of the feedstock being mostly waste products and the system itself requiring minimal labour. The most direct economic benefit of biogas is as a reduction in fuel expenses (Sovacool, Kryman and Smith 2015).

2.3 Biogas production systems

Some technological parameters that are important in the production of biogas are the lifespan, gas pressure and methane leakage of the biogas digester that is used. The lifespan-parameter is important because it indicates for how long the digester in question can be used. Different types of biogas digesters have different lifespans. The lifespan can be improved by regular maintenance (Human Power Plant, 2017). The internal gas pressure of the biogas digester increases with the volume of gas stored in it. It is important that the internal gas pressure doesn’t exceed the level of pressure that the digester is able to withstand. If the internal gas pressure becomes too high, the

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digester can be damaged, or even worse, explode (ISAT 1998). If there is a leakage during the construction and operation of the biogas plant, methane is emitted. This methane leakage is undesired for many reasons. One very important reason is that methane is a greenhouse gas that contributes to global warming if released. Another reason is that leakages are to be considered as significant safety issues. Furthermore, methane emissions decrease the economic efficiency of the biogas plant, as the emitted methane cannot be used as biogas as intended (Clemens et al. 2012). The four most common types of biogas production systems are fixed dome units, floating dome units, balloon digesters and tube gas digesters. The systems have different characteristics which are presented in table 3. Table 3. Characteristics of different biogas production systems

Systems characteristics

Feedstock Including products

Merits Demerits

Fixed dome unit and floating drum units1

- Stationary - Constructed underground - Made from bricks, concrete and steel

- Organic materials (slurry)

- Biogas - Bio-fertilizer

- Reliable - Requires low maintenance - Exhibits longevity

- Large initial investment that requires land security and skilled technicians - Materials-intensive - Inflexible

Balloon digester2

- Made from a plastic or rubber bag - Simple design

- Organic materials (slurry)

- Biogas - Bio-fertilizer

- Low cost - Easy to install and maintain - Easy to transport

- Low lifespan - Can easily be damaged

Tube gas digester3

- Made from a polythene tube - Simple design - Installed in the ground (in a trench)

- Organic materials (slurry)

- Biogas - Bio-fertilizer

- Low cost - Easy to use

- Quite low lifespan - Requires a trench

1 Sovacool, Kryman and Smith 2015, Information and Advisory Service on Appropriate Technology 2 Ewings 2014 (Balloon digester), Information and Advisory Service on Appropriate Technology 3 Ewings 2014 (Tube Gas Digester), Information and Advisory Service on Appropriate Technology

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2.3.1 The fixed dome unit and the floating drum unit Historically, the two most common types of biogas systems around the world are the fixed dome units and the floating drum devices. These digesters, typically made from bricks, concrete and steel, are stationary and constructed underground. They essentially consist of an inlet for waste inputs, an outlet pipe for slurry, and a hose and valve for biogas to rise when gas pressure increases. The construction of these types of biogas systems requires land security, skilled technicians, transport and logistics of materials, all of which lead to a significant initial investment. Once implemented, these systems tend to be reliable, require low maintenance as well as exhibit longevity. Estimations show that at least 18.5 million African households have the technical potential to implement biogas systems. However, the performance of the systems can be significantly affected by lack of biogas plant maintenance and digester age. Moreover, as the digester is made of concrete, these kinds of biogas units tend to be expensive, materials-intensive and inflexible. Furthermore, the homeowner cannot bring the unit with them if they were to move (Sovacool, Kryman and Smith 2015).

Figure 4. Fixed dome digester (Arthur et al. 2011)

1. Mixing tank inlet pipe. 2. Gasholder. 3. Digester. 4. Compensation tank. 5. Gas pipe (Arthur et al. 2011) Biogas technologies, beginning with fixed dome and floating drum digesters, have been available in Kenya since the 1950s. Adoption rates, however, remain low (Sovacool, Kryman and Smith 2015). Today, there exist a number of alternatives to the fixed dome and floating drum digesters.

2.3.2 The balloon digester The balloon digester consists of a plastic or rubber digester bag, the material used to create the balloon must be UV-resistant. The inlet and outlet are attached directly to the surface of the balloon and the biogas is stored in the upper part of the digester bag. The pressure built up inside the balloon then moves the gas from the digester to where it will be used. The balloon digester can be fed even with difficult organic materials, such as water hyacinths (Ewings 2014).

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Figure 5. Balloon Digester (Ewings 2014)

The balloon digester has several advantages. First of all, the balloon plant has a low cost and it’s easy to install. Furthermore, it’s uncomplicated to clean, empty and maintain. It is also easy to transport (Ewings 2014). The balloon digester also has a couple of disadvantages. The lifespan of the digester is quite low (about five years), and the digester (especially the skin-like surface of the balloon) can easily be damaged (Ewings 2014).

2.3.3 The tube gas digester The design of the tube gas digester is very simple. It essentially consists of a 0.2 mm thick polythene tube (this is the main component of the plant, it’s where the digestion takes place), a PVC pipe (for carrying the gas) and a tube (which is used to fit the pipe to the polythene tube) (Ewings 2014). The digester is installed in the ground, a trench is dug to receive the bio-digester. The walls of this trench must be firm and the floor must be flat. It is also important that there are no sharp stones or protruding roots, which might perforate the tube, in the walls or in the floor. The cost of the tube gas digester is low, although it may vary according to size and location (Ewings 2014).

Figure 6. Tube Gas Digester (Ewings 2014)

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3 Initiatives for sustainable biogas production in Kenya

3.1 Policy and support for renewable energy and biogas development in Kenya

In 2008 president Mwai Kibaki set up The Kenya Vision 2030. It is “the national long-term development blueprint that aims to transform Kenya into a newly industrialising, middle-income country providing a high quality of life to all its citizens by 2030 in a clean and secure environment” (UNDP 2018). The Kenyan Ministry of Energy is committed to the promotion of the biogas technology and the ministry is continuously funding institutions based on needs assessment. To promote domestic biogas production, the Ministry plans to install demonstration units across the country (Ministry of Energy 2018). The Ministry of Energy also acknowledge the changing environment of energy regulation in Kenya, licensing and regulatory agencies that corresponds with different recognized sources of renewable energy. The ministry declares that investors must comply with local content requirements in all operations and also that primarily skilled Kenyan citizens and goods manufactured in Kenya should be considered when a project is implemented (Global Legal Insights 2018). The Ministry of Energy has also set up eight policies and strategies regarding biogas. These policies and strategies were established in 2015 and guides the government until year 2030.

1. Develop and implement public awareness programs on the benefits and potential of biogas technology

2. Undertake and promote RD&D of biogas and technologies 3. Provide appropriate fiscal initiatives for local manufacturer of biogas plant and equipment,

large scale production, storage and distribution 4. Initiate capacity building programs on biogas technology in learning institutions 5. Develop and enforce legal and regulatory requirements on biogas 6. Support domestic and community based biogas plants among urban, rural populations and

communities 7. Promote the use of biogas as an alternative to woodfuel and kerosene for domestic and

commercial energy needs 8. Roll out biogas initiatives to supply the remaining public institutions including prisons,

schools and hospitals as well as biogas bottling plants across the country (Ministry of Energy and Petroleum 2015).

Kenya has also participated in global projects to ensure a global sustainable development. The country has agreed to support both the Paris agreement as well as the UNs sustainable development goals. Based on the 2013 Kenya Climate Change Action Plan, the national

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determined contribution ledges to reduce greenhouse gas emissions by 30% by 2030 (Della Longa et al. 2018).

