Part 24 - cd3wd424.zip - Offline - The Economics of Renewable Energy Systems for Developing Countries

Part 24 - cd3wd424.zip - Offline - The Economics of Renewable Energy Systems for Developing Countries
A project of Volunteers
in Asia
.
Econollycs
of Renssvstm
.
.
Dem&&ung Co-
fu
by: David French
Published by:
United States Agency for International
Development
Washington, DC 20523 USA
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THE ECONOMICS
OF RENEWABLE
FOR DEVELOPING
ENERGY SYSTEMS
COUNTRIES
by David French
Washington,
D.C. - January
1979
.,.
THE ECONOMICSOF RENEWABLEENERGYSYSTEMS
FOR DEVELOPINGCOUNTRIES
by David French
..
Washington,
D.C.--January
1979
This report has been prepared and distributed
support from the following
organizations:
al Dir'iyyah
Institute
1925 N. Lynn Street (Suite
Arlington,
Va. 22209
1140)
with
financial
U.S. Agency for International
Development
Washington, D.C.
20523
Neither organization
assumes responsibility
contents or necessarily
endorses its conclusions.
for
the report's
David French
.
4417 Q Street,
N.W.
Washington, D.C.
20007
January
1979
ABSTRACT
In many parts of the Third World, projects
are being &veloped
to test such renewable energy systems as solar pumps, biogas
and solar cell arrays to power pumps and grinders.
plants,
Virtually
nowhere, however, has adequate work yet been done to
determine if these systems are worth their costs.
.-
9
This report outlines
the benefit-cost
techniques which allow
systems to be evaluated from the standpoint
of individual
buyers (financial
analysis)
and the society as a whole (economic
analysis).
Special attention
is given to problems of particular
importance in reviewing energy systems: local measurement of costs
and benefits,
determination
of investors'
discpunt rates, shadowpricing,
allowance for social costs, and so on.
Detailed benefit-cost
tative
systems:
- a 40-hp solar
thermal
- a family-scale
Indian
- a 5.5 kw solar
Lake Chad.
cell
analyses
irrigation
biogas
irrigation
are provided
for
three
pump near Bakel,
represenSenegal;
plant;
pump on the borders
of
In each case, consideration
is given to whether these systems
would be equally
(un)appealing
in other places or under other
assumptions as to capital
costs, the price of conventional
fuels, or other variables.
Neither the solar thermal pump nor the family-scale
biogas
plant appears to be profitable
in either
financial
or economic
The solar cell
terms under any plausible
sets of ass-umptions.
pump has positive
net benefits
by economic (if not financial)
with diesel power
measures, but is unlikely
to be compe,i+'tive
None of these systems, in other words,
for another decade.
shows any immediate promise for significant
developmental
applications;
barring
the unforeseen,
only solar cell arrays
offer promise for the relatively
distant
future.
At best, some of these devices might ultimately
become
Such devices
competitive
with expensive commercial energy.
will therefore
be of interest
first
to people now using substantial amounts of such energy--that
is, the relatively
rich.
Only tich later might significant
benefits
begin to filter
down to the poor.
organizations
concerned with the poor
Given these findings,
might well give renewed attention
to meeting basic energy needs
village
woodlots,
improved
through less sophisticated
systems:
wood stoves, hand Or pedal pumps and grinders,
hydraulic
ram
By finding
systems whose benefits
are commensurate
pumps, etc.
with their costs, and whose costs are within reach of the poor,
it may be possible to provide more energy to the people most
in need of it.
TABLE OF CONTENTS
Page
ABSTRACT
TABLE OF CONTENTS
1
INTRODUCTION
I.
FINANCIAL ANALYSIS OF RENEWABLEENERGYPROJECTS
A.
B.
II.
17
The System
The Project
Economic Analysis
Conclusions
17
17
18
21
22
The System
The Project
Financial
Analysis
Economic Analysis
Conclusions
23
27
27
31
LAKE CHAD SOLAR CELL PUMP
A.
B.
C.
D.
E.
VI.
12
14
16
FAMILY-SCALE INDIAN BIOGAS PLANT
A.
B.
c.
D.
E.
V.
Shadow Prices
Social Costs and Benefits
Secondary Effects
12
BAEEL (SENEGAL) SOLAR PUMP
A.
B.
c.
D.
Iv.
2
5
Benefit-Cost
Techniques
Issues in Financial
Analysis
ECONOMICANALYSIS OF RENEWABLEENERGYPROJECTS
A..
B.
C.
III.
2
31
31
31
The System
The Project
Financial
Analysis
Economic Analysis
Conclusions
37
CONCLUSIONS
A.
B.
The Pursuit of Benefit-Cost'
Renewable Energy Systems
Analysis
37
40
NOTES TO TABLES 6-11
45
ANNOTATEDBIBLIOGRAPHY
50
DISCOUNT FACTORS
68
INTRODUCTION
In many parts of the Third World, projects
are now being
designed to test renewable energy systems:
biogas plants,
improved wood stoves,
solar cell arrays for powering pumps
or grinders,
and so on. Often, a foreign assistance
agency
pays for the systems and supports field
testing
to determine
their performance under "real" conditions.
To date, in virtually
none of these projects
has adequate
consideration
been given to whether systems being tried are
worth their cost.
This may not matter as long as outsiders
are footing
the bill.
To reach beyond an experimental
population,
however, renewable energy devices will have to be
purchased by individuals,
groups, or local agencies which
are *likely to be more discriminating
in spending their money.
As yet, we have little
basis for guessing whether new systems
will offer respectable
returns from the point of view of
these ultimate
buyers.
Of course, the allure
of new technologies
will finally
be determirled only as widespread attempts are made actually
to market them. Nonetheless,
thought about the economics
of these systems should begin much earlier.
Even preliminary
economic analysis of particular
applications
may strongly
suggest that some devices be discarded and others stressed,
a conclusion
worth hearing before elaborate
field
tests are
arranged.
Where tests are then carried out, they should 5~
carefully
structured
to provide even better economic information.
*If the data which result promise broad economic
appeal for given systems, serious thought can be given to
ways of introducing
these systems more generally.
The following
sections show how benefit-cost
analyses of
renewable energy devices are carried out.
Sections I and II
cover basis analytical
issues from the perspecti.;e
ai individual investors
(financial
analysis)
and of society as a whole
(economic analysis).
Sections III,
IV, and V use "real-world"
data to investigate
representative
energy devices in specific
places.
Section VI draws general conclusions
about renewable
energy systems and the use of benefit-cost
techniques in their
evaluation.
.
I.
A.
FINANCIAL ANALYSIS OF RENEWABLEENERGYPROJECTS
Benefit-Cost
Techniques*
Financial
analysis
of a given project
is carried out from
the perspective
of the person (or pr$vate group) considering
investment in the activity.
For example, financial
analysis
might show how a farm family would weigh purchase of a solar
cell pump to provide irrigation
water for food production.
"Benefits"
would consist of the additional
food grown: "costs"
would be the expenses of growing it.
-Note that we would not try to analyze the pump in isolation from the family's
irrigation
project
as a whole.
Crcps
will not spring up simply because a'pump is installed
at the
edge of a river.
To grow food requires many other inputs as
land must be prepared and irrigation
chanpels dug;
well:
workers must be found: seed and fertilizer
must be bought.
Only by looking at the entire complex of benefits
and costs
associated with the functioning
of the pump can we assess its
financial
value.
In principle,
such assessments are quite straightforward.
We begin by estimating
benefits
and costs for each year of
the project's
lifetime,
generally
defined as the period before
major capital
equipment is expected to wear out.
By subtracting
costs from benefits,
each year's "net financial
benefits"
can
be found.
Figures for net benefits
are then manipulated
as
shown in the following
pages to judge the financial
appeal of
the project
to prospective
buyers. of .the pump.
Special care needs to be taken to show the actual timing
of costs and benefits.
In the case of our solar cell pumping
scheme, for example, heavy costs (purchase of pump and [email protected] labor for planting)
are incurred at the outset of the
project.
Benefits
of the first
crop (sale and consumption of
food) follow months later.
To lump all these events together in
a single "Year 1" would be to suggest that they happen more or
less simultaneously,
an assumption that would lead us to overestimate the project's
attractiveness.
More accurately
to. indicate lags between costs and benefits
in this instance,
we might
*For general discussions
of benefit-cost
techniques,
see J.P.
GITTINGER, 1972; W. JONES (ea.), 1975; I. LITTLE and J. Mirrlees, 1974; H. SCHWARTZand R. Berney (eds.),
1977; S. PAX
and C. Taylor,
1976; L. SQUIRE and H. van der Tak, 1975;
UNIDO, 1972. Complete citations
for these and other publications are provided in the Annotated Bibliography.
wish to show initial
investment and the first
planting
in
the project's
"Year 1," harvesting
of the first
crop (and
planting
of the second) in "Year 2 ,I' and so on.*
As the basis for financial-analysis
of this imaginary
pumping project,
we can now make the following
assumptions:
.
- The pump, which in local currency costs 100 pounds (MOO),
will be purchased in Year 1 and will wear out at the
end of Year 6. No maintenance of the pump is required.
.
- Labor to work the irrigated
land will cost MO for
planting
in Year 1, %20 for harvesting
and planting
in Years 2-5, and LlO for harvesting
in Year 6.
- "Physical
inputs"
in the form of imported fertilizer
applied during planting
will cost &lo in Years l-5.
- Land irrigated
by the pump will produce an extra b80
worth of food each year, 550 for sale and 530 for consumption by the farmers themselves.
Net financial
benefits
are then determined for each year of
as shown in Table 1. We must now decide whether the
the project,
Table 1:
Net Financial
.Benefits
of Solar
Cell
Pump Project
Year
Benefits
Sales of additional
food grown
Additional
subsistence
production
-
.
2
3
4
5
6
0
50
50
50
50
50
0
30
30
30
30
30
100
10
10
0
10
20
0
10
20
0
10
20
0
10
20
0
0
ld
-120
50
50
50
50
70
costs
Capital equipment (pump)
Physical inputs (fertilizer)
Labor
c
1
= Net Financial
Benefits
*- For a more complete discussion
of ways to deal with phasing
of costs and benefits,
see W. SCHAEFER-KEHNERT,1978a.
?”
,(Z,,
_’
;,
‘“-!;,
I
I
&270 in net benefits
spread over Years 2-6 will be viewed by
the farmer as adequate compensation for the 5120 in net costs
incurred in Year 1. At issue here is the fact that money
delivered
in the future is worth less than the same amount of
money in hand today.
Moreover, the longer it takes to get
future money, the more we "discount"
its value to us now.
In the case of the pump, the L50 projected
in net benefits
for Year 5 will therefore
weigh much less heavily than the 550
promised for next year as the farmer considers whether or not
to buy the system.
Mathematically,
we determine the value to an investor
now
of promised future income by multiplying
each year's benefits
by the appropriate
"discount
factor."
At an annual rate of 30%,
for example, discount factors
are .769 for Year 1, -592 for
Year 2, and so on.*
Here, we are assuming that each pound (5)
promised at the end of this year is of the same value to the
investor
as 5.769 now: a pound two years from now is worth
s.592 today; etc.
We can now choose either of two measures--net
present value
or internal
rate of return-- to decide whether the pump project
is worthwhile.
U.S. AID and the World Bank both prefer to
find internal
rates of return,
but judgments as to a project's
value will be essentially
the same whichever measure is applied:
- Net Present Value:
Assuming a discount rate of 30%,
we consult standard tables to find the discount
factor
applicable
to each year'.s benefits.
The present value
of benefits
can then be calculated,
as shown in Table 2.
Table 2:
Present
*
Value of Benefits,
Solar
Cell
Pump Project
Year
34
so
so
5
so
6
70
.350
.269
.207
.17.5
13.5
14.5
1.
- 120
2
so
.769
.592
.455
z Present Value of
Benefits
- 92.3
29.6
22.8
NET PBESENTVALUE = 55.6;
INTERNAL BATE OF RETURN= '33%
Net Benefits
X Discount
f,
(From
Table 1)
Factor
Tables of
included,
1973. See
of 30% is
investors'
(30%)
discount factors at various discount rates are
e.g., in J.P. GITTINGER, 1972 (Appendix) and
also page 68, "Discount Factors,"
below.
A rate
assumed here in line with the discussion
of
discount rates in Section I.B.3,
below..
-
I
By adding together the present value of benefits
for
all five years, we discover that total Net Present Value
of the project
is & 5.6.
Since any project with a net
present value greater than zero is assumed to be economically
soundl it would be in the farmer's
interest
to go ahead
and buy the pump.
Alternatively,
we can find a
- Internal
Rate of Return:
project's
annual rate of return to the resources the
We do this by experimenting
farmer must commit to it.
with various discount rates until we find one which
yields a net present value of zero.*
This is the
project's
Internal
Rate of Return, which in the case
is to implement
of the pump is 33%.TheYule-here
projects
having an internal
rate-of
return greater
than the discount rate used for project
evaluation.
Since we here have assumed the appropriate
discount
rate to be 30%, the pump again appears to be economically
sound.
B.
Issues
in Financial
Analysis
Major issues in financial
analysis
include the evaluation
of project
benefits
and costs, estimates of buyers' discount
rates, ways of accounting for risk and uncertainty,
and the
availability
of credit.
In our solar cell pump example,
1. Meas'uring Benefits.
we assume that the project
will irrigate
land for food producProject benefits
therefore
consist of the extra food
tion.
grown, beyond what would have been produced in the pump's absence.
This added production
is valued at its market price,
whether sold or eaten on the farm, giving us a simple measure
of each year's total benefits.
For many renewable energy systems, however, benefits
will
be more difficult
to calculate.
Suppose, for example, that
our project
had been designed to pump drinking
water from a
new well, relieving
village
women from their traditional
obliIn an analogous
gation to haul water from distant
streams.
case, the construction
of biogas systems for cooking, a primary
result would be to free women and children
from the need to
collect
firewood.
Although project
benefits
in both instances
clear what
consist of labor time saved, it is not immediately
value should be attached to these savings.
*- Further guidance on how to do these calculations
in W, SCHAEFER-KEBWERT,1978b.
is provided
-6In some such cases, benefits
could be inferred
from other
If commercial sales of firewood prevailed
in
information.
nearby areas, for example, the market price of the wood could
be used as an approximation
of its value in our biogas village.
Benefits
of the biogas cooking nroject
would then be equivalent
to the imputed value of wood which no longer would need to be
gathered.
Lacking such data, we would have to estimate benefits
in terms of new activities
in which women and children
could
now take part.
If there were no productive
use for the time
freed from collecting
wood or water, benefits
of the biogas
or pumping system would equal the monetary value attached
locally
to leisure.
