Economic Feasibility Study of Colorado Anaerobic Digester Projects ...

6.0 Economic Analysis: Budgeting and Sensitivity Analysis.
6.1 Summary. This section presents an economic analysis of AD projects in Colorado. The
economic analysis is comprised of an enterprise budget, a sensitivity analysis, and a
summary/interpretation of findings.
In summary, there is potential for a positive rate of return on co-digestion projects in the
state of Colorado. Values used in the enterprise budget reflect a 3.66% annual return on
investment. However, in order to achieve a positive return on investment, several key
assumptions must be met, including $5.50/tonne carbon credits and controlled production
costs. At present, conditions required for a positive AD project return are not favorable.
Furthermore, due to the very small number of AD projects in the region, variations in the
data may be observed when more AD units have been installed. To address this, three
budgetary conditions have been proposed:
• A baseline of “expected” economic conditions, showing a positive annual return on
investment.
• A budget modeling an approximate 20% reduction in each of the variables (unless
otherwise specified) and a negative annual return on investment of -30.78%.
• A budget modeling a 20% increase in each of the variables (unless otherwise
specified) and a 46.45% return on investment.
The enterprise budget and the accompanying financial assumptions for each of the
conditions are discussed in Section 6.2.
The sensitivity analysis measures the responsiveness of income to a 1% change in
operational variables. In other words, the sensitivity analysis effectively accounts for price
volatility and models how these price changes affect the viability of a project. Operational
variables selected for the sensitivity analysis were identified through interviews with
technology providers, agricultural operations managers, and academic and trade
publications. In summary, operational income was most sensitive to changes in production
costs. A 1% change in production costs resulted in a 14.54% change in income. Examples
of production costs might include unplanned AD maintenance and increases in labor.
Operational income was also sensitive to energy production. A 1% change in energy
production capacity (which is a function of engine efficiency and energy prices) yielded an
11.14% change in operational income. The results of the sensitivity analysis are consistent
with anecdotal reports from agricultural producers, who report that changes in costs and
energy production have a significant impact on project returns. An in-depth discussion of
the sensitivity analysis is presented in Section 6.3
Economic Feasibility Study of Colorado Anaerobic Digester Projects
Prepared by Dr. Catherine Keske, Colorado State University
August 2009
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