3.2 The Sustainable Development Goals

The United Nations has set up 17 Sustainable Development Goals. The goals provide clear guidelines and targets for all countries to adopt in accordance with their own priorities and the environmental challenges of the world at large (UNDP Kenya 2018). Out of the 17 goals, there are some that are of particular interest to this study. Goal 2, Food Security: The purpose with this goal is to strive towards ending hunger, achieving food security and improving nutrition and promoting sustainable agriculture. Anaerobic digestion could contribute to restoring soil through the recycle of organic materials. It can also increase increasing crop yields through the use of fertiliser and recirculate phosphorus. Goal 3, Good Health and Well Being: The goal aim to ensure healthy lives and promote well-being for all at all ages. By replacing current fuels with biogas one can reduce the indoor air pollution. Through a waste management system that for example can be provided by biogas plants it is possible to reduce odours and the spread of diseases. Goal 5, Gender Equality: With this goal the UN hopes to bring focus on achieving gender equality and empower all women and girls. Anaerobic digestion reduces the burden of collecting fuelwood from girls and women. Goal 6, Clean Water and sanitation: The aim with this goal is to ensure availability and sustainable management of water and sanitation for all. Anaerobic digestion provides decentralized, local treatment of biosolids in remote and rural communities to reduce odours and the spread of diseases. It also stabilises and recycles biosolids and allow them to be applied back to land. Goal 7, Affordable and Clean Energy: The goal aim to ensure access to affordable, reliable, sustainable and modern energy for all. Anaerobic digestion contributes to utilising locally produced wastes and crops to generate energy for rural and remote communities. It reduces the dependency on fossil-fuel-based energy sources by replacing them with biogas. Goal 9, Industry, Innovation and Infrastructure: The purpose of this goal is to build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation. Anaerobic digestion improves the self-sufficiency and sustainability of industries by extracting the energy from their own waste and using it for the self-generation of electricity and/or heat. Goal 11, Sustainable Cities and Communities: The aim with this goal is is to make cities and human settlements inclusive, safe, resilient and sustainable. Anaerobic digestion contributes to this goal by improving sanitation and hygiene through decentralised and local treatment of biosolids as well as improving urban air quality by substituting solid fuel for domestic cooking and heating with biogas.

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Goal 12, Climate Action: The goal aim to take urgent action to combat climate change and its impacts. Implementation of biogas can reduce the carbon dioxide emissions when replacing fossil-fuel-based energy sources. It also reduces the methane and nitrous oxide emissions from livestock manures. Goal 15, Life on land: The goal aim to protect, restore and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat decortication, and halt and reverse land degradation and halt biodiversity loss. Substituting fuelwood with biogas as a domestic fuel will reduce the deforestation. Anaerobic digestion will also recirculate the nutrients in organic wastes and return them to the soil in the form of fertiliser (World Biogas Association 2017).

3.3 Business models and market creation of biogas in Kenya

When trying to understand the Kenyan biogas market it is important to note that the domestic biogas in Kenya can be divided into three different categories. Biogas digesters are constructed as part of a national program, by Energy Centers or by private domestic entrepreneurs. National Programs There are 17 000 digesters constructed in 36 counties as a part of the Kenya National Domestic Biogas Program (Ministry of Energy 2018). The four-year program started back in 2010 with the objective to contribute to the achievement of the Millennium Development Goals. The focus of KENDBIP was the development of a commercially viable and market-oriented biogas sector. The programs main donor was the Dutch Government. There was a second project called KENDBIP II that ended in 2017 (The Kenya National Farmers’ Federation 2018). Energy Centres Another 1 000 digesters have been constructed by Energy Centers. There are 16 Energy Centers in different counties across Kenya. The centers have several different energy-related functions, among them are the development of county energy plans, the training, demonstration and extension on RE & EE technologies, the dissemination of RE & EE technologies, the monitoring and evaluation of renewable energy projects in collaboration with the technical divisions of the directorate and the undertaking R&D activities. The Energy centers have biogas demonstration units and are involved in promotion and offering technical support to the clients (the Ministry of Energy 2018). Private biogas entrepreneurs Approximately 2 000 digesters have been installed in Kenya by private domestic biogas entrepreneurs. Some of the existing entrepreneurs include Flexi Biogas, Takamoto Biogas and REHAU. The Kenyan company Flexi Biogas sells tube digesters in the form of open-ended pillow cases that consist of a plastic digester bag housed in a greenhouse tunnel. The biogas can be used for cooking or lighting, but Flexi Biogas also converts electricity generators, agricultural machinery such as chaff cutters, water pumps and milking machines to operate on biogas (International Fund for Agricultural Development 2012). Since 2011 the company has installed approximately 1500

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digesters in different countries mainly across east Africa and Asia. Flexi Biogas offers two different sizes of digesters, the standard digester is 6 m3 and cost KSh 61 000 ($605) and the X-large digester is 9 m3 and cost KSh 76 000 ($753) (Wanjihia, 2018). Takamoto Biogas was founded in 2011 by the american Kyle Shutter after researching biogas in Kenya, Uganda, Rwanda, Ghana and the USA. The company constructs individual biogas systems for small-scale farmers in rural Kenya. After two years of operations, Kyle invented the Takamoto Pay-As-You-Go Biogas business model and technology to enable more people to access renewable energy without a large up-front capital investment. The company offers ballon digesters as well as loans for biogas. The Nairobi based company sells 10 m3 prefabricated biogas digester for the price of KSh 70 000 - KSh 85 000 ($637 - $ 842) depending on the customers’ location (Takamoto Biogas 2017). The german company REHAU provides systems and services for polymer-based solutions in construction, automotive and industry. The privately-held firm is established in 54 countries at 170 locations and have about 20 000 employees (REHAU 2018). Jomo Kenyatta University of Agriculture and Technology teamed up with Rehau to create the product called the Rehau Home Gas System (Nairobi Industrial and Technology Park 2016) . REHAU HomeGas is an easily installable biogas solution developed for farms with more than one cow. The system connects a tube digester to a gasbag that stores the cooking fuel until the it is used (REHAU 2018). The price for the 6 m3system is KSh 58 000 ($575) (Mwitari 2017).

3.4 Sustainability aspects of biogas production systems

The two main components of biogas are methane (CH4) and carbon dioxide (CO2). Both methane and carbon dioxide are greenhouse gases that contribute to the enhanced greenhouse effect. The enhanced greenhouse effect causes an increase in the Earth’s average temperature, which leads to climate changes as well as rises in sea levels (Naturvårdsverket 2017). Methane has, compared to carbon dioxide, a more powerful effect on the climate (counted per ton). In fact, during a period of 100 years, methane emissions contribute about 30 times more to the greenhouse effect than an equal emission of carbon dioxide. However, the current carbon dioxide emissions are so gigantic that they account for more than half of the human’s total impact on the climate (Boberg 2017). Despite the fact that both methane and carbon dioxide are dangerous greenhouse gases, biogas (provided that it’s converted or burned, and not released) does not contribute to the enhanced greenhouse effect. The reason for this is that the biogas is part of a closed natural cycle and the carbon dioxide that is released during the combustion of the biogas has already been taken from the air when the organic material was produced (Winton, Bengtsson, and Ljung 2013). However, if there is a leakage during the construction and operation of the biogas plant, methane is emitted. Therefore, it is of importance to evaluate the biogas digester based on its methane leakage and internal gas pressure. If the internal gas pressure becomes too high the digester can explode, resulting in high methane emissions (ISAT 1998). When it comes to fossile fuels, the hydrocarbons were created during earlier geological periods and have therefore not been a part of their natural cycle for a very long time. When combusted, those fuels therefore increase the atmospheric content of carbon dioxide. This net addition of carbon dioxide contributes to the enhanced

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greenhouse effect. The use of fossil fuels has contributed to many environmental problems (Winton, Bengtsson, and Ljung 2013).

4 Methods and data sources

The thesis focus on two different aspects of the biogas business in Kenya, these are economics and technology. In order to analyse the economy, we focus on the payback time, NPV and IRR from the perspective of a potential client currently using either fuelwood, charcoal, LPG, kerosene or electricity as cooking fuel. When analysing the technology, we compare different biogas digesters on lifespan, gas pressure and methane leakage using a ranking method. The technologies are then given a grade based on the desirability of their charactersitiscs, where 9 is the highest grade and 3 the lowest. In order to achieve the purpose and objectives of the thesis, a field study is carried out in Kenya. The field study regarding implementation of a small-scale biogas system in rural Kenya is executed in two phases. In phase 1 we analyse the start-up company Swenya Biogas. The company sells biogas digesters and is currently trying to establish itself on the Kenyan biogas market. This analyse is made in order to get an overview of the economical situation for companies active on the Kenyan small-scale biogas market. We retrieve information regarding the selling price of biogas digesters and additional biogas appliances such as biogas lamps, room heaters and burners. In phase 2 we examine the implementation of a small-scale biogas plant for one of Swenya Biogas’ customers. This customer in question owns a farm in the city of Malindi. The results derived from the implementation of biogas in Malindi include payback time, NPV and IRR considering chicken manure and cow dung as the mixed feedstock. What follows is a closer description of how the phases are carried out. Phase 1 A profound economic analysis of the company consisting of two different scenarios is made. The two scenarios differ in one key aspect, how the transportation of digesters from India to Nairobi is carried out since we have considered the biogas digester built in India. The transportation cost is one of the biggest expenses and therefore have a major impact on the results of the forecast income statement. Scenario 1: At the moment the digesters are transported from India to Nairobi by air. Scenario 2: An alternative is to transport the digesters from India to Nairobi by using sea shipment, see Appendix E. Scenario 2 aims to reduce the high transportation cost that occurs in scenario 1. We study scenario 2 during five years in order to observe changes in gross profit margin and operating profit margin. Furthermore, we calculated the NPV, payback time and IRR of Swenya Biogas’ biogas digesters.