Although this value is something at which
we can probably only guess, it is likely
to be quite low.
On the other hand, if paid employment were readily
available
to occupy this time, project
benefits
would equal the new
wages received.
Unfortunately,
reality
tends to be even more complex.
In
practice,
people are likely
to use time freed from old chores
to engage in a variety
of activities:
vegetable gardening
(benefits
equal to the market value of produce grown); additional
child care or more careful
food preparation
(benefits
positive
but difficult
to quantify);
relaxing
(meager financial
benefits);
and so on. Only after deciding which blend of
activities
will probably be chosen can we determine the nature
and level of project
benefits.
2. Measuring Costs.
Much less mystery attaches to the
measurement of project
costs, most of which are relatively
straightforward.
Care should be given, however, to ensuring
that important
costs are not simply ignored.
For example,
some analyses fail to account for work required of buyers
in terms of site preparation
or installation
of new energy
systems.
Such work should be included among project
costs
at wage rates reflecting
the value which buyers attach to
their labor.
As a first
approximation
of reality,
we might
assume that this value would be somewhere between 50% and 100%
of the prevailing
local wage for equivalent
work.
Also important
is to include costs of equipment needed to
use a new kind of energy.
If methane gas becomes available
for cooking, people will have to buy gas stoves and new utensils.
To use the slurry
from the digester
for fertilizer,
people will need containers
and some way of moving these to
distant
fields.
Stove, utensil,
container
and cart must all
be included as project
costs.
-7Provision
must also be made for the recurrent
costs of
tending to a device, net of labor costs which the device may
eliminate.
A biogas digester,
for example, will require people
to collect
and haul both dung and water to a central
point,
in addition
to overseeing the system's functioning
and distributing the slurry it produces.
Some of this work, however,
might be done during time formerly spent gathering
firewood,
if biogas were to replace wood for cooking.
The project's
net
labor costs would therefore
consist of work required
for
operating
the system, less time freed from collecting
wood.
Similarly,
it is important
to account carefully
for raw
material
costs.
In biogas systems, dung is tsansformed into
gas for cooking and slurry
for fertilizer,
both sf which are
project benefits.
In traditional
practizz,
however, dung
may already be burned for fuel or left directly
on the ground
as fertilizer.
If the owner of the biogas system foregoes
these benefits
to feed a new digester,
the fuel or fertilizer
value of the dung in its unprocessed form should be considered
c
a project
cost.
Investors'
Discount Rates.
3. Determining
Analyses of
energy projects'sometlmes
assume that potential
investors
will
apply a discount rate of 10% to future benefits
in deciding
whether or not to invest in energy systems.
That is, buyers
would believe that a pound in hand today is more or less interchangeable with U-1 in hand a year from now, El.21 in two
years, and so on. This 10% figure is selected largely
because
it is a "round" number somewhere within the range of discount
rates that people in modern economic sectors apply to their
investments.
In thinking
about renewable energy systems for the poor,
however, we are concerned with people who are not part of
the modern world economy. For an impoverished villager,
a
year from now is very far away. Consciousness must be focused
on a present in which the margins for survival
are extremely
narrow.
To part with a pound today is a major act, one which
is not adequately compensated by providing
one-tenth
of a
pound in interest
sometime next year.
Clearly,
the poor of
the world will apply a discount rate to future benefits
which
is well above our own.
Economic theory suggests that discount rates in a given
area are roughly equivalent
to interest
rates on local loans.
Outside of urban areas, the applicable
rate would be that
charged by unsubsidized
sources of agricultural
credit.
Following a worldwide study of such credit,
the World Bank (1975a,
pp. 29, 79) found that interest
rates averaged more than 32%
in real terms.
As a first
approximation
of reality,‘we
might
therefore
assume that most people in rural areas will apply a
discount rate of at least 30% in considering
new investments.
This rate is likely
to be highly variable
in practice.
Expressed as national
averages, the World Bank data show
commercial interest
rates for agricultural
credit reaching
as high as 192%, although most countries
fall in the 20-66%
Within a given country, moreover, rates may vary
range.
by region and by income group.
For financial
analysis
of
our imaginary solar cell pump, we have assumed we are operating in an "average" rural area and have used a discount
rate of 30%. In crude accord with different
local realities,
Sections IV and V use discount rates of 15% for India and
50% for Chad.
4. Risk and Uncertainty.
As indicated
in Table 2, .above,
our pump project
has a net present value of 55.6 and an internal rate of return of 33%. These are at least marginally
acceptable results-- on the assumption we can be sure of our numbers.
Unfortunately,
we are not omniscient.
Potential
buyers are
likely
to view the analysis
in Table 2 as reflecting
on11 one
of several conceivable
outcomes, including
the possibility
of
serious financial
loss.
We need to account for this sense
of uncertainty
and risk before making final guesses about the
pump's financial
attractiveness.
In the language of project
evaluation,
we use "sens" 'vity
analysis"
to help explore more fully
the implications
o 'gd ertainty.*
Essentially,
this requires us to calculate
all
N
native returns to the project
according to the assumptions
investors
may make about possible outcomes of important variables.
If a project's
net present value remains positive
even after
the least favorable
numbers are assigned to all these variables,
the activity
will be worth carrying
out under any plausible
conditions.
Often, however, sensitivity
analysis will suggest a range
of possible returns,
from positive
to negative.
In our pump
project,
for example, to add the assumption that b5 in annual
maintenance will be required
in Years 2-5 reduces net present
value from 55.6 to -&2.8.
Alternatively,
an additional
El0 in
annual food production
would increase NPV from ES.6 to 524.2.
Revised assumptions about future costs of fertilizer
or labor
would also influence
returns to the project.
For many small-scale
energy projects,
the most important
uncertainties
relate to our guesses as to the life
span of capital equipment.
We have assumed, for example, that our pump
f,
A discussion
of these issues
appears
in I.
SIRKEN, 1975.
.
c
-9-
will wear out in Year 6, yielding
an NPV of L5.6.
Returns,
to alternative
assumptions.
however, are extremely sensitive
If the pump lasts two years longer, NPV will jump to 518.0;
if the pump wears out two years earlier,'NPV
will plummet
to -~15.4.
Having calculated
these alternative
NPVs, we must now
estimate how likely
each is to occur in reality.
In doing
this, we must be especially
careful
not to let our expectations diverge from those of potential
investors.
Outside
analysts,
for example, commonly overestimate
the life span
of capital
equipment to be used in rural areas.
Inhabitants
of these areas, on the other hand, may be quite conservative
in their expectations
of untried systems.
If such tendencies
are ignored, we may badly misrepresent
the attitude
which
villagers
will take toward the systems under review.
Assuming we can tell what probabilities
are attached to
various project
outcomes, we are left to decide how buyers
will use this information
to make investment decisions.
Given the data provided above, for example, will people
buy our pump if there are equal chances of its lasting
until
Year 4, Year 6, or Year 8? Unfortunately,
at this point we
must turn from theory to intuition.
So far, nobody has been
able to provide convincing
models of how buyers will actually
behave under given conditions
of risk and uncertainty.*
\
Students of these problems do agree that the poor seem
more "risk-averse"
than the rich, allowing
us to conclude that
projects
stand a fair chance of being rejected
if they involve
any real possibility
of substantial
loss.
This may be true
even of projects
which to us seem "acceptably"
risky,
with
a strong probability
ofgain.
Since our pump project
offers
equal chances of comfortable
profit,
marginal profit,
and
considerable
loss, poor farmers might well regard it with
a certain
lack of enthusiasm.
Although we often will be unable to design a project which
is "objectively"
risk-free,
there are steps we can take to
make a given degree of risk more acceptable.
According to a
paper on small farmer risk-taking
by Development Alternatives,
Inc. (19761, risk-aversion
is minimized where new techniques
are closely related
to familiar
ones, farmers are expected to
contribute
labor rather than cash to the project,
cooperation
among farmers is encouraged, and dependence on outsiders
is
avoided.
Without knowing more about how a solar cell pump
might actually
be introduced,
it is difficult
to know whether
our irrigation
project
could be adjusted to meet these conditions.
*, On the state of the art, see S. BERRY, 1977; DEVBLOPMENT
ALTERNATIVES, Inc., 1976; J. ROUMASSET,1977.
5. Credit.
The availability
of unsubsidized
credit
through the local
capital
market will
not greatly
affect
the
attractiveness
of a project.
Since we assume that investors'
discount
rates are equivalent
to local
interest
rates,
loan
repayments
(including
interest)
will
automatically
be discounted to a total
present
value equal to the amount of the
loan itself.
With or without
the loan> in other words, the
project's
net present
value to the investor
will
be the same.
This can be seen in Table 3, where we assume that a loan
of &lo0 is made available
in Year 1 to cover the full
cost of
Table
3:
Financial
(Assuming
Analysis,
Solar Cell.Pump
Unsubsidized
Credit)
..
Project
Year
Benefits
Sales of additional
food
grown
Additional
subsistence
production
Loan
- costs
J?umP
Fertilizer
Labor
Loan repayment*
= Net Financial
x Discount
Benefits
Factor
= Present Value
Benefits
(30%)
of
NETPBESENTVALUE=
1
2
0
50
‘.3
-.,50
:so'
0
100
30
o ',' 'o
100
10
10
0
0
10
20
41
-20
2
,769
-592
P-P
0
10
20
41
2
4
5
d
50
50
50
30
0
30
0
30
0
0
10
20
41
0
10
20
41
0
0
10
41
9
2
-29
9455 .350
-269
VP
.207
2.4
6.0
3.2
4.1
5.3
---VP
INTERNAL *FATE OF RETURN = 45%
-15.4
b5.6;
*Based on a capital
recovery
factor
be'repaid
in five equal installments
(J. GITTINGEB, 1973, p. 61).
of
0.41 for a loan
at 30% interest
to
1
-
the solar cell pump. The loan is repaid in equal installments
over Years 2-6 at the local interest
rate of 30%. Other
benefits
and costs are unchanged.
Under these conditions,
the
project has a net present value of 55.6.
This is identical
to the NPV calculated
in Table 2, where no credit was assumed
to be available.
Although NPV is not affected
by the provision
of unsubsidized credit,
the project's
internal
rate of return rises from
33% to 45%. This is a result
of the financial
"leverage"
which buyers achieve as they invest less of their own capital
in the activity.
Since the investor's
chances of actually
gaining or losing cash are exactly the same regardless
of the
change in IRR, however, this increase is unlikely
to have any
dramatic impact on the farmer's
interest
in the system.*
L
While credit may not alter a project's
intrinsic
appeal,
loans can make it more likely
that an appealing project will
actually
be carried out.
A farmer who found our irrigation
scheme to be of great interest,
for example, might lack the
ready cash to buy the pump. In this case, a loan would allow
the investment to be made out of farm income over the project's
At an unsubsidized
interest
rate of 303, credit
lifetime.
here does not make the investment more attractive:
it simply
makes it possible.
In practice,
government agencies in developing
countries
provide rural credit
for selected purposes at average interest
rates of close to 3%, corrected
for inflation.
(WORLDBANK,
1975a, p. 46.)
Given credit
on these terms, our solar pump
project would become extremely attractive
to poor farmers;
(Given credit
on these terms, almost any investment would
become extremely attractive
to poor farmers.)
Since heavy
government subsidies are implied by loans of this sort,
however, the question immediately
arises as to whether the
solar cell pump is valuable enough to society as a whole to
warrant such support.
The analytical
procedures required
to answer this question are the subject of Section II.
.
*- On +Lis point,
see W. SCHAEFER-KEHNERT,1978c. Material
on agricultural
credit
can be found in D. ADAMS, 1977;
OHIO STATE UNIVERSITY, 1972, 1976, i977.
'-12II.
ECONOMICANALYSIS OF REEJEWABLE
ENERGYPROJECTS
Where "financial"
analysis
adopts the perspective
of the
potential
buyer of a system, "economic" analysis
considers the
system's value from the point of view of society as a whole.
Major adjustments required
to refiect
this broader outlook
include shadow pricing,
the calculation
of social costs and
benefits,
and consideration
of secondary effects.
.
A.
Shadow Prices
Investors
must live with the prices they confront
in the
market.
Such prices,
however, may be distorted
by monopoly
powers or other forces to the point that they only poorly
reflect
underlying
economic conditions.
To take account
of these conditions,
governments will wish to use "shadow"
prices in calculating
returns to the project
from the national
perspective.
The need for shadow pricing
arises most commonly
in terms of internationally
traded goods, labor costs, and discount rates.
I
1. Traded Goods. Many developing
countries
arbitrarily
fix exchange rates at levels which overstate
the buying power
of their currencies
in world trade.
One result
is to make
imported goods appear unrealistically
cheap, a situation
reflected
in the need for import controls
to avoid massive
balance-of-payments
deficits.
In analyzing
development projects
under these conditions,
planners will first
estimate the exchange rate which would exist if a free market prevailed.
Imports are then valued according to this "shadow" rate, increasing their cost for the purposes of economic analysis.
2. Labor Costs.
The "shadow1 wage expresses the cost to
the economy of diverting
labor from its present occupations
to
the new project.
Since the unskilled
laborers who will work
on our energy project
are likely
now to be underemployed,
their
shadow wage might range from zero (assuming no other avaiiabie
work) to perhaps half of the market wage (assuming they might
otherwise be employed half-time
elsewhere).
In general,
skilled
workers Will
already be fully
employed; their shadow wage is
therefore
equivalent
to their market wage.
3. Discount Rates.
In theory,
economic discount rates
should approximate the interest
rate at which all capital
in
the economy would be invested under perfectly
competitive
conditions.
Some would argue that this rate should be adjusted
downward to reflect
the preference
of "society,"
as opposed to
-
individuals,
for future growth rather than present benefits.
In either case, the proper rate will appear nowhere in the
rural interest
rates will be far too high, for
market:
According to J.
example, and prime lending rates too low.
Price Gittinger,
"In practice,
the [economic discount]
rate
chosen is simply a rule of thumb: 12 percent seems to be
a popular choice.
. .I' (1972, p. 90.)
To shadow price our
to Pump Project.
4. Application
pump project will require a number of adjustments
in the data
provided for financial
analysis
in Tables 1 and 2. If we assume
that the shadow price of foreign exchange is 20% greater than
official
rates, the cost of imported capital
equipment will
rise from SlOO to &120 and the cost of imported fertilizer
Assuming that limited
alternative
employment
from 510 to Ll2.
is available
for unskilled
laborers,
we might use a shadow
wage half that of the wags actually
paid by investors.
And
in line with the "popular choice" of project
analysts,
we will
use a shadow discount rate of 12%, as opposed to the financially
applicable
rate of 30%.