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Phase 2 The study of the farm is divided into two situations which are the current situation with a smaller farm and 1250 chickens and the future situation with a larger farm and 3 500 chicken. We have also defined two possible options based on the utilization of biogas. Option 1 (replace all fuels with biogas): Use the biogas for hatching, brooding and cooking (replace the charcoal and LPG). The access biogas can be sold. Option 2 (biogas for electricity): Only generate electricity from the biogas. The electricity generated replaces the electricity usage, the access electricity can be sold. The LPG and charcoal will not be replaced.

4.1 Technical analysis

In order to perform a technical analysis of different types of biogas digesters, we have considered three factors, namely, lifespan, gas pressure and methane leakage. The lifespan of the digester is an important factor because it indicates how profitable the investment in the digester in question will be. The internal gas pressure that the digester is able to withstand is important because it indicates how safe the digesters is. A digester that withstands a high internal gas pressure is safer to use than a digester that only withstands a small internal gas pressure. Methane leakage is an important factor because the amount of methane that the digester releases indicates how environmental friendly the digester is. Lifespan The lifespan of a digester is the time interval from when it is sold until it is discarded. It is a measurement of the time during which the asset is useful to the average owner. The measurement indicated the quality of the product and also acts as an important factor when determining whether the investment is worthwhile. Gas pressure Different digesters are able to withstand different levels of internal gas pressure. The higher amount of gas the higher the internal pressure will be. Digesters with a lower pressure tolerance often require more care, therefore higher gas pressure tolerance is preferred. Methane leakage The biogas essentially consists of flammable methane (CH4), the methane content (between 50% and 75%) depends on which organic substance that was used. Methane is a greenhouse gas that contribute to the enhanced greenhouse effect. Digesters vary in their ability to conduct the methane created in the digestion process. The lower the methane leakage the more environmentally friendly is the technology, hence a lower value is preferred. Based on these three factors we have composed a grading scale in order to rank the four different types of biogas digesters. Fixed drum digesters, floating drum digesters, balloon digesters and tube digesters are given a grade from 0 – 3 in each factor. The digester type with the most beneficial

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characteristics are given a 3 and the digester with the least beneficial characteristics are given a 0. The results from the three factors are then added, resulting in a final grade of between 0 – 9. The final grade corresponds to a description according to the list below. 9: Excellent 7 – 8: Very good 5 – 6 Good 3 – 4: Acceptable 0 – 3: Not acceptable

4.2 Economic analysis

The Net Present Value (NPV), Internal Rate of Return (IRR) and Payback time (PB) are evaluated for determining the economic merits of biogas digesters. Net present value (NPV) The NVP is a method that describes the difference between the present value of cash inflows and cash outflows over a period of time. The method gives an indication to whether the capital costs of a project will be covered by the return of investment during a period of time. With the result from the NPV one is therefore able to evaluate the profitability and feasibility of a project. Depending on the result of the NPV, different interpretations can be made. If the NPV value is positive, the project is profitable and vice versa if the NPV is negative.

𝐶 is the cashflow in year t [USD] 𝐶 is the total initial investment [USD] r is the discount rate [%] t is the the time period [year] T is the number of time periods [years] The discount rate is set to 9.5% in accordance to the information given by The Central Bank of Kenya on the 19th of Mars 2018 (Central Bank of Kenya, 2018). And the number of time periods is set to 10 years according to the lifespan of the digester offered by Swenya Biogas (Hagegård, 2018).

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Internal rate of return (IRR) The IRR is a discount rate that makes the NPV equal to zero. Therefore, the IRR is the value when the present value of the cash outflow is equal to the present value of the cash inflow. With the method one is able to estimate the profitability of potential investments. If the IRR is higher than the discount rate one should go through with the investment and if the IRR is lower than the discount rate the project should not be conducted.

Payback time (PB) The payback time is the length of time required to cover the cost of an investment. The method offers a way to determine whether or not to undertake a project. The shorter the payback time the more desirable for investment projects.

4.3 Data sources

- A month is 30 days and a year is 365 days - The following exchange rates have been used throughout the report;

1 Euro = 1.23 U.S. dollars (Valuta.se, 2018) 1 KES = 0.00990703 US dollars (XE, 2018) 1 SEK = 0.12 US dollars (Valuta.se, 2018) The biogas production systems are evaluated based on lifespan, gas pressure and methane leakage. Table 4. Lifespan, gas pressure and methane leakage

Fixed dome digester

Floting drum digester

Balloon digester Tube digester

Lifespan [years]4 20 15 5 10

Gas pressure [mbar]5

120 20 10 10

4 ISAT 1998 and Hagegård 2018 5 ISAT 1998, Lahlou 2017 and EEP 2012

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Methane leakage6

High Medium Low Low

The cooking fuels have different characteristics. For the study we require infromation regaring price, fuel consumption, carbon dioxide emission and calorific value. The fuel consumption is based on the consumption of fuelwood which was estimated to 10.4 kg/day for a Kenyan household of 4 people (Critchley et al. 2013). Table 5. Cooking fuels

Fuelwood (MC 20%)

Charcoal Kerosene LPG Biogas Electricity

Price 0.11 USD/kg

0.21 USD/kg

0.80 USD/kg

2.03 USD/kg

0.68 USD/kg

0.20 USD/ kWh

Fuel consumption 10.40 kg/day

5.30 kg/day

3.61 kg/day

3.31 kg/day

6.09 kg/day

42.64 kWh/day

Carbon dioxide emission (kgCO2/kWh)7

0.39 0.34 0.26 0.23 0.02 0.71

Calorific value (LCV) (kWh/kg)8

4.10 8.05 11.80 12.90 7.90 -

Implementation of a small-scale biogas system in rural Kenya

Phase 1 - The scenario described in the economic analysis is based on how much it is reasonable for

Swenya Biogas to sell given its size and the early stage that it is in (Hagegård 2018). - The sells of digesters and additional components for Swenya Biogas is estimated to be 15

m3 of digester (so for example three 5m3-digesters), 30 meters of pipe, 3 valves, 3 biogas lamps, 3 double burners and 1 biogas room heater per month. It is estimated that Swenya biogas makes monthly deliveries to clients where a total distance of 45 km is covered (Hagegård 2018).

- The purchase price of the digester is 100 UDS/m3 while the sales price is 160 UDS/m3. The digesters size (m3) can be adjusted for each customer. Therefore, both the cost and price of the digester is proportional to the size of the digester (Hagegård 2018).

6 Lahlou 2017 and Hagegård 2018 7 Volker Quaschning 2015, City of Winnipeg 2018 and IPCC 2018 8 Hamid and Blanchard 2018

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- Swenya Biogas buys appliances from Kenya Sunrise Eco-Energy LTD and then sells them with a profit margin of 10% (Hagegård 2018).

- The appliences sold at Swenya Biogas are biogas lamps (3 000 KSh/piece), double burners for cooking (6 000 KSh/piece) and biogas room heaters (5 000 KSh/piece) (Kenya Sunrise Eco-Energy LTD 2018).

- The shipping cost of 55.6 USD/m3 for the shipping from India to Nairobi is based on Swenya Biogas’ first shipment of digesters (ASCC 2018).

- It is estimated that Swenya Biogas’ sales will increase with 20% from the previous year during five years.

- Its assumed that Swenya biogas are able to negotiate with FOV Biogas and reduce the purchase price of digesters with 5% each year from the original price. Phase 2

- The electricity price is based on the costumers in Malindi’s electricity bill for March 2018. This electricity bill added up to KSh 3 672 for 177 kWh (Ali Binnaji 2018). The bill includes a fixed charge (Kenya Power 2018) of KSh 150, resulting in an electricity price of approximately KSh 19.90/kWh (Ali Binnaji 2018).

- The farm uses energy for KSh 1 000 (50 kWh) worth of electricity and KSh 250 (12 kWh) worth of charcoal per month (Ali Binnaji 2018).

- The household uses energy for KSh 3 672 (182 kWh) of electricity, KSh 2 000 (99 kWh) worth of LPG and KSh 500 (25 kWh) worth of charcoal per month (Ali Binnaji 2018).