Given these shadow prices for traded goods, labor, and
capital,
economic data for the pump project will be as outlined in Table 4. Because of the much lower discount rate,
Table 4: Economic Analysis,
Solar Cell Pump Pro'ect
(changes from Tables 1 and 2 indicated
bye
Year
-.
1
2
3
4
-.
Benefits
Sales of additional
food
grown
0
50
50
50
50
.
Additional
subsistence
production
0
30
30
30
30
- costs
Capital equipment (pump)*
Physical inputs (fertilizer)*
Labor*
= Net Benefits
X Discount Factor (12%)"
= Present Value of Benefits
.
NET PRESENTVALUE = 573.0;
_,’
0
0
0
12
12
12
10
10
10
-58
-58
-58
.797 .712
.636
P
46.2 41.3 -36.9
-INTERNAL RATE OF RETURN=
120
12
5
-137
.893
-122.3
0
12
10
-58
.567
32.9
-33%
50
30
0
0
5
-75
-507
38.0
the project's
net Present value has jumped from S5.6
(by financial
measures) to 573.0.
By chance, the project's
internal
rate of return remains the same, 33%. Since we
are comparing this with a discount rate.of
only 12%, however,
the project
so far seems more appealing on national
ccc Dmic
grounds than it did from the financial
perspective
of * .e
individual
investor.
B.
Social
Costs and Benefits
As a next step in economic analysis
of the pr>np project,
we must account for "social"
costs and benefits.
These are
items which need not be considered by the priva&
investor,
but which have impact on the economy as a whole.
Where
energy systems are concerned, social costs will often spring
from the need for extension services or the diversion
of renewable resources from existing
uses.
Social benefits
might
include positive
changes in the environment.
1. Extension Services.
In promoting use of a new energy
system, governments may have to carry out a number of functions.
Prominent among these could be telling
people that the system
exists,
training
them in its use and maintenance,
providing
technical
advice during the life of the project,
and evaluating
results.
Such activities,
which we lump together here as
"extension
services,"
do not involve costs to investors
and
are therefore
ignored in making financial
calculations.
Since
these services do represent
costs to the society as a whole,
on the other hand;they
are included in economic analysis.
2.
Diversion
of Resources.
Raw materials
which are
from the investor's
point of view may have costs when
viewed.from
a broader perspective.
If the owner of a biogas
system collects
dung from village
streets,
for example, these
resources are "free" for*the
purposes of financial
analysis.
To the villagers
who formerly
used this dung for fuel, however, there are definite
costs involved.
Since economic
analysis
considers a project's
impact on the society as a whole,
the fuel value of the dung as traditionally
burned is considered
an economic cost of the biogas system.
Comparable problems
could arise
in evaluating
devices using such renewable resources
as wood or water.
"free"
3. Environmental
Impact.
Many renewable energy projects
have posltlve
envlronmental
consequences.
This is most
vividly
true of projects
which reduce the need for firewood.
Since governments may ultimately
have to replant woodlands
will
-
I
-15stripped
of their wood, the value of trees left uncut due to
an energy project
should be considered a project
benefit.
Analogous benefits
might follow from an irrigation
project
allowing
cultivation
of bare land which would otherwise be
left to erode.
4. . Application
to Pump Project.
Adjustments of this
could affect our solar cell pump project
in various
ways.
Assume, for example, that extension
services will add
costs of S30 in the first
year and 510 in subsequent years
(S5 in Year 6).
In preempting the village
well for irrigation,
the pump might increase the need for women to haul drinking
water from more distant
points,
adding an extra 510 (shadow
wage) in labor costs for this purpose over the life of the
project.
Finally,
if a process of erosion is reversed
through irrigation
of new cropland,
the government might
add S50 in estimated benefits
to reflect
soil stabilization
absence.
costs it would have had to meet in the project's
sort
.
In economic terms, the project
now appears as shown in
Table 5. Net present value falls
somewhat, but only to b35.2.
Revised Economic Analysis,
(changes from Table 4 indicated
Table
5:
Pump Project
by *)
Year
2
-3
4
-5
-6
50
50
50
50
50
30
30
30
30
0
0
0
0
0
12
10
10
2
0
12
10
10
2
0
12
10
10
2
0
12
10
10
2
-46
-46
.797 .712
36.7 32.8
--
-46
.636
-29.3
46
.567
26.1
Benefits
of additional
Sales
grown
food
subsistence
Additional
production
Lower soil
stabilization
costs*
- costs
equipment
Capital
'Physical
inputs
(pump)
(fertilizer)
Labor
Extension
Extra
services*
water
hauling*
= Net Benefits
X Discount
= Present
Factor
(12%)
Value of Benefits
NET PRESENT VALUE = S35.2;
.893
-150.0
INTERNAL RATE OF RETURN=
.507
60.3
5,‘.
,:,
?.S.
..:
’
‘1
-16The project's
internal
rate of return
tests of economic soundness, in other
seems relatively
attractive.
c.
is 20%. By standard
words, the project
Secondary Effects
In addition
to carrying
out their primary functions
[pumping water, cooking food, grinding-grain),
new energy
systems may have indirect
effects
on an area's capacity
for
further
development.
Since the real concern of economic
planners is "development,"
not simply the performance of
narrowly-defined
tasks, there is need to allow for these
indirect
effects
as decisions
are made about energy systems.
This is especially
important
since the effects
can vary
considerably
depending on the specific
device chosen to
do a given job.
To illustrate,
suppose we are offered the choice between
pumping systems run by "pedal power" or solar cell electricity.
Even if these have similar
economic returns,
secondary effects
may sharply differ.
For example, the pedal pump could call
forth a local capacity to make, assemble, and repair important parts.
In addition
to representing
new business opportunities
in itself,
this process could engender new skills
which would be applicable
to other development activities.
The more complex solar cell pump, on the other hand, would be
largely
imported and would probably demand maintenance skills
well beyond what local artisans
could be expected to provide.
In contrast
to the pedal-driven
system, it is at least
plausible
that the solar cell pump might therefore
do its job
without advancing much the cause of local development.
Secondary effects
are more complex than this, of course,
and they represent only one aspect of project
analysis.
Nonetheless,
this line of inquiry
raises questions as to whether
the total impact of our solar cell pump would justify
the
heavy government support which__-its_ widespread use might require.
Given the information
we have invented here, it seems impossible
to come to any final
judgment about the value of our imaginary
project.
In the sections which follow,
we turn to more realistic
data in hopes of finding
actual systems about which more
can be said.
-17III.
A.
The System
BAKEL (SENEGAL) SOLAR PUMP
i
In late 1979, a solar thermal irrigation
pump will be
installed
near the town of Bake1 on the Senegal River.
The
Bake1 pump is a 40 HP system relying
on energy absorbed by
20,000 square feet of flat-plate
solar collectors.
By circulating
water through pipes running between the collectors
and a boiler,
the system carries heat to the boiler.
Freon
circulating
separately
through the boiler
absorbs the heat
and is vaporized.
The expanding Freon drives a turbine which
powers the pump.*
I
The Bake1 system is being manufactured jointly
by Therm0
Electron Corporation
and by SOFRETES, a French firm with extensive experience as a builder
of solar pumps. Cost of the
Bake1 unit is $1.25 million,
installed,
although t;he manufacturers
estimate that comparable units would be only $900,000
each if at least ten could be made at a time.
At the latter
price, cost of the system is $30,00O/kw, compared with $25,000$62,5OO/kw for other designs currently
available.
(J. WALTON,
1978, p. 17.)
B.
The Project
The solar pump will be tested within an existing
irrigated agriculture.scheme,
which is scheduled to cover 1900
hectares in the area around Bakel, Senegal.
At full capacity,
the solar pump will provide water for a 200-hectare
section
of this land.
In accord with the design for the original
project,
small diesel pumps will be used to irrigate
the
remaining 1700 hectares.
Emphasis will be on rice production,
although small quantities
of maize, sorghum, and other crops
will also be produced.
Since irrigated
region,
it will take
and bring production
area.
Initial
plans
mated that the full
before the project's
not be common before
D, pp. l-3; Annex J,
agriculture
is a new activity
in the Bake1
some time to prepare land, train farmers,
to full potential
throughout
the project
for the overall
irrigation
project
esti1900 hectares would not be cultivated
fifth
year; at best, double cropping would
the eighth year.
(U.S. AID, 1977, Annex
pp. 10-11.)
*- On the Bake1 system and solar thermal pumping in general,
D. FRENCH, 1978; THERM0 ELECTRONCORP., 1977; U.S. AID,
1978a; J.D. WALTONet s'.,
1978.
see
.
‘“,
i
-18Where small diesel pumps are used, the rate at which
an irrigation
scheme expands makes little
difference.
As
each new section of land is prepared for cultivation,
a new
Problems arise, howpump is simply purchased to irrigate
it.
ever, with the introduction
of a solar pump which by itself
At least in Bakel,
can irrigate
as much as 200 hectares.
farmers are not going to abandon traditional
lifestyles
with
the alacrity
required to bring a section of this size rapidly
into full production.
Instead,
the pump will have to remain
partially
idle as the government gradually
prepares both'
land and people to fully
use the water it can provide.
The pump's scale may affect
its economics in other ways
On
the
remainder
of
the
project,
each diesel pump
as well.
serves a limited
number of farmers' groups, which together
are responsible
for its supervision
and use. The solar installation,
on the other hand, will serve up to ten times as many
groups and will have to be supervised by highly-skilled
technicians.
Fragmentary evidence from nearby projects
suggests
that productive
efficiency
falls when agricultural
decisionmaking is shifted
from Senegalese farmers to government officials.
Whether such effects
prevail
on land irrigated
by
the solar pump is an empirical
question to be studied as
the project
proceeds.
For purposes of analysis
here, we
assume that productivity
will be the same-on solar and diesel
sections of the overall
Bake1 irrigation
project.
The nature of solar thermal technology
calls for pumps
Solar
of a size which makes such problems almost inescapable.
units as small as the diesel systems to be used in Bake1 would
sugbe prohibitively
expensive.
In fact, the manufacturers
gest that the Bake1 solar pump itself
is too small to take
full advantage of economies of scale, implying that even
(THERM0 ELECTRONCORP.,
larger units should be considered.
There is a dilemma here: on technical
1977, p. 11-5.)
grounds sol.:r pumps should be as large as possible;
on social
and ecohomic grounds, however, large pumps may be inconsistent
with agricultural
realities
in developing
countries.
c.
Economic Analysis
The scale of the Bake1 solar pump and the nature of the
project
in which it is to be placed hinder assessment of the
It would be possible,
system in private,
commercial terms..
of course, to imagine the "market" price at which the pump
In principle,
this
would deliver
a given quantity
of water.
price and other data could then be used to estimate financial
returns to farmers relying
on the pump for irrigated
agriculture.
In the Bake1 case, however, land use is too complex to
Rather than
representative
farming unit.
define a single,
inventing
such a unit, we will simply analyze the solar pump
from the economic perspective
of national
project
as a whole,
planners.
(See Table 6.)
-19-
z
w
.
.o
I
I
I
I
:
I
000
0
m*o
c..
000
000
0-o
$
f-G
I-IV)
coooo
00000
oocwc
G Q j
00000
00000
00000
UT 2
000
000
coo
.
.
0
0‘
cj i
00’ 0’
rlrlm
.
itw z0
. .
z
;
zI.
The data used in this analysis
are largely
adapted from
estimates developed for the original
Bake1 irrigation
project.
(U.S. AID, 1977.)
Since the solar pump will irrigate
200
hectares,
or 10.55% of the project
area, costs in Table 6
are generally
10.55% of those for the overall
project.
(For
details,
see the "Notes to Tables 6-11" following
Section VI.)
Cultivation
is assumed to spread steadily,
with two crops
grown annually on the full
200 hectares beginning in Year 4.
Benefits
per hectare will be the same L.S for the project
as
a whole.
Several favorable
assumptions have been built
into this
analysis.
Cost of the pumping system, for example, is
recorded at the "multiple-unit"
price of $900,000, rather
than the actual cost of $1.25 million.
The system is expected
to run for 15 years with no breakdowns or repairs beyond
routine preventive
maintenance.
It is assumed that 100 hectares will be cultivated
during the first
crop season, even
though farmers on nearby sections of land irrigated
by two
diesel pumps were able to cultivate
only 23 hectares in
their first
year.
And several cost items included in the
original
Bake1 project,
notably a field
trial
station
and
surveillance
of irrigation-related
health problems, have
been eliminated
as not clearly
essential
to a solar pumping
activity.
Nonetheless,
assuming a 12% national
discount rate, the
solar pump project
has a net present value of -$82,400,*
corresponding
to an internal
rate of return of only 10%. Such
returns are disturbingly
low, especially
given the high value
of crops being produced.
Net of seed and fertilizer
costs,
food production
in Hake1 is worth $.ll per cubic meter of
water used, far above average values for irrigation
projects
worldwide.
(D. SMITH and S. Allison,
1978, p. 16.)
Since
any appropriate
pump should be quite profitable
under these
conditions,
we have every reason to be dubious about the
potential
of the Bake1 system.
This impression is confirmed through examination
of the
Bake1 project
as originally
conceived.
Including
significant
cost items not reflected
in Table 6, but using diesel pumps
exclusively,
the project
was expected to have an internal
rate of return of'26%.
*- Net present value would rise to about $23,500 if the project
could be accelerated
sufficiently
to begin double cropping
on all 200 hectares in Year 2. This would not be enough
in itself
to make the pump worthwhile,
but it does indicate
a certain
degree of sensitivity
to the speed with which
land can be prepared and farmers convinced to use it.
.
; +^ :
:/
-21D. -Conclusions
solar
Since
high,
other
Even given very favorable
assumptions,
costs of the Bake1
pump threaten to be greater than the system's benefits.
the value of irrigated
agriculture
in Bake1 is unusually
prospects for the pump would be even worse under most plausible
circumstances.
Given economies of scale, larger systems might cost
appreciably
less per unit of water pumped. On the other hand,
larger pumps irrigate
larger areas, possibly
accentuating
problems raised by the Bake1 system itself:
years may pass
before the system can be used to full capacity;
the need for
elaborate
government supervision
and control may be inconsistent with initiative
by basic farming units;
at worst,
farmers may end up serving as laborers on what are essentially
decreases in productivity.
On
state farms, with significant
balance, in other words, there is little
reason a priori
to
assume that larger pumps would be economically
m&e attractive than smaller ones.
Nor is there reason to believe that solar pumps of any
size will become attractive
simply as a result of future increases in the cost of diesel fuel.