- An employee at the farm has the approximate monthly salery of 7 000 KSh (Ali Binnaji 2018).

- There are currently 1 250 chickens at the farm (Ali Binnaji 2018). - 20 chickens are slaughtered every day during a month, this results in a total of 600 chickens

per month. There is no slaughter waste that can be used for biogas generation (Ali Binnaji 2018).

- The chickens are bought at one-day old for KSh 70/chicken (Ali Binnaji 2018). - It is possible to buy 30 fertilised eggs for KSh 750 (Hagegård 2018). - The chickens are slaughtered when they are between 1 to 1 ½ months old (Ali Binnaji

2018). - 1 000 meat chickens produce 80 kg of manure per day (Ali Binnaji 2018). - 1 milk dairy cow produce 40.5 kg of cow dung day. - From 1 kg of chicken manure it is possible to obtain 0.001172 m3 biogas per day. - From 1 kg of cow dung it is possible to obtain 0.001061 m3 biogas per day. - From 1 kg of mixed cow dung and chicken manure it is possible to obtain 0.002233 m3

biogas per day. - From 1 m3 biogas it is possible to generate 1.25 kWh electricity. - The proportion between the slurry and the gas in the digester is 60% slurry and 40% gas

(Hagegård 2018). - There are currently 3 brooders and 8 lamps at the farm (Ali Binnaji 2018). - Biogas lamps require 0.07 m3 biogas/hour (Kenya Sunrise eco-energy LTD 2018), bigas

brooders 1 m3 biogas/day and biogas incubator 2.5 m3 biogas/day (Wanjihia 2018). - It is assumed that an electric incubator requires 3.125 kWh/day based on the fact that a

biogas incubator require 2.5 m3 biogas/day and 1 m3 biogas can generate 1.25 kWh.

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- The lamps are only on during 8 hours a day while the rest of the equipment is constantly on (Ali Binnaji 2018).

- The electricity generator costs KSh 200 000 (1 981.4 USD) per unit. The generator has the capacity of 2.5 kW (Kenya Sunrise Eco-Energy LTD 2018).

- It is estimated that the hatching rate of fertilized eggs is approximately 85% (Raising Happy Chickens 2018).

- The biogas can be sold in 1 m3 gasbags at the price of 160 UDS, all customers need 2 gasbags each. The gasbags are sold per m3 with a selling price of 160 UDS/m3 (Hagegård 2018).

- In the future we estimate that the farm electricity need will increase in accordance to the increase in the amount of chickens.

5 Implementation of a small-scale biogas system in rural Kenya

The field study regarding implementation of a small-scale biogas system in rural Kenya were executed in two phases. In phase 1 we analysed the start-up company Swenya Biogas. In phase 2 we examine the implementation of a small-scale biogas plant for one of Swenya Biogas’ customers.

5.1 Phase 1

Swenya Biogas is a business based in Nairobi that offers tubular biogas digesters. It aims to provide affordable biogas digesters for households, schools and businesses. The company was founded by the Swedish engineer Karolina Hagegård and focuses on small-scale biogas production intended mainly for cooking (Hagegård, 2018). The digesters are purchased from FOV Biogas, an Indian based company that manufactures biogas digesters from technical fabric. FOV Biogas’ production takes place in the city of Bengaluru. As for the technical advanced woven fabric, it is produced in Sweden by the parent company FOV. High quality is a core value for FOV. The digesters offer reliable biogas production for more than 10 years (FOV Biogas 2017). The aim is to sell the biogas digesters for 160 USD per m3 in order to establish a competitive advantage. Hagegård indicated that she would like the selling price to remain unchanged at 160 USD per m3. We therefore did an economical analysis to investigate the current financial situation of the company base in the given selling price. Calculations showed that Swenya Biogas makes a loss of 2 917.8 USD per year, see appendix C. We looked into how many m3 of digester that Swenya Biogas needs to sell per month to break even. In order to reach the break-even point by selling only digesters (ergo, and not selling any additional digester components, additional biogas appliances or additional services), the company needs to sell 145 m3 of digester per month. This is currently considered to be an unobtainable amount of digester, given the company´s current statues. The next step is therefore to analyse how reduce the company’s costs in order to eliminate the loss.

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The items that largely impact the economic result of Swenya Biogas are:

- The purchase price of the digester: The digesters are purchased from FOV Biogas. If Swenya Biogas’ sales where to take of it will be possible to negotiate with FOV Biogas and maybe get a volume discount or a loyal-customer-discount. We have assumed that this deal would mean a reduction of the purchase price of digesters with 5% per year during the following five years.

- The transportation cost: The transportation takes place in two main stages; from Bengaluru (where the digesters are made) to the Shipping location in India and from the Shipping location in India to Nairobi. The transportation cost depends on the kind of transportation, but also the volume and weight of the transported item. There are several opportunities to custom the measurement of box used for shipping the digesters in order to lower the transportation costs. The transportation cost is also a cost that can be optimized by finding the shipping and transportation company with the best prices. In this study we have considered a change in the means of transport from air shipment to sea shipment.

Given the assumed discount and the change to sea shipment, we carried out a second economical analysis. The result indicates that Swenya Biogas now makes a profit of 77.4 USD per year. The company now needs to sell 18 m3 of digester per month in order to break even. This means that the company will be able to obtain the selling price of digesters at 160 USD per m3. Furthermore, Swenya biogas will sell additional biogas products such as pipe, valves, biogas lamps, biogas burners and biogas room heaters. Swenya Biogas purchase the additional biogas products from Kenya Sunrise eco-energy and sell them to their clients with an added 20% profit.

5.2 Phase 2

The farm that we visited is located in Malindi. Fahmi Ali Binnaji started the chicken farming back in 2002, where chickens are raised for their meat. Today, there are approximately 1 250 chickens at the farm. Fahmi Ali Binnaji also owns approximately 30 dairy cows. These cows, however, are not kept at the farm but at another property a couple of kilometers away. In the future Fahmi Ali Binnaji plans to relocate the farm in order to expand the business. The goal is to have 3 500 chickens on a new farm in the near future. Ali Binnaji also hopes to move his family from their current house to a new house that has yet to be built on the new farm. Fahmi also hopes to expand the business to include chicken hatching instead of buying the chickens at one day old, which will decrease the purchase price of the chickens.

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Based on given data of phase 2, we calculated how much biogas can be obtined and how large Ali Binnaji’s biogas unit needs to be, both given the current situation and the future situation. Table 6. The biogas production at the farm

Current situation Future situation

Number of chickens [birds] 1 250.0 3500.0

Number of cows [cows] 30.0 30.0

Amount of manure per 1 000 chickens per day [kg] 100.0 280.0

Amount of manure per cow per day [kg] 1 215.0 1 215.0

Amount of biogas obtained from the chicken manure per month [m3] 105.5 295.4

Amount of biogas obtained from the cow dung per month [m3] 1 160.3 1 160.3

Total amount of obtained biogas per month [m3] 1 265.8 1 455.7

Electricity generated from the produced biogas [kWh] 1 582.3 1 819.7

Size of the digester [m3] 105.5 121.3 In this calculation we do not consider the fact that we will not be able to obtain all of the manure produced. The floor in the hen house is covered with wooden chips meaning the manure has to be separated from the chips before going in to the digester. This separation is not expected to be a 100% successful, leaving some of the manure left on the wooden chips. The next step is to analyse the economic situation of the farm in order to determine if implementation of a biogas unit is a good investment. We have defined two possible options for how to use the produced biogas. Option 1 means that the biogas utilized will be used as it is. In Option 2 the biogas is used to generate electricity. The costs of the digester and gasbags are based on the products offed by Swenya Biogas.

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Table 7. Options for biogas utilization

The current situation The future situation

Option 1 Option 2 Option 1 Option 2

Revenues [USD]

Electricity 118.9 118.9 332.9 332.9

LPG 237.8 0.0 237.8 0.0

Charcoal 89.2 0.0 142.7 0.0

Sold biogas 7 907.1 0.0 5 329.8 0.0

Sold electricity 0.0 3 743.4 0.0 4 131.7

Incubator 0.0 0.0 2 895.3 2 895.3

Total revenue per year 8 353.0 3 862.2 8 938.4 7 359.9

Maintenance cost [USD]

Labour 832.2 832.2 832.2 832.2

Vehicle 4 458.2 4 458.2 0.0 0.0

Total cost per year 5 290.4 5 290.4 832.2 832.2

Investment [USD]

Digester 16 880.0 16 880.0 19 408.0 19 408.0

Gasbags 10 240.0 0.0 6 720.0 0.0

Generator 0.0 1 981.4 0.0 1 981.4

Total investment 27 120.0 18 861.4 26 128.0 21 389.4

The maintenance costs are mostly associated with the handling of the manure. We approximate that one person will have to work with the handling full time. In the current situation the employee must also have access to a vehicle. There will be an opportunity to sell the excess energy that is produced either in the form of biogas or in the form of electricity. If Fahmi chooses to sell biogas he must purchase gasbags so that the customer can transport the gas, each gasbag costing 160 USD. If fahmi instead chooses produce and sell electricity he must invest in a biogas generator. The electricity can then be sold to the governmentally owned Kenya Power or to close by neighbours.