The Bake1 pump has a negative net present value in its own terms, regardless
of the
cost of competing systems. The-p's
manufacturers
do estimate that diesel irrigation
might be nearly as expensive as
solar irrigation
if the overall
cost of pumping by diesel
increased 10% annually over the next 15 years, exclusive
of inflation.
(THERM0 ELECTRONCORP., 1977, Section 11.)
Under such extreme conditions,
it is possible
that neither
irrigation
system would be worth its cost.
Eventually,
technological
breakthroughs
might reduce the
capital
cost of solar pumps to a level where projects
using
these systems in developing
countries
would have respec-table
rates of return.
In the Bake1 case, for example, to reduce
the pump's cost by 40% (to $540,000)
would give the project
a net present value of $221,800.
The internal
rate of return
for solar pumping in Bake1 would still
not be as high as
that expected using diesel units, but the chance that solar
pumps might ultimately
be appropriate
for uses elsewhere would
be considerably
enhanced.
Given advances as dramatic as
this, comparative benefit-cost
analyses of both diesel and
solar pumps could again be carried out to determine which
(if either)
was appropriate
for specific
applications.
1~ ’
e,:
,“
.,
,
IV.
A.
FAMILY-SCALE INDIAN BIOGAS PLANT
The System
Although biogas systems theoretically
can process most
organic wastes, the raw material
most commonly used is cow
dung. Water is added to the dung in a mixing chamber, with
the mixture then transferred
to a closed fermentation
tank.
Over a period of weeks, the organic materials
ferment in this
anaerobic
(airless)
environment,
producing methane, carbon
dioxide,
and traces of such other gases as hydrogen sulfide.
These gases accumulate under a collector
which "floats"
on
them at the top of the fermentation
tank.
An outlet
valve
in the collector
allows gases to be withdrawn as needed.
When the fermentation
process is complete, the tank contains
a slurry in which remain most of the original
nitrogen
and
other plant nutrients.
Most of our knowledge of biogas systems is drawn from
experience over the last quarter-century
in India,
although
China recently
has also,begun to deploy family biogas plants
in large numbers.
The initial
version of the basic Indian
design was introduced
by the Khadi & Village
Industries
Commission (KVIC) in 1954, and some 36,000 such plants now
exist.
(S. SUBRAMANIAN, 1978, p. 97.)
Biogas units have
also been built
in the Republic of Korea, Taiwan, Thailand,
and other countries.
B.
.
The Project
The biogas "project"
studied below is a composite,
familyscale system whose details
are drawn from a large number of
sources.*
The initial
cost of the plant,
installed,
is 3,000
rupees (Rs), or about $375. To feed the unit,
175 pounds of
cow dung and an equal amount of water are collected
daily,
mixed together,
fed into the fermentation
tank, and periodically
stirred.
Additional
work is involved in removing
an average of 315 pounds of slurry from the tank each day.
Maintenance of the system costs about Rs 100 per year.
The system produces three cubic meters, or about 105
cubic feet, of biogas per day. Twenty cubic feet will be used
for home lighting,
with the remaining 85 cubic feet burned
for cooking and heating.
This volume of gas is sufficient
to meet the daily needs of an Indian family of five to six
people.
*- E.g., A. BARNETT, 1978; R. BHATIA, 1977; KVIC, undated:
R. LOEHR, 1978; NATIONAL ACADEMYOF SCIENCES, 1977; C.
PRASAD, et al., 1974; L. PYLE, 1978; M. SATHIANATHAN, 1975;
S. SUBRAMANIAN, 1978.
..,
-
-23Our system will inevitably
be owned by a relatively
wealthy rural family.
The initial
cost, even assuming
government subsidies,
would be well beyond the means of
anybody genuinely
poor.
In addition,
to run the plant
requires use of the dung from a minimum of three to four
have
cows * Since fewer than 5% of Indian cattle-owners
this many animals, problems in ensuring command of the necessary supply of dung could be quite severe for all but the
wealthiest
families.
(C. PRASAD, et al., p. 1360.)
C.
Financial
Analysis
In estimating
costs and benefits
of the biogas system
(see Table 7), we assume that a family considering
the system's
purchase now uses soft coal for cooking, kerosene for lightResults of the analysis
ing , and cow dung for fertilizer.
would be roughly the same if we assumed that dung was currently
used as both cooking fuel and fertilizer.
Financial
benefits
of the gas therefore
consist
value of kerosene and coal which no'.longer need be
once gas is used for lighting
and cooking.
Benefits
slurry consist of its fertilizer
value, calculated
to the value of dung applied directly
to the soil.
for assigning numbers to these benefits
is outlined
"Notes to Tables 6-11" following
Section VI.
of the
purchased
of the
in relation
The basis
in the
As noted above, labor requirements
of the system are substantial,
Even assuming that the dung itself
can simply
be gathered in the time formerly
spent collecting
other fuels,
new labor is needed to gather water, to feed and.maintain
the system, and to unload and distribute
the slurry.
One
authority
estimates that manual labor for a plant of the size
being considered here amounts to four hours per day, implying
annual labor costs of Rs 912.
(Cited in R. BHATIA, 1977,
p. 1508.)
In Table 7, we assume a much lower net labor requirement of two hours per day. Since much of this will be provided by family members, we arbitrarily
value the labor at
one-half
the wage for unskilled
agricultural
workers, resulting
in annual labor costs of Rs 180.
An even more critical
assumption is that only routine
maintenance will be required,
with no breakdowns, shutdowns,
or major problems over a project
lifetime
of 12 years.
This
may be giving the system the benefit
of a very considerable
doubt, since one study in India found that 71% of plant owners
experienced technical
problems, with a large number of units
closed as a result.
(Cited in A. BARNETT, 1978, p. 72.)
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assumptions,
the biogas plant
has a negative internal
rate of return and a net present value
(at a 15% discount rate) of -Rs 1850. Although such a
system apparently
has no financial
appeal, thousands have
been installed.
Further analysis
is required to determine
how this might have happened.
One possible explanation
would be to assume that buyers
pay no attention
to such non-monetary costs as those for
family labor.
This assumption is rather implausible,
since
at least part of the labor required will be diverted
from
other productive
tasks, especially
during peak agricultural
periods.
Moreover, just as we suppose that people will impute
some financial
benefit
to being relieved
from arduous work,
we can reasonably
suppose they will impute a cost to added
hours of labor.
Nonetheless,
we will assume for the moment that the potential buyer views labor required to run the system as having
no cost.
We can equally assume that construction
labor included in the plant's
original
price will be provided free by
family members. For the sake of consistency,
we suppose
also that no cost is attributed
to dung collected
from family
animals.
(This implies,
however, that the slurry produced
by the system is of no financial
benefit,
since its value
is calculated
in relation
to the cost of dung replaced.)
In this extreme form, such assumptions are clearly
unreasonable,
but they do serve to increase the system's net present value
by Rs 1525. Unfortunately
for our need to understand why such
systems would be bought, however, .net present value even in
this case is only -Rs 325.
Perhaps more to the point is to note that heavy subsidy
programs existed until
recently
to support purchase of biogas
units in India.*
Until 1973, for example, KVIC provided biogas grants of $35-42 per system, along with interest-free
loans
of up to $285, repayable over a period of as much as 10 years.
(S. [email protected]&ANIAN,
1978, p. 100.)
In Table 8, our family biogas
plant is evaluated on the assumption that such a subsidy will
be provided.
If reasonable costs are again attributed
to
labor, however, the system still
has a negative internal
'
rate of return and a net present value of -Rs 615.
In practice,
given the circumstances
under which biogas
loans were made, many buyers may have been led to assume
that loan repayments would be optional.
In addition,
such
noneconomic forces as prestige
or a desire for clean cooking
*- The importance of subsidies
can be seen in the fact that
when Korea terminated
i.ts extensive biogas subsidy program,
construction
of new unii-s essentially
stopped.
(A. BARNETT,
1978, p. 83.)
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-27fuel may have enhanced the appeal of biogas systems.
Most
a combination
of these factors
served to make an
likely,
otherwise unattractive
investment seem worthwhile
to buyers.
Whatever the explanation
in specific
cases, it took heavy
goverxmient subsidies
to bring things to this point,
raising
the question of whether the system was sufficiently
worthwhile from the national
point of view to justify
such support.
d
-
D.
Economic Analysis
Table 9 examines the family biogas plant according to
national
economic measures.
Shadow pricing
results
in a
slight
increase in the value of gas, a decrease in the cost
of the plant,
and use of a lower discount rate.
Since we
had already valued labor at half its market cost, the
same proced-ure we have followed in establishing
shadow
wages, no adjustment
is necessary in total
labor costs.
Provision
is made for government extension services in
support of the plant.
Given these assumptions,
the biogas system has a negative
internal
rate of return and a net present value of -Rs 1952.
From the national
point of view, in other words, the system
looks
even worse than it did from the financial
perspective
of the individual
buyer.
In economic terms, family biogas
units are distinguished
chiefly
by the efficiency
with which
they digest money.
E.
Conclusions
On the evidence, family-scale
biogas plants of the sort
seem a most dubious investment
from the
point of view of everyone except their manufacturers.
It has
been suggested that costs of such plants could be lowered
and economic returns raised by reducing the amounts of steel
and cement involved in their construction.
Although this
may ultimately
prove possible,
it should be noted that a
number of unsuccessful
attempts have already been made to use
bamboo, wood, plastics
and other materials
in place of cement
and steel.
(S. SUBBAMANIAN, 1978, pp. 97, 98, 101, 113.)
Moreover, cement and steel account for only 40% of the installed
cost of the system we have been examining.
Even if
use of these materials
were reduced to zero, the system would
still
have a negative net present value in both financial
and economic terms.
now used in India
.
*
Also'proposed
have been community-based plants,
on the
assumption that these might make economic sense where family
systems do not.
Presumably, community members would deliver
dung to a central
collection
point, with gas then piped to
their homes. Slurry would be composted and made available
for fertilizer.
Unfortunately
for the sake of detailed
analysis, however, no such systems have been tried.
-28-
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Whatever its advantages in terms of economies of digester
scale, a community biogas plant implies heavy additional
costs
as well.
Management could be extremely expensive, with a
requirement
for complex mechanisms to buy dung and to sell
gas and slurry.
Skilled
technicians
would be needed to run
the system.
Dozens of tons of water would have to be acquired
for the plant every day.
Costly distribution
networks and
special pumps to move gas through them would be needed to meet
home cooking needs. Although only careful benefit-cost
analysis of specific
proposals could suggest their actual merit,
there is clearly
no assurance at this point that community
plants would be more desirable
than family ones.
The implications
for other developing areas are hardly
more encouraging.
The basic economics of a family-scale
plant would be much the same anywhere.
In Lmany countries,
however, people gather their own wood rather than buying
commercial fuels such as coal for cooking.
'In such cases,
using biogas will yield no cash benefits
to offset
the large
amounts of money required
to pay for the unit itself.
Whatever the project's
returns on paper, such an investment will
look extremely uninviting
in terms of actual cash flows.
Where biogas is to replace firewood,
national
economic
analysis can be adjusted to reflect
reduced pressure on fragile
woodlands.
One way to do this would be to estimate the area
which a family would denude of trees for firewood in the
absence of the biogas system.
Expenditures
which would otherwise have been needed in order to reforest
this space could
then be included as an economic benefit
of the system.
If
such an approach is necessary to salvage the system, however,
it will almost certainly
be more economical simply to plant
the trees and to forego the biogas, which in itself
is a losing
proposition.
This conclusion
is reinforced
by the fact that where woodlands are particularly
scarce, water is likely
to be scarce
as well.
Since biogas plants demand great quantities
of water,
they may therefore
be even less feasible
than usual precisely
where firewood is dwindling
most rapidly.
In many parts of
Africa,
where firewood problems are especially
acute, studies
show that women may spend four hours or more on each journey
to collect
water.
(M. CABR, 1978, p. 34.)
Biogas plants,
which consume 175 pounds per family of additional
water every
day, are obviously
not what such areas need.
Ironically,
biogas makes best sense in areas which already
are relatively
developed.
China's family biogas units,
for
example, are connected to home toilets,
an amenity generally
unavailable
in rural areas of the Third World.*
VZ%enallowance
is made for benefits
of waste disposal and treatment
of human
pathogens, the Chinese units have appreciable
economic advantages over those using cow dung alone.
Biogas is also worth
+, On biogas
1978.
in China,
see M. MCGARRYand J.
Stainforth
(eds.),
-3omuch more in place of electricity
or natural
gas than it
is in place of firewood or dung. Although this could be
of interest
to people using expensive commercial energy,
few of the poor in developing
countries
now cook on electric
stoves.
to imagine any circumstances.
In sum, it is difficult
where family biogas plants would make sense for the poor
in most developing
areas.
Community systems remain a
mystery, but one which experience with smaller units suggests
we should approach with the most extreme caution.
.
-31V.
A.
LAKE CHAD SOLAR CELL PUMP
The System
Although scientifically
complex, solar (or "photovoltaic")
cells are conceptually
quite simple:
when the sun falls
on
a solar cell,
electricity
is produced.
By joining
large
numbers of these cells together,
significant
amounts of
power can be generated wherever the sun shines.*
For pumping water, solar cells are connected through
a voltage regulator
to an electric
pump. To ensure that
water will be available
on cloudy days or at night,
provision is made either for battery
storage of electricity
(allowing
the pump to be used anytime) or for a reservoir
into which water can be pumped during sunny periods and held
until
needed.
B.
The Project
Both AID and the World Bank have investigated
irrigated
agriculture
for the borders of Lake Chad. Specifically,
water
is supplied to "polders,"
fertile
areas between the ancient
sand dunes which extend like fingers
from the shore into
the lake.
Ultimately,
one wheat crop and one cotton crop
could be grown on this land each year.
Although no specific
provision
has
include solar cell pumps in a Lake Chad
-enough data have been gathered to allow
of the feasibility
of such pumps.**
In
below, a hypothetical
5.5 kw solar cell
to grow wheat and cotton on 12 hectares
c.
Financial
yet been made to
polders project,
reasonable estimates
the project
evaluated
pump provides water
of irrigated
polder.
Analysis
In Table 10, we have assumed that solar panels, ex-factory,
cost $3 per peak watt, the price which might apply in 1983
if 100 such systems were purchased simultaneously.
(The comparable present price is close to $10 per peak watt.)
To find
the cost of the solar system as installed
at Lake Chad, we must
add a voltage regulator,
transportation
of the solar array
from the U.S. to Chad, and construction
of a supporting
structure.
To produce electricity
from solar cells at Lake Chad
therefore
costs $4.36 per peak watt of output,
$1.36 of which
would apply even if the solar panels were free.