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6 Result

6.1 Payback time, NPV and IRR

The payback time and the NPV for the digester will be unique for each biogas user. Both the payback time and the NPV will be determined by the size of the digester - and in turn how large the investment is - and by how much the costumer in question currently spends on fuel. In order to get an idea of how large the payback time and the NPV can be, we have studied the payback time and the NPV of a 5m3-digester if the customer currently uses fuelwood, charcoal, kerosene or LPG as fuel. Swenya Biogas sells its 5m3-digester for USD 800. Table 8. Payback time, NPV and IRR

Fuelwood (MC 20%)

Charcoal Kerosene LPG Electricity

Payback time [years]

1.91 1.97 0.76 0.33 0.07

NPV [USD] 1 821.8 1 750.7 5 800.3 14 552.5 18 744.1

IRR [%] 50.4 49.9 131.4 305.6 389.1

Every NPV is positive which indicates that all five investments are profitable. The payback time is quite short in all five cases, which also indicates that the investments are profitable. The Electricity-case, which has the shortest payback time and the highest NPV, tells us that it is most profitable to invest in a biogas digester if one currently uses an expensive fuel source.

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The payback time, NPV and IRR of the farm in Malindi can be found in table 11. Table 9. The Farm, Payback time, NPV and IRR

Situation: Option C:O1 C:O2 F:O1 F:O2

Payback time [years] 8.9 −13.2 3.2 3.3

NPV [USD] 848.9 −31 903.5 47 901.5 38 224.5

IRR [%] 12.9 - 210.3 205.2

The payback time, NPV and IRR all point to the same result. The best alternative is Option 1, to only produce and use the biogas. In the current situation the investment is however sensitive to changes in the interest rate seeming as the IRR of 12.9% is fairly close to the current interest rate of 9.5%. The payback time is quite high considering the lifespan of the tube digesters is approximately 10 years. In the future the investment is more reliable and the payback time is also considerably lower.

6.2 Lifespan, gas pressure and methane emission

To compare the different digesters, we use a simple ranking method. The technologies are given a grade based on the desirability of their characteristics, where 3 is the highest grade and 0 the lowest. The technologies are ranked with comparison to each other where the most desirable characteristics is awarded with the best grade. A long lifetime, high gas pressure and a low methane leakage result in a higher grade. The final grade corresponds to a description according to 9: Excellent, 7 – 8: Very good, 5 – 6: Good, 3 – 4: Acceptable and 0 – 3: Not acceptable

Table 10. Ranking of digester technologies

Fixed dome digester

Floating drum digester

Balloon digester

Tube digester

Lifespan [years] 3 2 0 1

Gas pressure [mbar] 3 2 1 1

Methane leakage 1 2 3 3

Grade 7 (Very good) 6 (Good) 4 (Acceptable) 5 (Good)

The results show that the fixed dome digester is the most appropriate technology based on the factors lifespan, gas pressure and methane leakage.

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7 Sensitivity analysis

Assumptions and predictions have been made throughout the calculations in this study. This means that there will exist a margin of error in the presented results and numbers. The results should therefore not be interpreted as being one hundred percent accurate, they should be viewed as an attempt to model the reality. Some parameters in the study are more sensitive than others. Prices of different fuels, electricity and material are constantly changing which means that price related data runs the risk of becoming outdated quite quickly. Here follows an analysis of how much the payback time and NPV changes if the price of fuelwood, charcoal, kerosene and LPG were to rise or decrease with 10% (still with a 5m3-digester for USD 800). Table 11. Sensitivity analysis

Fuelwood (MC 20%)

Charcoal Kerosene LPG Electricity

Payback time [years] if the price rises with 10% if the price decreases with 10%

1.91

1.74 2.13

1.97

1.79 2.19

0.76

0.69 0.85

0.33

0.29 0.36

0.07

0.08 0.07

NPV [USD] if the price rises with 10% if the price decreases with 10%

1 821.8

2084.0 1559.6

1 750.7

2005.8 1495.7

5 800.3

6460.3 5140.2

14 552.5

16 087.8 13 017.3

18 744.1

20 698.6 16 789.7

IRR [%] if the price rises with 10% if the price decreases with 10%

50.4

56.4 45.9

49.9

55.2 44.6

131.4

144.5 118.2

305.6

336.3 275.1

389.1

428.0 350.2

The result from this sensitivity analysis shows that every NPV still is positive, which means that all investments are sturdy enough to withstand 10%-changes in each fuel price. Furthermore, the payback time remains relatively low in all cases, which also indicates that the investments are profitable even with external changes in the fuel prices. There are more costs that are not considered in this report. These alternative costs are, for example, costs related to health problems due to the use of dirty cooking fuels and the cost for labour for collecting fuelwood.

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8 Discussion

Economic feasibility The payback time, NPV and IRR of this study show that an investment in a biogas digester can be beneficial. However, this does depend on the expenses associated with the installation and adoption of the biogas technology. When implementing a biogas system in Malindi we discover that the NPV and payback time occasionally turned out negative due to large costs in the form of labour and transportation costs induced by the implementation of a biogas system. However, there are also possibilities to achieve larger profits than expected. The NPV reaches the maximum value of 47 901.5 USD at the farm in Malindi while the calculations only managed to attain the maximum NPV of 18 744.1 USD. This is a result of the fact that the costumer in Malindi can produce more biogas than needed and is therefore able to sell the remaining biogas and thus make a lager profit. By analysing the economic situation of Swenya biogas it is proved that it is also possible for a company to benefit from the Kenyan biogas. Swenya Biogas where able to obtain a profit of 77.4 USD. When analysing the future economic situation from Swenya biogas it is indicated that it would be possible to achieve a gross profit margin of 21% and a operating profit margin of 17%. The market is quite competitive resulting in the importance for companies to reduce costs and focus on creating costumer value. One of the major setbacks for the exploitations for small-scale biogas in Kenya seems to be the initial investment that is required. Even though the payback time is relatively low, the initial investment still acts as an obstacle for households when considering implementing a biogas digester. The monthly consumption expenditure is between $32 - $59, which means that even the smaller digesters, that cost around $800, will have major impact on the economy of the household, making it difficult to see the future advantages that exist beyond the initial investment. If one were to consider other alternative costs the payback time would probably decrease, making the investment seem less intimidating. However, the issue still remains that some potential clients will not be able to afford the initial investment. One major challenge is therefore to make biogas more affordable, possibly by developing suitable payment plans. The conditions of the energy sector are constantly changing with the Kenyan government and organisations trying to influence the citizens of Kenya to choose clean options. This makes non-clean energy sources unreliable since these can become objects to great economical changes. The Kenyan government’s efforts to promote green and clean energy options will hopefully make biogas an even more economically beneficial option in the near future. Biogas technology Even though the tube digester received a lower technology grade (grade 5, good) than the fixed dome digester (grade 7, very good), the tube digester can be considered to be suitable for small-scale biogas production, mainly because of its simple design. A simple design results in self-reliant costumers. The majority of companies on the Kenyan market include the installation when purchasing the digester. This means that the consumer does not have to worry about the technical challenges of installing the digester, the customer solely has to focus on learning how to maintain

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the biogas digester. Offering free maintenance with the purpose of teaching the costumer how to maintain the digester means the customers have good chances of fully learning how to work the biogas unit. The technical challenges of implementing a working biogas digester shouldn’t therefore be too difficult to overcome. As for the technological development, the market should focus on making the digester as affordable as possible. By developing cheaper materials or by making the manufacturing more efficient it might be possible to reduce the price of the digester. It might be possible to get international support in order to develop these technologies. When signing the Paris Agreement Kenya requested international support both in the form of financing but also in the form of new technology. Biogas stands in line with the directives from both the Paris Agreement as well as the Sustainable Development Goals and is therefore an opportunity for international investors. Environment sustainability Biogas as a sustainable energy source is all about creating a sustainable cycle of energy. By not letting biomasses such as dung and food waste go to waste, and instead using it to produce new energy one goes a long way in becoming self-sufficient energy wise. The exploitation of biogas will reduce the need for fuel sources such as fuelwood, which in turn would reduce the strain on Kenya’s forests. Kenya currently loses about 12 000 hectares of forests each year due to deforestation, using biogas as an alternative to fuelwood would address this problem. Furthermore, biogas’ low daily carbon dioxide emissions (which are very low compared to the other examined cooking fuels’) show that biogas is the best alternative at hand when it comes to environmental sustainability. In accordance to the Paris Agreement Kenya plans to reduce greenhouse gas emissions by 30% by 2030. An alternative action would therefore be to focus on replacing some of the current cooking fuels with biogas. The problem is that the usage of cooking fuels is related to the socio-economic status according to the energy ladder. For customers using other advanced fuels investing in a biogas digester is more economically profitable than for those using primitive fuels. However, customers living with a lower socio-economic status (often living in rural areas of Kenya) have better conditions for biogas implementation in terms of space and access to biomass. Theses customers also are more likely to experience benefits related to social aspects such as the reduction of air pollutions and reduction of the time spent collecting fuels.