X,
On solar cells,
see K. BOSSONG,1978; DEVELOPMENTSCIENCES,
INC., 1977; R. GOFF and C. Currin,
1977; M. PRINCE, 1978;
D. SMITH, 1977; C. WEISS and S. Pak, 1976.
** - See, e.g., META SYSTEMS, Inc.,
BANK, 197533.
1974; D. SMITH, 1977; WORLD
-32-
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-33.
To these electricity
costs must be added irrigation
pump and motor; storage
and agricultural
expenses:
irrigation
channels and land preparation;
tools;
battery;
maintenance;
labor, seed and fertilizer.
Benefits
of this
activity
consist of the income earned by farmers for wheat
and cotton produced.
Here, we assume that one crop (wheat)
will be produced in Year 1, two crops (one wheat and one
cotton) in Years 2-12.
Assuming a discount factor of 50% (probably below the
actual rate for farmers in the Lake Chad region),
the project
has a net present value of -$33,754 and an internal
rate of
return of 1%. Clearly,
very considerable
subsidies would be
required to encourage farmers to use solar cell pumps for
irrigation.
It remains to be seen whether this activity
is sufficiently
worthwhile
from the national
point of view
to warrant such subsidies.
D.
Economic Analysis
are considerably
higher than
In economic terms, benefits
by financial
measures.
(See Table 11.)
This is because
economic benefits
are valued according to the import price
for cotton and wheat in the Lake Chad area.
Financial
benefits,
on the other hand, assumed that farmers would actually
be paid a significantly
lower price for their crops by the
agencies responsible
for agricultural
marketing.
Labor
Other economic adjustments
are relatively
standard.
has been shadow-priced
at one-half
the wage used for financial
national
discount rate of 12% has
calculations.
A "typical"
Provision
has been made for the costs to the governbeen used.
ment of necessary technical
support and extension services.
As might be hoped, given the high value of crops produced,
economic returns to solar cell irrigation
on Lake Chad polders
Net present value of the activity
is
are considerable.
$38,793: the project's
internal
rate of return is 26%. Viewed
strictly
in its own terms, without reference
to competing
systems, the Chad solar cell pumping project would appear to
be worthwhile.
E.
Conclusions
-.
Clearly,
under favorable
assumptions as to solar panel
costs, the possibilities
for growing high-value
crops, and the
ease of introducing
unfamiliar
agricultural
patterns
in a
remote area of Africa,
the solar cell pump will pay for itself
At this point,
it
in economic (if not financial)
terms.
becomes worthwhile
to compare the solar system with the
diesel pumps actually
planned for use in the Lake Chad polders
project.
‘.. .
-34-
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-35-
In his study of solar cell pumping at Lake Chad,
Douglas Smith (1977, p. 46) concludes that "photovoltaic
power for irrigation
pumping is competitive
with diesel
pumping at solar array costs of $1000 per peak kw at current
Assuming that diesel prices have risen
diesel fuel prices."
by 4% annually over the ten-year period ending in 1984,
solar cell pumping would then be competitive
at an array
COSt of $1300 per peak kilowatt,
or $1.30 per peak watt.
As noted above, however, solar array costs at Lake Chad
would be $1.36 per peak watt, installed,
even if the solar
Since actual solar cell prices
cells themselves were free.
in the 1980s will range from $.40 to $5.00 or more per peak
the returns to solar pumping systems at
watt, ex-factory,
Lake Chad will be significantly
less in the foreseeable
This conclufuture than returns to diesel alternatives.
with economic analysis by
sion, by the way, is consistent
(U.S.
U.S. AID of a comparable irrigation
scheme in Mali.
In the Mali case, diesel pumps also
AID, 1978, Appendix I.)
proved more cost-effective
than pumps relying
on solar panels,
even assuming a solar cell price of zero.
Solar pumps are likely
to prove even less interesting
in other countries
than the analysis here would suggest.
In Bangladesh, India,
and Pakistan,
for example, Smith
found that "photovoltaic
power for irrigation
pumping is
less competitive
than in Chad because of fewer pumping hours
less solar radiation,
lower fuel costs, and higher
heAdA . . .'I (1977, p. 47.)
Such conclusions
might require qualification
if diesel
The
power itself
proved inappropriate
for particular
tasks.
energy required
to run an educational
television
set or
a fractional
horsepower irrigation
pump, for example, c;;;i,"e
well below the capacity of the smallest diesel units.
cell units of very small size will be more readily
available.*
Neither village
television
nor "micro-irrigation"
using solar
cells would pay for itself
financially,
however; and the ecoIn the aggregate,
nomic value of these systems is problematic.
the potential
of solar cells for such small-scale
applications
now appears quite limited.
In sum, there is no evidence that solar cells will have
widespread developmental
uses over the next few years.
As
even reduction
of solar cell prices
far as can be determined,
to near zero would not materially
alter this conclusion.,
Given very rapid increases in the cost of conventional
energy
for such
systems, however, solar cells might become appropriate
applications
as high-value
irrigation
pro-jects in the late 1980s.
*-
See, e.g.,
S. Allison,
C. CUBRIN and E. Warrick,
1978.
1977; D. SMITH and
__
,:-
_
.I
-36-
It is worth stressing
that solar cell electricity
under
the most optimistic
assumptions will be far more expensive
than the energy (human, animal, firewood)
now applied to
most tasks by the-world's
poor.
It is therefore
not the poor
for whom these systems are primarily
destined.
Instead,
as solar cell systems become more competitive,
they will
prove of interest
first
to investors
who are already using
expensive commercial energy--that
is, to the relatively
wealthy.
Only much later would any substantial
benefits
filter
down to the mass of people whose energy needs
are now most desperate.
- 37 -
VI.
From the discussion
conclusions
about:
- analytical
analyses
CONCLUSIONS
above,
it
is possible
issues which arise in pursuing benefit-cost
of renewable energy devices, and
- the developmental
promise of devices
solar pumps, and biogas plants.
A.
The Pursuit
to draw useful
of Benefit-Cost
such as solar
cells,
Analysis
Concluding points involve the need for benefit-cost
analysis
before energy systems are field-tested,
the need for local information, and the use of benefit-cost
data in decision-making.
Benefit-Cost
Analysis.
1. Preliminary
Obviously,
the
first
quick
look
at
a
new
energy
device
can
be
quite
misleading.
_ _
Not so obviously,
early judgments will almost inevitably
overstate the advantages of a new system.
In practice,
important
project
elements tend to be ignored until
at least preliminary
benefit-cost
analysis
is undertaken.
As these "hidden" items
emerge, returns to the project
are likely
to fall.
For example:
- Economic benefits
may prove unexpectedly
low in the absence
of alternative
employment for people released from work by
a new device.
- Expenses may increase when provision
is made for the
actual cost of such apparently
"free" resources as the
dung or water used in biogas plants.
- Effective
discount rates in poor areas may be far above
those to which we are accustomed, greatly
diminishing
a
project's
present value.
- Local
attitudes
conservative
ourselves
toward risk and uncertainty
may prove more
than our own, dooming systems which we might
have viewed as acceptably
risky.
- Using shadow prices for
increase their cost.
imported
goods can significantly
- The need for extension
services in support of new energy
systems may increase their cost to society well beyond the
level which financial
analysis alone would suggest.
;:”
. :
~~‘&““+‘
,/~. *
;.‘I
.I_
_
- 38 Such forces will not be equally prominent in all projects.
offset
as we uncover a project's
Moreover, they may be partially
hidden benefits.
Still,
it is customary for many more costs
than benefits
initially
to escape even the unbiased eye. Coupled
with the natural
impulse for proponents of new systems to view
the world through rosy lenses, this suggests that energy devices
will systematically
be overrated
in the early stages of their
review.
The obvious conclusion
here is that energy systems should
be subjected to preliminary
benefit-cost
analysis
even before
projects
are created to test them in the field.
There are costs
in following
this approach, of course--but
much, much greater
costs in avoiding it.
2. Local Information.
Many renewable energy projects
are
designed to free people from such tasks as grinding
grain or
hauling wood and water.
The benefits
of these projects
consist
largely
of the alternative
work people can do in time freed from
traditional
jobs.
The same device may therefore
be enormously
profitable
in one area (where new work is readily
available)
and financially
disastrous
in another (where few productive
opportunities
exist).
Only when we have solid information
on
local conditions
can we predict
which will be the case.
Local values of other variables
can also influence
the
desirability
of a new energy system.
If benefit-cost
analyses
are adequately to account for these forces, we will need specific local information
on at least the following
items:
- value of a system's
.
output
(if
measurable
- alternative
employment opportunities
if the system chiefly
releases labor
- costs
- direct
of site
preparation
operating
- degree of local
- existing
- extension
(to measure
from former
and installation
benefits
tasks);
of the system:
costs;
unemployment
(to find
uses of raw materials
costs
in market prices);
of introducing
- market interest
rates for local
investors'
discount rates);
- characteristic
local investments
to take financial
risks).
(to
shadow wages);
find
their
shadow price);
the system;
borrowing
(to estimate
(to suggest
willingness
- 39 A given system need not be in place before these data
can be collected.
Instead,existing
knowledge about a device's
technical
characteristics
can be combined with local economic
information
to arrive at estimates of its costs and benefits.
As has been argued above, at least preliminary
work along
these lines should be carried out before decisions
are made
to test new systems in the field.
To broaden our store of useful data, it would also be helpful to add relevant
economic questions to local energy surveys
of the sort being planned by the World Bank in Colombia and
by the Peace Corps in a number of other countries.
Simply
by asking about local interest
rates, employment patterns,
and investments,
for example, surveyors at this level could
increase manyfold our ability
to judge the attractiveness
of
energy systems.
If preliminary
analysis
suggests that field-testing
of
a system would be appropriate,
additional
economic data-gathering should be made an integral
part of this process.
Unfortunately,
field tests tend to be organized almost exclusively
around technical
questions.
At best, direct operating
costs
may be recorded,
although even these are often neglected.
Given the importance of economic analysis
indrawing
conclusions about a system's desirability,
we should ensure that
all field tests measure all economic variables
listed
at the
beginning of this section,
3. The Use of Benefit-Cost
Data.
In principle,
benefitcost analysis
should provide clear guidance in deciding whether
Economic analysis
shows
or not to support an energy technology.
whether the technology
is advantageous to society.
If economic
results
are positive,
financial
analysis
indicates
whether
subsidies are required to interest
investors
in the activity.
Given such information,
national
planners allocate
the funds
required to promote the new system.
In fact, reality
is somewhat more complex than this.
On a number of counts, benefit-cost
information
may not tell
the whole story about the prospects for a new energy system:
we have taken for granted
- In terms of financial
analysis,
that a farmer (for example) will evaluate a proposed
irrigation
pump by comparing expected benefits
with
expected costs, giving greater weight to immediate returns
than to distant
ones. We do not expect the farmer's
analysis
to be highly mathematical,
but we assume that
the approach to financial
in essence it will parallel
The actual basis for
analysis outlined
in Section I.
investment decisions
by the very poor in developing
countries
is only imperfectly
understood,
however:
and our financial
estimates will therefore
only approximate reality
until
they are tested in the field.
- 40 -
- For the national
planner as well as the private
investor,
benefit-cost
data are only one measure of an energy
Other criteria
might include such factors
system.
as village
self-reliance,
national
prestige,
energy
independence,
public health,
or improved technical
skills.*
Benefit-cost
analysis
can show the price
of pursuing these objectives
by using a system which
might not otherwise be worthwhile:
decision-makers
are
then left to judge whether this price is reasonable.
- From the standpoint
of the economic analyst,
it is
tempting to conclude that a system with high returns
attractive,
even if substantial
subsidies
is "really"
are required to make it appealing to local investors.
This is only true, however, if there is a reasonable
expectation
that subsidies will actually
be forthcoming.
Since governments have more claims on resources than
resources,
subsidies
for a given system might be highly
improbable.
In such a case, there would be little
justification
for pursuing an energy proposal,
regardless
of
its theoretical
appeal on economic grounds.
Obviously,
the economist is not king (or queen) when
Noneit comes to final decisions
on energy technologies.
theless,
benefit-cost
analysis
is a minimum condition
for
thinking
clearly
about new systems.
At the least,
such analysis will help eliminate
inexcusable
systems and suggest
If non-economic forces encourage
improvements in useful ones.
governments to choose "unprofitable"
energy projects
or to
reject
"profitable"
ones, benefit-cost
data will show the ecoAlthough
nomic and financial
consequences of such action.
these contributions
are fundanot conclusive
in themselves,
mental to sound decision-making.
B.
Renewable Energy Systems
The energy devices studied in Sections III-V
are broadly
representative
of those to which greatest
attention
is now
In terms of technobeing given by the development community.
logical
possibilities,
however, such devices are only a small
part of a spectrum tihich ranges from solar cells and thermal
The
pumps to village
woodlots and improved mud stoves.
following
section
suggests that defective
economics may have
contributed
to narrowing the range of inquiry
in this way.
A final section considers the promise of specific
systems.
f- A wide range of non-economic
A. BARNETT, 1978.
criteria
are discussed
in
- 41 -
of Discount Rates.
1. The Implications
Discount rates
used by the poor to evaluate their investments may be considerably higher than rates prevailing
in urban capital .markets.
We have already noted that using the appropriate,
higher rate
will make a considerable
difference
in calculating
the financial returns to energy systems.
Choice of the correct rate
is important
in another way as well:
depending on the rate
used, we might come to very different
conclusions
about which
of various competing systems is worthy of serious consideration.
This latter
effect
is most evident when comparing relatively
capital-intensive
technologies
(of the sort examined in Sections
III-V)
with more labor-intensive
approaches (at'the
mud stove
and woodlot end of the spectrum).
Capital-intensive
systems
typically
pile heavy investment
charges into the first
year,
with compensation in the form of large net benefits
in later
At high discount rates, where the present value of
years.
future benefits
is dramatically
reduced, it may be difficult
to recover initial
costs.
Labor-intensive
projects,
which
seldom involve as much early red ink, are less vulnerable
to
the impact of discount rates on future benefits.
To illustrate
the point,
consider the effect of alternative
discount rates on two hypothetical
water pumps, one relying
on solar cells and one pedal-driven.
Each system is able to
do 550 worth of pumping annually for five years.
The solar
cell pump, however, involves much higher capital
costs (5150
costs (b5 vs. 535).
vs. s45) and much lower recurrent
In Table
12, net present values are calculated
for these systems at
discount rates of 20% and 30%.
At a discount rate of 20%, the solar cell pump has a higher
net present value (h9.6 vs. h7.3).
At 30%, however, the pedaldriven system is superior
(NPV of 61.9 vs. -55.7 for the solar
cell pump). As this illustration
suggests,, higher interest
rates generally
favor labor-intensive
systems: lower interest
rates give the advantage to capital-intensive
devices.