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Figure 7. The energy ladder model (Brouwer, van Beukering and van der Kroon 2013)

Swenya biogas The services offered by Swenya Biogas should aim to add value to the customers. An implemented The services offered by Swenya Biogas should aim to add value to the customers. An implemented digester gives the customer the opportunity to be self sufficient in a sustainable way, as well as improving their living conditions and health. In order to be a relevant operator in the value chain and on the Kenyan market, Swenya Biogas needs to offer a service that is in addition to the value creating characteristics of the biogas digester. The most prominent value adding service offered by Swenya Biogas is that the company makes the product more accessible to customers near Nairobi. Consumers could choose to buy the digester directly from the manufacturer in India but it might be more comfortable to buy it from a nearby distributor. When buying the digester from Swenya Biogas the Kenyan customers avoid the sometimes problematic shipping administration. Shipping is also an example where economies of scale can become relevant. As of now Swenya Biogas are not yet selling any larger quantities, hence the economies of scale are not that prominent. However, they still exist since shipping several digesters are more economically beneficial than shipping the digesters individually. It can be a good idea to import larger quantities, alternatively negotiate with the manufacturer reducing the purchase price for Swenya Biogas. Swenya Biogas are available to help the customers with maintenance of the digester. The closeness to the end customers makes is easier for the company to maintain in direct contact with the customer. If the customer needs assistance the company is even able to visit the costumer. The company aims to spread the knowledge about the operation and maintenance of the digester, making the customer more independent. Knowledge is one of Swenya Biogas most important assets and can be used for further development of services. The company could for example offer educational classes for schools that are interested in implementing a biogas digester. The company also needs to be aware of strengths, weaknesses, opportunities and threats. The SWOT analysis below is based on information received during interviews with Karolina Hagegård during 2018.

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Table 12. SWOT-analysis

Strength Weakness

- Knowledgeable staff - A network of contacts - High quality product

- Unclear unique selling position - New on the market - Missing business expertise

Opportunity Threat

- A possible niche - SDG Projects - A solution for the waste challenge

- Alternative energy sources - Innovation in technologies - Changes in the economic situation

Strengths

- Knowledgeable staff: The staff at Swenya Biogas has a lot of knowledge about the process of extracting biogas and different type of digesters. This knowledge can be used to provide qualitative service but also to develop new services to the market.

- A network of contacts: Swenya Biogas use relationship selling which means they have a close relationship with the current clients. The current clients might be able to function as ambassadors for the company and promote the product to people within their network. Swenya Biogas also has a good relationship with the producer FOV. The relationship with the manufacturer enables favourable agreements such as buying digesters on credit.

- High quality product: Even though the biogas digester is new to the Kenyan market, it has already been launched with success in India. The product is developed by FOV and FOV Biogas who continuously work with innovation in order to improve the quality of the project. The unique advanced-fabrics material make the biogas digesters withstand problems such as sun exposure and other kinds of regular wear and tear.

Weaknesses

- Unclear unique selling position: The company Flexi Biogas is one of the larger operators on the biogas market in Kenya. Flexi Biogas also sell small-scale tube digesters to the rural areas in Kenya. The only prominent difference between Flexi Biogas and Swenya Biogas are the use of fabric in the digesters. Swenya Biogas cannot guarantee that its digesters have a longer lifetime of produce more biogas making it hard to claim that fabric produced by FOV is better.

- New on the market: Since Swenya Biogas is a start-up company it does not yet have a reputation and is therefore unknown to most potential customers. Being a start-up also affects the financials of the company, it does not have a large capital which makes it sensitive to unexpected events or market changes.

- Missing business expertise: The staff does not have any experience of the biogas market or starting a company in Kenya which results in additional costs. This weakness is particularly noticeable when it comes to shipment and company administration.

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Opportunities - A possible niche: Majority of competitors sell only one type of digester which means one

could explore the niche of offering different types of digesters. The company would then be able to truly customize the biogas solution for the costumer. This would also make the company less biased perhaps resulting in the customer experiencing the service as more genuine.

- SDGs Projects: Kenya is one of the countries that support the SDGs set by the UN. Biogas is considered to be in a position to help achieve several of the SDGs. The technology is therefore financially supported through different projects, a few of them taking place in Kenya.

- A solution for the waste challenge: The country is faced with a challenge regarding how to address solid waste management in a sustainable manner. One of the benefits with biogas is that is can be produced from organic waste. Hence biogas can be used as an initiative to invest in more sustainable waste management. This means there are opportunities for market expansion by addressing smaller societies.

Threats

- Alternative energy sources: There is already an existing market for different type of fuels used for cooking. These established energy sources have the benefit of habit. Many of them can also be considered to be less expensive in the short-run since they do not require any initial investment.

- Innovation in technologies: Technologies are constantly evolving. The fabric produced by FOV might be considered technically advanced today but without further development the fabric will eventually become outdated. Relying purely on providing technically advanced products means the company actively has to research for new ways to improve the technology. Swenya Biogas is not involved in the product development but needs to be aware of this risk.

- Changes in the economic situation: Swenya Biogas is on a tight budget and changes in the economic situation may be fatal for the company. These changes might regard a raised carbon tax that would affect the transportation from India or a raise in the cost of production for FOV resulting in a higher purchase price. If Swenya Biogas is forced to raise their selling price it will likely affect the demand for their digesters.

The farm in Malindi The best option for Fahmi is to wait with the investment until the new farm is established. This is because of the high maintenance costs that occur due to the fact that cows are not located at the current farm but at pasture a few kilometres from the farm. If Fahmi wants to use the cow dung he needs to find a cost effective way to transport the dung from the pasture to the farm. An alternative is to try to move as many of the cows possible to the farm, this however requires some adjustments to the current farm. In the future this would not be a problem since the cows would also live on the new farm. A thing to consider is the demand for biogas of electricity. The biogas customers would need to have the appropriate equipment that is adjusted for the use of biogas, or they could make adjustments to the existing equipment. Another alternative is for Fahmi to also invest in a biogas

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stove in order to sell cooking time. This means that consumers buy time at the stove where they can cook their food. If instead choosing to focus on electricity, Fahmi should look into the possibility of selling electricity to the governmentally owned Kenya Power or to close by neighbours. There are also some range goats at the current farm. When the goats are not limited to an area the manure is harder to collect. This problem can easily be solved by arranging a smaller enclosed area. It would also possible to use the latrine from the employees for biogas production. The latrine can be lead straight to the digester through pipes.

9 Suggestions for future projects

Technology and design are constantly moving forward and it will therefore always be relevant to construct projects that aim to improve the current biogas technology. Possible research topics include digester material, digester effectiveness and areas of application of biogas. As for future projects regarding Swenya Biogas, there are a lot of possibilities. Swenya Biogas is still a very young company and therefore has a long way to go in order to establish itself on the Kenyan biogas market. Possible future projects regarding Swenya Biogas should therefore aim to help the company to grow. Swenya Biogas is currently focusing on selling biogas digester in rural areas. As for the future, it could be interesting to explore the possibilities to sell and install biogas plants in urban areas. Implementing biogas digesters in urban areas comes with a number of technical challenges, such as determine where in the crowded area it is suitable to place a digester, how large the digester should be (ergo. how many households per digester), which biomasses are accessible etc. Designing a research project that addresses these technical challenges will open the door to expand the business and reach new customers.