.
These tendencies are also important
as we switch to economic
analysis,
where extremely low "shadow" discount rates are used.
Fortunately
for the prospects of devices like our pedal-driven
pump, the impact of shadow discount rates may be more than
offset by low shadow wages, which clearly
benefit
labor-intensive systems.
Nonetheless,
the principle
holds that low interest rates in themselves are the friend more of sophisticated
technologies
than of simple ones.
In practice,
analysts have tended seriously
to underestimate
the level of discount rates prevailing
in poor areas.
One
result has been to focus attention
almost exclusively
on relatively
complex energy systems.
The danger here is that poor
economics will lead to support for devices which in reality
- 42 -
Present
Table 12:
Values
of Hypothetical
Solar
Cell
1
Benefits
(water
pumping)
System
Pumping Systems
Year
3
4
50
-2
50
50
50
-5
50
150
5
0
5
0
5
0
5
0
5
45
45
45
45
- costs
Solar
Labor
cell
pump
= Net Benefits
-105
Present
Value
(30%)
-80.7
26.6
20.5
15.8
12.1
Present
Value
(20%)
-87.5
31.2
26'.1
21.7
18.1
NET PRESENTVALUE AT 30% =-z5.7;
Pedal-Driven
Benefits
-
(water
pumping)
AT'20% = L9.6.
'System
1
50
-2
50
Year
-3
50
45
35
0
35
0
35
0
35
0
35
-30
15
15
15
15
-4
50
5
50
costs
Pedal-driven
Labor
pump
= Net Benefits
Present
Value
(30%)
-23.1
8.9
6.8
5.3
4.0
Present
Value
(20%)
-25.0
10.4
8.7
7.2
6.0
NET PRESENTVALUE AT 30% = b1.9;
AT 20% = h7.3.
are too unprofitable
for investors
and too capital-intensive
for people in search of work.
The proper choice of discount
rates would suggest that a broader range of energy systems, including quite simple ones, deserves serious attention.
-
43
-
2. The Promise of Energy Devices.
In Sections III-V,
we examined the relationship
between benefits
and costs of
three renewable energy systems, as applied to rural needs in
developing countries.
In each case, gross benefits
were well
above average levels which could be expected to prevail
in
such projects.
Further,
costs were systematically
adjusted
downward to take account of economies now assumed to be
within reach over the next few years.
Nonetheless,
results
were far
from encouraging:
- Although near the low end of the current cost range for
comparable systems, the Bake1 solar pump proved quite
marginal by benefit-cost
measures.
Diesel pumps evaluated within the same project
promised far higher returns.
- Family-scale
biogas systems in India proved extremely
unprofitable
in both financial
and economic terms, with
no reason to suppose that conditions
would be more favorable in other countries.
Lack of experience prohibits
even tentative
judgments about community biogas plants,
which in practice
could prove either more or less attractive than family units.
- A solar cell pump in Chad promised substantial
economic
returns for irrigating
high-value
crops, although heavy
subsidies would be required to make the system financially
appealing to farmers.
Diesel pumps to do the same work,
however, seem more attractive
under all plausible
assumptions as to costs of diesel and solar cell pumping over
the next decade.
Solar cell power is likely
to be even
less.cost-effective
in other countries
and might not pay
for itself
at all for less high-value
applications
than
pumping of irrigation
water.
.
These conclusions
would not necessarily
be the same for
renewable energy systems to be used by the rich.
As we have
seen, the "benefits"
of new systems are often measurable in
terms of the energy they replace.
For an American using a
modern stove, the benefits
of cooking with biogas would be
equal to the cost of electricity
which would then not have
to be used. For an African
cooking on an open fire,
biogas
would be worth the cost of twigs her children
would no longer
have to collect.
Financial
appraisal
of the same 'biogas
system would yield very different
results
for these two applications.
For reasons such as these, most renewable energy devices
now tend to be attractive
primarily
to people already using
costly commercial power.
Just as is happening in the United
States, for example, some Third World city-dwellers
are discovering that solar energy may be cheaper than electricity
for heating water.
Similarly,
in looking at solar cell pumps, we noted
. ‘8.
..
<
‘.-,I,,-’
\/
_
- 44 that these
expensive
use to the
will
be of
will
first
become competitive
with relatively
forms of energy.
Such systems will
be of greatest
wealthy:
there is little
reason to suppose they
comparable
interest
to the poor.
Rather than concentrating
on devices of the sort considered
above, organizations
concerned with the poor might seek
to meet basic energy needs through simpler
systems:
village
improved wood stoves,
woodlots,
hand or pedal pumps and grinders,
hydraulic
ram pumps, and so on.*
Emphasis would be on systems
whose benefits
were likely
to be commensurate with their
costs,
and whose costs were likely
to be within
reach of the poor.
Given this approach,
ways might be found to make energy widely
available
to people most in need of it.
If economic analysis
is any guide,
there is little
reason to expect this result
from
such devices
as solar pumps, solar cells,
or biogas plants.
* - See, e.g.,
M. CARR, 1978;
WORLD BANK, 1976.
NOTES TO TABLES 6-11
Table 6
per hectare are as estimated for the Bake1 Small
1. Benefits
Irrigated
Perimeters project.
(See U.S. Aid, 1977, Annex J,
pp. 10-11.)
In Table 1, we assume that one crop will be
g,rown on 100 hectares in Year 2; two crops will be grown on
150 hectares in Year 3; two crops annually will be grown on
all 200 hectares in Years 4-15.
At full production,
1.9 million cubic meters of water will be pumped annually
(op. cit.,
p. 18), yielding
benefits
(net of seed and fertilizer)
of
$.106 per cubic meter.
2. Actual price of the Bake1 solar pump is $1.25 million.
However, the manufacturers
estimate that costs would fall
to $900,000 if ten systems were made simultaneously.
(Therm0
Electron Corp., 1977, p. 11-5.)
Table 1 uses this "multiple
system" price.
In rough accord with actual provisions
of
the Bake1 project,
we have assumed that payment is made in
equal installments
upon signing of the contract
(Year 1) and
final acceptance of the system (Year 2).
3. Assumes that costs
solar pump are 10.55%
overall
Bake1 project
provided in U.S. AID,
a project of only 200
4. Figures
Daily labor
per worker.
on the 200 hectares irrigated
by the
of costs on the 1896 hectares of the
(200/1896 = .1055).
Bake1 data are
1977, pp. 89-93.
The actual costs of
hectares might well be higher.
drawn from U.S. AID, 1977, Annex J, pp. 10-11.
costs are assumed to be 75 CFA (about $.31)
'
(U.S. AID, 1977, p. 64.)
5. Assuming that only diesel pumps were used, the Bake1 project
as a whole was estimated to have an internal
rate of return
of 26%. (U.S. AID, 1977, p. 63.)
;
Table 7
1. Of 105 cubic feet of gas produced per day, we assume
that 20 cubic feet will be used in place of kerosene for
home lighting,
with the remaining 85 cubic feet used in place
of coal for cooking.
Market value of the kerosene replaced
is equal to its mshadow" cost of Rs 162/year (R. Bhatia,
1977,
p. 1505), less the foreign
exchange premium included in the
shadow price (op. cit.,
p. 1517, note 6)" or a total of Rs
13l/year.
Market value of the coal replaced is equal to
-46its "shadow" cost of Rs 217/year (op.cit.,
p. 1505), plus
labor costs not included in the shadow price (op. cit.,
p. 1517, note 9), or a total of Rs 247/year.
Total financial
benefits
are therefore
Rs 378/year.
solid information
exists on the relative
fertilizer
2. Little
value of dung and slurry,
although it is known that up to
18% of nitrogen
in the original
dung may be transformed
into
ammonia in the biogas conversion process and then lost through
volatilization.
(National
Academy of Sciences, 1977, p. 49.)
To give the system the benefit
of the doubt, the value of
the slurry has been calculated
here as 113% of the value of
that slurry may be 13% "more
dung f in line with one finding
effective'*
a's a fertilizer.
(S. Subramanian, 1978, p. 120.)
Estimates showing a greater increase in fertilizer
value
appear to measure available
nitrogen
after the slurry
is
composted with other farm and household wastes, a method
which incorrectly
attributes
to the biogas process the value
of added wastes not involved in that process.
(See, for
example, Hhadi & Village
Industries
Commission, undated,
pp. 2-12; M. Sathianathan,
1975, pp: 83, 164.)
s
3. Cost of the plant is as provided in National Academy of
Sciences, 1977, p. 120, and is consistent
with data in S.
Subramanian (1978, p. 97) and elsewhere.
C. Prasad et al.
(1974, p. 1355) note that steel and cement account for only
40% of the plant's
original
cost, with labor, fittings
and
appliances
accounting
for the rest.
4. Valued per National Academy of Sciences, 1977, p. 121.
Approximately
175 pounds of dung are involved,
assuming that
1 pound of dung yields 0.6 cubic feet of gas.
(Op. cit.,
@.
119; C. Prasad et al., 1974, p. 1364; L. Pyle, 1978, pp. 40,
52.)
5. Assumes that two hours of work are required per day, beyond
the labor which would be employed collecting
fuel in the
absence of the biogas plant:
collecting
dung, 0 net hours
per day (i.e.,
same as formerly spent collecting
fuel);
hauling 175 pounds of water (L. Pyle, 1978, p. 54), l/2 hour per
day; mixing inputs and operating
plant,
3/4 hour per day (R.
Bhatia, 1977, p. 1508); distributing
315 pounds of slurry
(350 pounds inputs time 0.9, per National
Academy of Sciences,
1977, p. 83), 3/4 hour per day. Approximately
90 working
days of extra labor are therefore
required per year.
We
assume here that investors
value labor (much of it provided
by family members) at one-half
the unskilled
agricultural
.wage of Rs 4/day
(A. Barnett,
1978, p. 88).
Labor costs are
therefore
Rs 180 per year.
.
L
-47-
6.
Estimate,
including
painting
of gas holder,
as provided
Academy of Sciences, 1977, p. 121. This
figure is consistent
with Korean data cited in NAS, 1977,
p. 20 (Table l-5, note "a").
by National
7. According to the World Bank (1975a, p. 79), interest
rates on commercial loans to Indian farmers average 15%.
This figure is consistent
with available
information
on
biogas loans, where interest
rates ranging from 12% (S.
Subramariian, 1978, p. 100) to 17% (National Academy of
Sciences, 1977, p. 22) have been reported.
Since unsubsidized interest
rates on agricultural
lending approximate
farmers' discount rates, we assume -here a discount rate of
15%.
Table 8
1. Assumes a government grant of Rs 300 and an interest-free
loan of Rs 2,250, repayable in equal installments
during Years
2-11.
This corresponds to the highest level of support provided by India's
Khadi & Village
Industries
Commission
before 1973, when biogas subsidies began to be reduced.
(S. Subramanian, 1978, p. 100.)
Table
9
1. Gas to be used for lighting
reflects
a shadow price of
Rs 162 for the kerosene being replaced,
in line with estimates
by R. Bhatia, 1977, p. 1505. Bhatia's
shadow price for coal
to be replaced by gas for cooking (Rs 217) assumes that labor
involved in mining the coal (market cost of Rs 30) has no
social cost.
p. 1517, note 9.)
(op. cit.,
Since we assume
here that shadow wages are half the market wage rather than
zero, we add Rs 15 to Bhatia's
estimate,
giving a value for
cooking gas of Rs 232. As used for both cooking and lighting,
total economic benefits
of the gas are therefore
Rs 394.
(See also Note 1, Table 7.)
.
2. Of total market costs (Rs 3000), we assume that 40% (Rs
1200) take the form of steel and cement.
To reflect
the
value placed on foreign
exchange, a premium of 20% must be
added to these items, giving them a "shadow price" of Rs 1440.
Another 25% of market costs consist of unskilled
labor llsed
to build the system: given a shadow wage of half the market
wage, economic costs for such labor are Rs 375. The remaining 35% (Rs 1050) of the plant's
initial
cost consists of
fittings
and skilled
labor,
for which market and shadow prices
are assumed to be the same. Total cost of the plant in economic terms is therefore
Rs 2,865.
(Adapted from R. Bhatia,
1977, p. 1508.)
3. Ninety days of labor per year at one-half
the market
wage of Rs I/day.
(See Note 5, Table 7, where it is assumed
that investors
also value their family labor at half its
market price.)
4. In Year 1, assumes two weeks of extension services by
a village-level
worker (VLW) making Rs 6,00O/year,
plus Rs 10
in attention
from a biogas technician.
This covers such
of the VLW in biogas technologies
(proitems as: training
time spent in demonstrations
of biogas technologies
rated);
and in initial
discussions
with interested
families
(proassistance
in arranging
credit
and purchase of
rated):
in construction,
start-up,
and testing
hardware; assistance
of the system; follow-up
and repairs.
In Years 2-12, provision is made for about one day of extension assistance
per
year.
5. A discount rate of 12% is used in line with J. Price
Gittinger's
observation
that as "a rule of thumb" this
"seems to be a popular choice" in national
economic analysis.
(1972, p. 90.)
Table 10
Figures assume one crop (wheat) in Year 1, two crops
(one cotton,
one wheat) in Years 2-12.
Payment to farmers
for goods produced amounts to $463 per hectare for wheat and
$491 per hectare for cotton.
$29 has been deducted per hectare to account,for
traditional
goods no longer produced as
a result
of the project.
(World Bank, 1975b, Annex 3, Table
2.)
The project
covers 12 hectares.
(D. Smith, 1977, p. 23;
the area has been adjusted from 12.6 to 12 hectares to reflect the actual size of standard irrigation
units in the
polders project.)
1.
2. Manufacturer's
estimates,
assuming that panels for 100
such pumps were purchased simultaneously.
For an order of
550 peak kw, solar panels are expected to cost about $3 per
watt in 1983.
3.
Per D. Smith,
1977, p. 25.
4. The pump and motor cost about $5,000,
(Manufacturer's
estimate.)
An additional
for transportation
to Chad.
5.
of the cost of irrigation
works (less pumpfor a 1200-hectare
Lake Chad polders scheme.
(World Bank, 1975b, Annex 7, Table 2.)
These costs are
high due to transportation
problems and lack of local experience with construction
of irrigation
works.
ing
One percent
ex-factory
in France
$500 has been include
stations)
6.
World Bank, 1975b, Annex 3, Table 3.
7.
Per D. Smith,
8.
World Bank, 197533, pp. vi,
9.
World Bank, 1975b, Annex 3, Table 3.
1977, p. 27.
27.
10. Interest
rates on unsubsidized
agricultural
credit are
assumed to approximate farmer's discount rates.
In five
African countries,
the World Bank (1975a, p. 79) found that
agricultural
interest
rates averaged 117%. We arbitrarily
assume here that the discount rate will be significantly
lower, although above the Bank's estimated
global
average
of 32% for unsubsidized
agricultural
credit.
(Op. cit.,
p. 29.)
Table 11
1.
"Economic" returns are based on the import price of these
goods rather than the price actually
paid to farmers by
marketing agencies.
The economic value of output per hectare
is $480 for wheat and $1500 for cotton.
From total output,
$260 has been deducted in Year 1 and $350 in subsequent
years to reflect
lost income from traditional
activities
no longer pursued as a result of the project.
(World Bank,
197523, Annex 9, Table 2, as adjusted for economic rather
than financial
values.)
labor,
2. Assumes that 40% of total costs are for unskilled
which is assigned a shadow wage half its market wage. Economic costs of irrigation
works are therefore
20% less
than financial
costs.
3. The shadow wage is assumed to be one-half
for financial
analysis.
4.
triate
Adapted
the wage used
from World Bank, 197533, Annex 7, Table 1.
have been excluded.
salaries
Expa-
5. Estimate by Meta Systems, 1974, p. 126. We assume that
first-year
costs will be 50% greater than those incurred
in subsequent years.
,’
/,I
‘: ,.
2
-5oANNOTATEDBIBLIOGRAPHY
1.
ADAMS, Dale W. 1977. Policy Issues in Rural Finance and
Development.
Conference on Rural Finance Research (San
Diego, July 28 - August 1, 1977), Paper No. 1. June 15.
Although small farmers may have to pay 40-50% to borrow
from local moneylenders,
the actual cost of credit
from central
institutions
can be almost as high once
allowance is made for such "transaction
costs" as
bribes,
rejected
loan applications,
travel expenses,
and time spent on paperwork and negotiations.
Transaction costs are less significant
for larger borrowers,
who therefore
are happy to absorb available
credit at
nominal interest
rates which tend to be artificially
low (in real terms, often negative).
Coupled with the
fact that lending institutions
prefer in any case to
deal with larger borrowers,
the result
is a system
which transfers
substantial
income to rich farmers while
offering
little
to the poor.
2.
BALDWIN, George B. 1972.
"A Layman's Guide to Little/
Mirrlees,"
In Finance'and
Development.
March.
(Reprinted
in W. JONES, ed., 1975.)
Characterizes
the project
evaluation
book by Little
and
Mirrlees
as a "textbook
of appraisal
theory,"
rather
than an operating
manual for project
designers.
This
is most evident in the book's insistence
on calculating
world prices for all inputs and outputs,
a process
which "involves
a lot of trouble
for a doubtful
advantage."
Little
and Mirrlees
also propose to value
savings generated by development projects
more highly
than the additional
consumption they allow, an approach
which is easier to appreciate
than to apply.
On other
important
counts, the book tends to observe accepted
project
appraisal
methods.
3.
BARNETT, Andrew. 1978.
"Biogas Technology:
A Social
Economic Assessment."
In A. BARNETT, et al., 1978.
and
Biogas projects
should be considered in the overall
context of rural development needs, of which energy problems are only a part.
Assuming that villagers
do express
needs that biogas systems might meet, evaluation
must
take place in terms of specific
local realities,
both
economic and social.
Considers major issues in benefit-cost
analysis,
while noting that decision-makers
should also allow for the impact of biogas systems
on income distribution,
employment,
the environment,
and local self-reliance.
Reviews five of the best
case studies of biogas systems, suggesting that inadequacies of measurement and approach so far make it
-51impossible
to draw firm conclusions
&bout the value
of these systems.
Among issues in urgent need of
further
research are ways to lower capital
costs and
to establish
community-scale
plants.
Only if progress
is made in these areas will biogas technology be of
value to more than the relative
handful of wealthy
farmers who are now its beneficiaries.
4.
BARNETT, Andrew, et al. 1978. Biogas Technology in the
Third World:
A Multidisciplinary
Review.
Ottawa:
International
Development Research Centre.
Three long essays on the theory and practice
of biogas
production,
including
major technical,
economic, and
social issues.
To date, almost all biogas systems
have been heavily
subsidized
and sold to relatively
wealthy farmers.
While implying that biogas might
ultimately
serve the poor as well, all three contributors stress that major problems must be solved and
much better data acquired before firm conclusions
on
this point would be justified.
Under these conditions,
there is 'Ia real danger that attempts are being made
at wide-scale
introduction
of these techniques
in the
rural areas of the Third World before it is known
whether they are in any sense appropriate
to the problems of rural peoples."
For summaries of the three
essays, see entries
under A. BARNETT (1978), L. PYLE
(1978), and S.K. SUBRAMANIAN(1978).
5.
L
Risk and the Poor Farmer.
Report
A critical
review of the literature
on poor farmers'
behavior with respect to risk.
Concludes that Qnprogressive"
behavior is more a result of limited
financial capacities
to bear risk than of unwillingness
to
do so. Efforts
to reduce the risk of agricultural
production are therefore
no substitute
for redistribution
of income.
.
.
BERRY, Sara S. 1977.
to U.S. AID. August.
6.
"Economic Appraisal
of Bio-Gas Units
BRATIA, Ramesh. 1977.
in India:
Framework for Social Benefit Cost Analysis."
August.
In Economic and Political
Weekly (special number).
The best available
report on the economics of biogas
plants.
Based on an extensive review of the literature,
the article
discusses valuation
of capital
costs, operating costs (dung, labor),
and major benefits
(gas,
as well as secondary effects
(e.g.,
improved
slurry),
health).
Using shadow prices,
calculates
the Net
Present Value (NPV) of systems able to produce 2 or 3
Under almost all sets
cubic meters of gas per day.
of assumptions,
these systems are socially
unprofitable.
If biogas is used mainly for cooking, as opposed to
lighting,
the systems would have negative NPVs even
if future research could reduce capital
costs by 30%.
Use of biogas in place of diesel fuel for irrigation
pumps is also uneconomic.
Since "present estimates
. . . do not indicate
that investment in biogas units
is economic from the viewpoint
of society,"
concludes
that attention
might better be given to irrigation
projects,
creation
of rural industries,
and subsidized
coke for home booking.
7.
BOSSONG,Ken. 1978.
Washington, D.C.:
Solar
Ci%.iZen’S
Cells.
Report Series No. 27.
Energy Project.
August.
Summarizes current information
on photovoltaics,
including research,
publications,
and uses. Notes that the
price of solar cells has fallen
from $300 to about $11
per peak watt over the past four years.
Prices may
drop to $.50 by 1986 and to $.lO or less by 1990. In
the United States, solar cells are already being used
in remote areas to power such devices as radio repeaters,
refrigerators,
pumps, and navigation
lights.
Since
solar electricity
becomes competitive
with power from
nuclear and fossil
fuels at a price of $.50 per peak
watt, work is also underway on industrial
and residential applications.
II
J.
BROWN,Maxwell L. 1977. The Use of Budgets in Farm
Income and Agricultural
Project Analyses.
Washington,
D-C.:
World Bank, Economic Development Institute.
August.
Approaches analysis of agricultural
projects
through
budget data from individual
farms.
These data are used
to find profits
from a farm's separate enterprises,
along with net income for the farm as a whole.
Indicates
adjustments
necessary in using this information
to find
financial
and economic rates of return for projects
affecting
one or more farms.
9.
BROWN,Norman L. (ea.). 1978. Renewable Energy Resources
and Rural Applications
in the Developing World.
AAAS
Selected Symposium 6. Boulder, Colorado:
Westview Press.
See listings
(1978). .
10.
under R.C. LOEHR (1978) and M.B. PRINCE
BROWN,Norman L. and James W. Howe. 1978.
"Solar Energy
for Village
Development."
In Science.
February 10.
Discusses estimates made in Tanzania during a 1977 workship jointly
sponsored by the National Academy of
Sciences and Tanzania's
National
Scientific
Research
-53Council.
Relative to the cost of electricity
from
central grids or diesel generators,
a number of solar
technologies
are now (or will soon be) competitive:
solar cells,
small hydroelectric
generators,
windmills,
biogas systems, solar refrigerators.
CARR, Marilyn.
1976. Economically
nologies for Developing Countries:
Bibliography.
London:
Intermediate
cations Ltd.
Appropriate
TechAn Annotated
Technology Publi-
Includes a number of listings
covering such energy.
topics as solar grain drying,
gobar gas, charcoal,
windmills,
biomass, and solar distillation.
An introductory essay emphasizes the difficulty
of generalizing from such selections,
since specific
technology
issues and appropriate
responses vary greatly
depending on place, state of development,
etc.
12.
CARR, Marilyn.
1978. Appropriate
Technology for African
Women. Addis Ababa: U.N. Economic Commission for Africa.
Estimates that one-sixth
of all energy expended by
rural African women is used for collecting
water.
This
burden might be eased through adoption of rainwater
catchment systems, hydraulic
ram pumps, or hand pumps.
To reduce ,labor required to haul firewood,
more efficient wood stoves might be introduced.
Grinding of
staple crops could be done more easily with handy,
pedal-, or animal-powered
grinding mills.
Simple
tools could also make better use of human or animal
energy for land preparation,
food processing,
animal
husbandry and other functions.
Describes current programs to test such systems in Africa.
13.
CURRIN, C.G. and E.L. Warrick.
1977. Preliminary
Study
of Solar Electric
Generator Fabrication
by Developing
Nations.
A Dow Corning Solar Energy Report. 'Midland,
Michigan':
Dow Corning.
June 30.
Proposes to reduce the cost of photovoltaic
power by
assembling solar cell arrays in developing countries.
A factory to produce 1,000 systems per year for powering television
sets would require initial
capital
of
$150,000.
By using local workers, annual labor costs
are reduced to $35,000 for 17 employees.
Raw material
. imports amount to $200,000 annually,
about half in the
form of silicon
wafers made by companies like Dow
Corning.
Systems cost $380 installed,
resulting
in
power charges of $.80/kwh to run a television
set for
5.5 hours per day, 250 days per year.
These costs
are significantly
below those of systems assembled
by workers in developed countries.
Such analysis
justifies
local fabri"a major tentative
conclusion:
cation in developing
countries
of solar-electric
generators is practical
and preferred."
.
-54DAISES, Samuel R. 1977. An Overview of Economic and
Data Analysis Techniques for Project Design and Evaluation.
Course Manual for Data and Economic Analysis
ms,
AID Development Studies Program.
Washington,
D-C.: AID. August.
A grab bag of techniques for collecting,
analyzing
and presenting
information
about AID's primary development concerns:
income, nutrition,
health,
production,
population,
and education.
Included are such topics
as sampling procedures,
household income accounts,
land and capital
profitability
ratios,
histograms,
inputoutput methods, and benefit-cost
analysis.
Since the
information
to which these techniques are applied is
often sketchy, the author argues for greater care in
basic data-gathering
as part of project
design and
evaluation.
.
15.
DEVELOPMENTALTERNATIVES, Inc.
1976. Small Farmer RiskTaking.
Report to U.S. AID. Washington, D.C.:
Development Alternatives,
Inc.
June 1.
.
16.
Notes that no consensus exists on the meaning or significance of "risk"
and "uncertainty"
as confronted
by
small farmers.
For the sake of discussion,
defines
uncertainty
as '*a perception
of there being more than
one possible outcome from a particular
act."
Risk is
involved if any outcome would fall below some mmmum
acceptable level.
In general,
poor farmers seem to
be more "risk-averse"
than rich ones, although little
more can be said due to the inadequacy of research on
the subject.
Risk-aversion
is probably minimized where
new techniques are closely related
to old ones, farmers
are expected to contribute
labor rather than money to
the project,
cooperation
among farmers is encouraged,
and dependence on outsiders
is avoided.
DEVELOPMENTSCIENCE, Inc.
1977. Photovoltaics
and the
Report to U.S. AID. September
In isolated
areas with abundant sunshine, photovoltaic
power might be used for refrigeration
and ice-making,
pumping of drinking
or irrigation
water, humidifying
of
stored peanuts, lighting,
food processing,
or protecting grain from rats (using tiny electric
fences strung
a few millimeters
off the ground around storage areas).
Photovoltaic
systems may be cheaper than diesel power
for such jobs, although actual cost comparisons are
highly sensitive
to specific
local conditions.
-5517.
FRENCH, David.
1977. Economic and Social Analysis of
Renewable Enerqy Projects:
The State of the Art.
Report
to U.S. AID. November 22.
Notes that sound energy programming for rural areas
requires
information
and analytical
capabilities
of
four major sorts:
technical,
financial,
economic,
and social/institutional.
To date, however, serious
attention
has been given only to technical
aspects of
rural energy problems.
In economic and financial
terms, this means that work so far is simply inadequate
to indicate
whether renewable energy sytems are feasible
in developing
countries.
18.
FRENCH, David.
1978. Social Monitoring
and Evaluation
of the Bake1 Solar Pump. Report to U.S. AID. March 17.
Suggests that the size and complexity
of the Bake1
solar pump could have adverse effects
on the pump's .
profitability.
For example, several years may pass
before the full
200 hectares which the pump can irrigate is actually
cultivated.
In addition,
the need
for centralized
supervision
of the pump by highlytrained technicians
could shift
important
agricultural
decisions
from farmers to government, leading to a fall
in productivity.
Proposes a system for monitoring
and
evaluating
such effects.
19.
1972. Economic Analysis of AgriGITTINGER, J. Price.
cultural
Projects.
Baltimore:
The Johns Hopkins
University
Press.
Covers major ways of measuring agricultural
projects:
benefit-cost
ratios,
net present worth (or value),
and
internal
rates of return.
Drawing on cases from
developing
countries,
shows how these techniques are
used to find both financial
(llprivate")
and economic
Discusses practical
("Social")
returns to prOjeCtS.
problems of identifying
and measuring costs and benefits.
20.
GITTINGER, J. Price (ea.).
1973. Compounding and Discounting Tables for Project EvaluatTon.
Baltimore:
Johns Hopkins University
Press.
Includes discount
at discount rates
factors for
of l-50%.
Years l-50
of a project
.
-5621.
GOFF, R.M. and C.G. Currin.
1977. Preliminary
Economic
Study of Solar-Electric
and Diesel-Electric'
Generators.
A Dow Corning Solar Energy Report.
Midland, Michigan:
Dow Corning.
July 20.
A manufacturer
of solar cells weighs the merits of
solar cells as opposed to diesel generators
for remote
communities in developing
nations.
Concludes that solar
cells will produce electricity
in significant
amounts
for about $.35/kwh, vs. $.5O/kwh for diesel generators.