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10 Conclusion

With regard to the two stated thesis objectives, the study finds the following conclusions;

- Economic: Investigate the economic feasibility of a small-scale biogas plant in Kenyan households by studying payback time, NPV and IRR and exemplifying this by studying a farm in Malindi.

The result in the study finds that every NPV is positive, which indicates that each investment on biogas technologies is profitable. The payback time is quite short in all cases where fuelwood, charcoal, kerosene, LPG and electricity are considered, which also indicates that the investments are profitable. Fuelwood have a payback time of 1.91 years, an NPV of 1 821.8 USD and an IRR of 50.4%. Charcoal have a payback time of 1.97 years, an NPV of 1 750.7 USD and an IRR of 49.9%. Kerosene have a payback time of 0.76 years, an NPV of 5 800.3 USD and an IRR of 131.4%. LPG have a payback time of 0.33 years, an NPV of 14 552.5 USD and an IRR of 305.6%. Electricity have a payback time of 0.07 years, an NPV of 18 744.1USD and an IRR of 389.1%. The study also shows that the most, per day, expensive fuel has the shortest payback time and the highest NPV, which tells us that it is most profitable to invest in a biogas digester if one currently uses an expensive fuel source. In conclusion, the study finds that a small-scale biogas plant is economically viable. Regarding the current situation, the chicken farm in Malindi have a payback time of 8.9 years, an NPV of 848.9 USD and an IRR of 12.9% if one choses option 1, using and selling biogas. If one choses the second option, using and selling electricity, the farm currently have a payback time of -13.2 years, an NPV of -31 903.5 USD and the IRR does not exist. Regarding the future situation, where the business has expanded to include more chickens and a lager farm, the payback time is 3.2 years, the NPV is 47 901.5 USD and the IRR is 210.3% when using and selling biogas (option 1). If one choses option 2, using and selling electricity, the future farm has a payback time of 3.3 years, an NPV of 38 224.5USD and an IRR of 206.2%.

- Technological: Evaluate the suitable small-scale biogas technologies for producing cooking fuel in Kenya by comparing design features and configurations such as lifespan, gas pressure and methane leakage of different digesters.

The technologies where compared by using a ranking method where they were given a grade based on the desirability of their characteristics. A long lifetime, high gas pressure and a low methane leakage result in a higher grade. The study shows that the fixed dome digester is the most appropriate technology based on the factors lifespan, gas pressure and methane leakage since it got the highest grade of 7 (very good). Floating drum digester got a grad of 6 (good), tube digester got a grade of 5 (good) and balloon digester got a grade of 4 (acceptable).

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12 Appendixes

12.1 Appendix A: Unit cost for each item in the budget

COSTS REVENUES

Purchase price9 Selling price10

Digester 100.0 USD/m3 Digester 160.0 USD/m3

Additional digester components Additional digester components

pipe 2.0 USD/m pipe 2.2 USD/m

valve 2.0 USD/piece valve 2.2 USD/piece

Additional biogas appliances Additional biogas appliances

biogas lamp 29.7 USD/piece biogas lamp 32.7 USD/piece

double burner (for cooking) 59.4 USD/piece double burner (for cooking) 65.3 USD/piece

biogas room heater 49.5 USD/piece biogas room heater 54.5 USD/piece

Transportation cost11 Additional services12

Bengaluru - Shipping location (India) 2.1 USD/m3 Delivery of digester to client 0.6 USD/km

Shipping location (India) - Nairobi 38.9 USD/m3

Installation and maintenance13

Digester 100.0 USD/month

Selling and distribution14

Selling and distribution 150.0 USD/month

Administration costs15

Rent (office) 85.0 USD/month

Electricity (office) 5.2 USD/month

Annual interest 1.6 USD/month

9 Hagegård 2018, Kenya Sunrise eco-energy LTD 2018 10 Hagegård 2018 11 Hagegård 2018, ASCC 2018 12 Bright 2016 13 Hagegård 2018 14 Hagegård 2018 15 Hagegård 2018

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12.2 Appendix B: Analysis of the items in the forecast income statement

Here follows a closer description of each item in the budget, a presentation of the calculations and assumptions that were made as well as a closer analysis of each item. Analysing each item individually provides a deeper understanding of the company’s economic structure. An understanding of the structure as well as the characteristics of each individual item - for example if a cost is to be considered fixed or if it can be optimized - makes it easier to understand where changes and savings can be made.

Revenues Selling price - digestor Swenya Biogas has decided that the selling price for the digesters shall be 160 USD/m3 (Hagegård, 2018). This means that the selling price for a 5m3-digester and a 10m3-digester is 800 USD and 1600 USD, respectively. The two main factors that were taken into consideration when deciding the selling price were the competitors’ prices and the approximate payback time that Swenya Biogas wants the digesters to have. The competitors’ prices in particular are important to take in consideration when it comes to deciding the selling price or making potential alterations to it. Swenya Biogas’ prices are already higher than the prices offered by competing companies. For example, Flexi Biogas’ standard digester (which is 6 m3) costs 605 USD, making it both bigger and cheaper than Swenya Biogas’ 5m3-digester. This means that if Swenya Biogas, for example, were to rise its prices they run the risk of being pushed out of the market.

Selling price - additions In order to work properly, the digester purchased from FOV Biogas needs a couple of additional components, such as different types of pipes and valves. The customers can choose to acquire these additional components on their own, or they can buy them directly from Swenya Biogas. Ergo, the additional digester components are to be sold separately and their cost is therefore not included in the digester’s selling price. Swenya Biogas are not going to fabricate these additional components, they are to be bought from a supplier and then sold with an appropriate profit margin. One company that sells additional digester components is Kenya Sunrise Eco-Energy LTD (Kenya Sunrise eco-energy LTD, 2018). They sell pipes for 200 KSh/m and valves for 200 KSh/piece (Kenya Sunrise eco-energy LTD 2018). Swenya Biogas buys the components from this company, and then sells them with a profit margin of 10%. This means that Swenya Biogas’ selling price for pipes and valves is 2.2 USD/m and 2.2 USD/piece, respectively. Swenya Biogas also offers its clients the possibility to separately purchase additional biogas appliances such as biogas lamps and biogas stoves. These additional appliances are to be bought from a supplier and then sold with an appropriate profit margin.

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Kenya Sunrise Eco-Energy LTD also sells these types of additional biogas appliances. Swenya Biogas buys appliances from Kenya Sunrise Eco-Energy LTD and then sells them with a profit margin of 10%. Some of these appliances are biogas lamps (bought for 3000 KSh/piece (Kenya Sunrise eco-energy LTD. 2018) and sold for 32.7 USD/piece), double burners for cooking (bought for 6 000 KSh/piece (Kenya Sunrise eco-energy LTD. 2018) and sold for 65.3 USD/piece) and biogas room heaters (bought for 5 000 KSh/piece (Kenya Sunrise eco-energy LTD. 2018) and sold for 54.5 USD/piece). Additional services Some additional services that Swenya Biogas offers is delivery of the digester to the client and maintenance from year 2 and onwards. The price for the delivery is based on how far away the costumer lives. We looked into how much different cab companies in Kenya charge per km (see the figure 10 below). We chose to have the same charge as Little Cab, that is 55 KSh/km, so approximately 0.6 USD/km.

Figure 10. Price comparison of different companies on the Kenyan taxi market (Bright, 2016).

Costs Purchase price - digester The digesters are purchased from FOV Biogas, the purchase price is 100 USD/m3 (Hagegård, 2018). Since the the digesters are bought from FOV Biogas, the purchase price is based on FOV Biogas’ production cost. If Swenya Biogas’ sales where to take off - which in turn would make Swenya Biogas a frequent customer at FOV Biogas - it would be possible to make a deal with FOV Biogas and maybe get a volume discount or a loyal-customer-discount. Shipping cost The transportation takes place in two main stages; from Bengaluru (where the digesters are made) to the Shipping location in India and from the Shipping location in India to Nairobi. The total transportation cost can therefore be divided into two partial costs (even though one and the same company technically could carry out both stages in the transportation). The first leg of the transportation (from Bengaluru to the shipping location in India) is carried out by a company called ASCC, African salihiya cargo and clearing (ASCC Logistics. 2018), the transportation cost is 50 USD/m3, see appendix D . In this case m3 refers to the volume of the box that holds the digesters.

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The second leg of the transportation is the transport from the shipping location in India to Nairobi. Regarding this stage of the transportation, we had a hard time getting exact price information from the different shipping companies that we contacted. We were always presented with one shipping fee at first, but this amount were constantly changed back and forth because the companies kept adding and removing different fees all the time. All this ever-changing information from the shipping companies made it difficult for us to find the precise cost in USD/m3 (in this case, m3refers to the volym of the digesters) for this shipment. We therefore had to estimate this shipping cost as well as we could with the information we had. The shipping cost of 55.6 USD/m3 for the shipping from India to Nairobi is based on Swenya Biogas’ first (and at the time of writing, only) shipment of digesters. This shipment was also carried out by ASCC. The cargo was shipped by air and consisted of one wooden box (with a volume of 0.66 m3) containing three 5m3-biogas-digesters and one gas bag (which in the calculations can be considered as a digester of 1 m3). Each 5m3-digester weighs 25 kg, the gas bag weighs 5 kg and the wooden box weighs 25kg. ASCC charges 8 USD/kg, 30 USD for fumigation and 20 USD for loading and unloading (Hagegård, 2018). The transportation cost is a cost that can be optimized by finding the shipping and transportation company with the best prices. Service cost Swenya Biogas wants to offer its customers free maintenance during the first year after the purchase of the digester. Any maintenance that might be needed is to be carried out by Swenya Biogas (and not an external service company). If it turns out that the digesters require a lot of maintenance, the service cost runs the risk of becoming high. A high service cost would not only cost the company a lot of money but also a lot of time, time that of course could be better spent selling new digesters instead of doing maintenance on those already sold. It is however very important for Swenya Biogas that the maintenance remains free during the first year even if the service cost turns out to be high. Guaranteeing “free maintenance during the first year” is a way to ensure that the customer really learns how manage the biogas unit on his or her own, which in turn goes hand in hand with the company’s goal of spreading knowledge and making the customer more independent. The service cost of 100 USD/month is a arbitrary value.

Gross profit Selling and distribution costs The selling and distribution costs cost of 150 USD/month is a arbitrary value. It is vaugely based on the fact that a full time employee has a a salary of 250 USD/month. Swenya Biogas plans to have a total of two employees. These two employees will both work part time (50 %). Administration costs The administration costs consists of three different costs; the rent, the electricity cost and the financial costs The rent for the office is a fixed cost. The rent is Ksh 8500 per month + Ksh 83 in M-Pesa charges. The total due is Ksh 8 583 per month, which is approximately 85 USD/month. (Hagegård, 2018)

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The electricity cost is Ksh 500 per month + Ksh 22 in M-Pesa charges. The total due is Ksh 522 per month (Hagegård, 2018), which is approximately 5.2 USD/month. The electricity cost for the office is a fixed cost. Swenya Biogas has taken a financial loan from Engineers without borders Sweden. The amount of the loan is SEK 4000, so approximately USD 480. The loan is intended for a work permit needed to establish a biogas company in Kenya. The APR (annual percentage rate) of the loan is 4%. According to the debenture, the loan shall begin to be amortized when the established biogas company provides a surplus (Hagegård, 2018). The company needs to sell 147 m3 of digester per month just to break even. We believe that a sales volume of this size will be difficult to achieve. It will therefore be difficult for the company to make a surplus at this stage and the installment is therefore set to 0 USD/month. The company must however pay the annual interest, which is 1.6 USD/month. Both the installment and the annual interest are to be considered fixed costs until the loan is fully paid off.

Notes Storage cost It could become relevant to ship larger quantities of biogas digesters, both in order to meet a possible high customer demand and in order to bring down the total transportation cost. A larger shipment would however require a storage since this larger number of digesters wouldn’t fit in the office. This means that what was saved on a lower (per m3) transportation cost has to be spent on storage. The storage cost could even turn out to be bigger than what was saved by shipping larger quantities, which in turn leads to bigger expenses for the company. The complexity of the storage cost, and how to optimize it in the best way possible is discussed further in the analysis just below. The most economically optimal size of the storage will be determined by the sales rate. It is very important to find a good balance between the size of the stock (and in turn how large a storage that will be needed) and the sales rate of digesters. For example, if the demand for digesters is high, it would be profitable to have an appropriate number of digesters in stock in order to fully take advantage of the high demand and maximize the turnover. On the other hand, if the demand for digesters is low, it could be too costly to have digesters in stock. The storage cost for those digesters could even become the difference between making a profit or a loss. The storage-in-Nairobi-cost can be optimized both by finding a company that offers storage to the best possible price and by finding a good balance between the size of the stock and the sales rate.

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12.3 Appendix C: Forcast income statement of Swenya Biogas

Table 16 shows Swenya Biogas’ costs and sources of income. The currency used in the budget is USD and the unit cost for each item is shown in appendix A. A deeper analysis of each item in the forecast income statement is given in appendix B. Table 13. Forecast income statement for Swenya Biogas

Forecast Income Statement

         Year 1 Year 2 Year 3 Year 4 Year 5

Sales Volume (m3) 180 216 259 310 372 Amount Price Cost Digester – Purchase Price 100.0 95.0 90.0 85.0 80.0 Digester - Sales Price 160.0 160.0 160.0 160.0 160.0 Additions Pipe 2.0 2.2 2.0 Valve 0.2 2.2 2.0 Biogas Lamp 0.2 32.7 29.7             Double Burner 0.2 65.4 59.4             Biogas Room Heather 0.07 54.4 49.5            Delivery (Km and m3) 3.0 0.6 Shipping (Scenario I) 57.6 Shipping (Scenario II) 41.0

   Year 1

Scenario 1

Year 1

Scenario 2

Year 2

Scen. 2

Year 3

Scen. 2

Year 4

Scen. 2

Year 5

Scen. 2

Revenue Digester 28 800.0 28 800.0 34 560.0 41 440.0 49 600.0 59 520.0 Additions Pipe 792.0 792.0 950.4 1 139.6 1 364.0 1 636.8 Valve 79.2 79.2 95.0 114.0 136.4 163.7 Biogas Lamp 1 177.2 1 177.2 1 412.6 1 693.9 2 027.4 2 432.9 Double Burner 2 354.4 2 354.4 2 825.3 3 387.7 4 054.8 4 865.8 Biogas Room Heather 652.8 652.8 783.4 939.3 1 124.3 1 349.1 Additional services Delivery 297.0 297.0 356.4 427.4 511.5 613.8 Sales Revenue 34 152.6 34 152.6 40 983.1 49 141.8 58 818.4 70 582.0 Costs Digester 18 000.0 18 000.0 20 520.0 23 310.0 26 350.0 29 760.0 Additions Pipe 720.0 720.0 864.0 1 036.0 1 240.0 1 488.0 Valve 72.0 72.0 86.4 103.6 124.0 148.8 Biogas Lamp 1 069.2 1 069.2 1 283.0 1 538.5 1 841.4 2 209.7 Double Burner 2 138.4 2 138.4 2 566.1 3 076.9 3 682.8 4 419.4 Biogas Room Heather 594.0 594.0 712.8 854.7 1 023.0 1 227.6 Shipping 10 375.2 7 380.0 8 856.0 10 619.0 12 710.0 15 252.0

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Installation and Maintenance 1 200.0 1 200.0 1 200.0 1 200.0 1 200.0 1 200.0 Cost of Sales 34 168.8 31 173.6 36 088.3 41 738.7 48 171.2 55 705.4 Gross profit -16.2 2 979.0 4 894.8 7 403.1 10 647.2 14 876.6 Selling and distribution costs 1 800.0 1 800.0 1 800.0 1 800.0 1 800.0 1 800.0 Administration Costs 1 101.6 1 101.6 1 101.6 1 101.6 1 101.6 1 101.6 Operating Profit -2 917.8 77.4 1 993.2 4 501.5 7 745.6 11 975.0

Gross Profit Margin 0% 9% 12% 15% 18% 21%

Operating Profit Margin -9% 0% 5% 9% 13% 17%

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12.3 Appendix D: Price information from ASCC

Swenya Biogas has received the following price information from ASCC

The price information that is relevant from this picture is;

- The handling charge (which is the transportation from Bengaluru in India to the shipping location, in this case Mumbai) of 50 USD/m3.

- The clearance charge regarding the sea shipment of USD 150. - The fumigation cost regarding the sea shipment of USD 30.

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12.4 Appendix E: calculating the sea shipment price

The picture above shows ASCC’s sea shipment price for shipping a box with a volume of 0.66m3 from Mumbai in India to Nairobi (ASCC Logistics, 2018).

TRITA-ITM-EX 2018:441