Built into these "base line" numbers are assumptions
such as these:
the interest
rate is 5%; the price of
diesel fuel starts at $.40 per liter
and rises 7% per
year: the solar cell system will last 20 years with
zero maintenance;
solar cells cost $6 per peak watt,
including
shipping and installation:
no energy storage
or power conditioning
is required
for the solar system;
average daily power generated by the solar system will
be equivalent
to 4.1 hours of output at peak capacity.
According to the report's
own sensitivity
analyses,
simply to use more realistic
assumptions about initial
fuel costs ($.30 per liter)
and interest
rates (10%)
would make the diesel system more attractive.
22.
HANSEN, John R. 1975.
"A Guide to the UNIDO Guidelines:
Social Benefit/Cost
Analysis in Developing Countries."
In W. JONES (ea.), 1975.
.
A rather complex condensation
of the UNIDO "Guidelines,"
intended for operational
use by technicians
in developins
countries.
Deals with commercial and economic profitability
of projects,
adjustments
to reflect
the distribution of benefits
between investment and consumption
and between different
income groups, and ways of allowing for the social value of goods produced.
23.
JONES, William I. (ea.).
1975. Readinqs on Project
Analysis Methods.
Washington, D.C.:
World Bank,
Economic Development Institute.
A number of long selections
on benefit-cost
analysis,
including
discussions
of the Little-Mirrlees
and UNIDO
approaches.
(See entries under G. BALDWIN, 1972; J.
HANSEN, 1975.)
24.
KHADI & VILLAGE INDUSTRIES COMMISSION. Undated.
Gas: Why and How. Bombay: KVIC.
Gobar
Intended for potential
buyers of biogas plants,
this
pamphlet briefly
outlines
technical
and economic
aspects of biogas production.
Emphasizes assistance
available
from KVIC for people installing
such systems.
-5;-
With respect to use of slurry,
recommends that this
be composted in alternate
layers with farm sweepings
or household wastes:
Economic analysis
attributes
no cost to these wastes but includes their fertilizer
value as part of "annual incomelr from the biogas plant.
25.
LAL, Deepak. 1974. Methods of Project Analysis:
A
Review. World Bank Staff Occasional Papers No. 16.
Baltimore:
The Johns Hopkins University
Press.
A rather technical
comparison of alternative
project
selection
procedures,
notably the UNIDO (1972) and
LITTLE-Mirrlees
(1974) approaches.
Concentrates
on
distortions
in foreign trade and domestic factor markets (capital
and labor) , problems of income distribution and employment, and debt service issues.
Concludes that the competing methods of selection
lead
ultimately
to similar
conclusions,
although sometimes
by dissimilar
analytical
routes.
26.
LITTLE, I.M.D. and J.A. Mirrlees.
1974. Project
Appraisal
and Planning for Developing Countries.
Basic Books.
York:
New
A basic work on benefit-cost
analysis
of development
projects.
For commentary on the Little-Mirrlees
approach, see entries
under G. BALDWIN, 1972; D. LAL,
1974; H. SCHWARTZ,1977.
27.
LOEHR, Raymond C. 1978.
and Agricultural
Wastes."
"Methane from Human, Animal
In N.L. BROWN(ea.), 1978.
Methane plants make gas and slurry
from waste materials.
Conversion efficiency
depends on many factors,
including the nature of the wastes , possible contamination
by dirt or chemicals,
ratio of carbon to nitrogen,
temperature,
retention
times, and the specific
technology
used.
In industrialized
countries,
where people now use
fossil
fuels for energy, studies indicate
that biogas
production
for the most part is not competitive.
In
developing countries,
where people are too poor to use
fossil
fuels, biogas may show more promise.
Final
conclusions
about specific
local applications
will de' pend on careful
evaluation
of their technical,
economic,
and social feasibility.
28.
MAKHIJANI, Arjun.
ment for the Third
Scientists.
June.
1976.
"Solar Energy and Rural DevelopWorld."
Bulletin
of the Atomic
Argues for community biogas plants as a way of meeting
energy needs, increasing
agricultural
production,
and
providing
employment.
-5'829.
-MARGLIN, Stephen.
1977.
"The Essentials
of the UNIDO
Approach to Benefit-Cost
Analysis."
In H. SCHWARTZ
and R. Berney teds.),
1977.
Notes three major differences
between the UNIDO
Guidelines
(1972) and other approaches to cost-benefit analysis.
First,
the Guidelines
explicitly
take into account such "social"
objectives
as improved
income distribution.
Second, analysis
is based on
the assumption that the countries
involved will continue
to exist in a state of economic disequilibrium.
Third,
important weights (e.g.,
for income distribution)
are
determined inductively
after allowing
decision-makers
to choose between a number of project
alternatives
(reflecting,
e.g., tradeoffs
between current output
and redistribution
of benefits).
30.
MCGARRY,Michael G. and Jill
Stainforth
teds.).
1978.
Compost, Fertilizer
and Biogas Production
from Human
and Farm Wastes in the People's Republic of China.
Ottawa:
International
Development Research Centre.
Translations
of largely
technical
articles
from Chinese
sources.
Concentrates
on new ways to treat wastes
now deposited in home toilets
and pigpens.
Special
emphasis is placed pn the extent to which the biogas
conversion process reduces pathogens in human excrement. No economic data are provided on either costs
or benefits
of the systems described.
31.
META SYSTEMS, Inc.
Development Scheme
Chad Basin Study.
Cambridge, Mass.:
1974. Analysis of "Revelle"
Polders
and Design for a Long Range Lake
Working Draft Report to U.S. AID.
Meta Systems, Inc.
October 8.
Considers possibilities
for irrigated
agriculture
in
polders on the borders of Lake Chad. Reviews alternative means of lifting
water, including
human, animal,
wind, gasoline,
diesel,
and electric
power.
Concludes
that diesel pumps are likely
to be most economical.
32.
NATIONAL ACADEMYOF SCIENCES. 1977. Methane Generation
From Human, Animal, and Agricultural
Wastes.
Report of
an Ad Hoc Panel of the Advisory Committee on Technolosv
Innovation.
Washington, D.C.:- National Academy of -Sciences.
Converting
crop residues
reduces health dangers
provides fuel for such
running small engines,
excellent
fertilizer.
to a number of factors:
whose wastes are being
and animal wastes to biogas
associated with the wastes,
purposes as cooking and
and leaves a sludge which makes
Biogas systems are sensitive
temperature,
diet of animals
used, mix and particle
size of
l
-59raw materials,
exposure of raw wastes or sludge to
rain, susceptibility
of digestion
equipment to corrosion, etc.
Design of a digester
and expectations
as to its output must therefore
be tailored
to resources, climate and building
materials
in the specific location
where it is to be built.
As a result,
considerable
technical
assistance
may be required
to implement a large-scale
biogas program.
Although
biogas systems have been tried extensively
in India,
Taiwan, China and Korea, little
is known about their
actual technical
performance,
the fertilizer
value
of sludges produced, or operating
costs.
Existing
economic analyses are far too inadequate for conclusions
to be drawn as to the financial
or economic desirability
of biogas systems.
Concludes that "more information
is required before this approach can be recommended
for large-scale
adoption . . . It
33.
OHIO STATE UNIVERSITY, Department of Agricultural
Economics and Rural Sociolog.
1972, 1976, 1977. Agricultural
Credit and Rural Savings (3 ~01s.).
AID Bibliography Series:
Agriculture
Nos. 7-9.
Washington, D.C.:
U.S. AID.
Three volumes of annotated bibliography
on agricultural
credit
and rural savings.
The 1976 edition
lists
contents of the 20 volumes of material
produced by AID's
1973 "Spring Review of Small Farmer Credit."
34.
.
PAK, Simon J. and Charles R.H. Taylor.
1976. Critical
FZEtors in Economic Evaluation
of Small Decentralized
Energy Projec rts . Science and Technology Report No. 25.
Washington, D.C.:
World , Bank. November.
Notes that projects
to develop alternative
energy sources
should be evaluated in terms of total costs and benefits to the economy (not simply the investor),
including calculation
of secondary effects
and appropriate
shadow prices.
Care should be taken not to overestimate
benefits
(e.g., by using data for plant capacity rather
than actual output) or to underestimate
costs (e.g.,
through excessive optimism as to the operating
life of
equipment).
Where forms of energy are not already traded
locally,
their value may have to be set according to
that of energy sources being replaced,
or in terms of
the project's
net impact on the production
of other goods.
If this process of collecting
and evaluating
data were
standardized,
a useful body of international
knowledge
could ultimately
be developed on the economics of alternative energy.
-6O35.
PRASAD, C.R.; K. Krishna
1974.
"Bio-Gas Plants:
In Economic and Political
Prasad; and A.K,N. Reddy.
Prospects,, Problems and Tasks."
Weekly IX (32-34).
In an imaginary village
of 500 people and 250 cows,
use of available
dung and night soil would yield enough
biogas to meet present energy needs for pumping,
lighting,
cooking, and small-scale
industrial
uses.
This biogas might be competitive
with energy from
rural electrification,
which itself
is apparently
too
expensive to be used for the purposes listed.
From
"it was concluded that bio-gas plants are the
this,
answer to the energy problem."
Nonetheless,
unresolved
questions do remain with respect to ownership, distribution and storage systems, water requirements,
etc.;
and "drastic"
cost reductions
are required before the
full potential
of biogas can be realized.
Lists 31
research and development issues requiring
immediate
attention.
36.
PRINCE, Morton B. 1978.
"Photovoltaic
In N.L. BROWN(ea.), 1978.
Technology."
Describes efforts
of the U.S. Department of Energy to
help reduce solar cell costs.
By 1986, standard
solar arrays could cost as little
as $.50 per peak
watt; including
collectors
and cells,
concentrating
systems could cost $.25 per peak watt.
Potential
applications for developing
countries
include power for
televisions
sets, water pumps, refrigerators,
cereal
and tourist
facilities.
grinders,
37.
PYLE, Leo. 1978.
"Anaerobic Digestion:
Options."
In A. BARNETT, et al., 1978.
The Technical
To place biogas production
in context,
considers alternative ways of supplying
energy or fertilizer
needs,
using local wastes, addressing public health problems,
and using anaerobic digesters.
With respect to actual
production
of biogas in developing
countries,
stresses
In part,
that useful information
is extremely scanty.
this is because results
vary greatly
with digester
design and with such local variables
as temperature,
raw
materials,
and supervisory
abilities.
In addition,
much
of the available
data on these questions is "perhaps
hopeful rather than realistic."
Few conclusions
can
therefore
be drawn as to the actual efficiency
of
biogas systems, the fertilizer
value of slurries,
reasons for "the relatively
high reported failure
rate of simple digesters,"
or other questions
involved
In terms
in deciding whether digesters
are worthwhile.
of priorities
for futher work, emphasizes reductions
in capital
costs and development of community-scale
systems.
.
s
-6138.
ROUMASSET,James A. '1977.
Risk and Uncertainty
in
Agricultural
Development.
A/D/C! Seminar Report No. 15.
New York City:
The Agricultural
Development Council.
October.
summarizes results
of a conferende held in 1976 on
risk and uncertainty.
On these points,
"there is
a considerable
gap between the frontier
of knowledge
and the tools that practitioners
in the field
are
applying."
The gap may prevail
for some time, since
the report reflects
a "frontier
of knowledge" where
people as yet are unable to define risk,
to agree
on how this should be measured, or to create models
that explain attitudes
or behavior of actual farmers.
39.
SATHIANATHAN, W.A. 1975. Biogas Achievements and
Challenges.
New Delhi:
Association
of Voluntary
Agencies for Rural Development.
A detailed
study of biogas production.
In a chapter
on uses of slurry,
suggests that this is most effective
as a starter
for cornposting other waste materials.
This approach is reflected
in subsequent economic analysis, where "income" from biogas production
includes
the full value of composted matter,
less than half of
which is slurry
from the biogas plant itself.
40.
SCHAEFER-KEHNERT,W. 1978a. The Phasing of Inflow and
Outflow in Farm Cash Flow Projections.
Economic Development Institute
Course Note CN-8 (revised).
Washinaton,
D.C.:
World Bank. June.
In evaluating
a new project,
traditional
cash flow
projections
lump together in the "Year 1" column the
initial
investment and end-of-year
totals
for revenues
and costs.
Since both investments and expenses for
agricultural
activities
may come early and benefits
late in a given year, the result
is to overstate
the
project's
rate of return and understate
the farmer's
need for working capital.
To correct
for such distortions,
the author proposes time adjustments
to reflect
more accurately
the characteristic
phasing of outflows
and inflows for different
types of farms.
41.
SCHAEFER-KEHNERT,W, 1978b. How to Start an Internal
Rate of Return Calculation.
Economic Development Insti-.
tute Course Note CN-30 (revised).
Washington, D.C.: World
Bank. August.
Provides tables for estimating
a project's
internal
of return,
given information
about annual benefits
the project's
life.
rate
over
I, “,
,,‘>I
--‘7
I
\
I
,
,”
-
,
-6242.
SCHAEFER-EEHNERT,W. 1978c. Measuring Small Farmers'
Development Incentives.
Economic Development Institute
Course Note CN-58 (draft).
Washington, D.C.:
World
Bank. August.
Argues that internal
rates of return are an inadequate
measure of investment incentives
for small farmers
since such farmers are more concerned with increa&d
net income than with maximizing the ireturn to their
capital.
Proposes that the measure of a project's
allure be its incremental
net benefits
as a percent
of net benefits
flowing to the farmer in the project's
absence.
43.
SCHWARTZ,Hugh. 1977.
"An Overview."
and R. Berney teds.),
1977.
In H. SCHWARTZ,
Summarizes proceedings of a symposium on project
evaluation
sponsored by the Inter-American
Development
Bank in 1973. Among basic issues was the extent to
which such "social"
criteria
as income distribution
can and should be included in project
analysis.
Also
examined in detail
were social rates of discount;
shadow prices of investment,
labor, and foreign exchange;
and distinctions
between the UNIDO (1972) and LITTLEMirrlees
(1974) approaches to project
evaluation.
Participants
agreed that although cost-benefit
techniques are weak in accounting
for externalities
and ,
ranking dissimilar
activites,
they in general have
great value in eliminating
bad development projects
and improving the design of good ones.
44.
SCHWARTZ,Hugh and Richard Berney (eds.).
1977. Social
and Economic Dimensions of Project Evaluation.
Washington, D.C.:
Inter-American
Development Bank.
Material
from the IDB's 1973 symposium on project
evalincluding
background papers, edited transcripts
uation,
of presentations
and discussion,
and a summary of the
proceedings.
(See S. MARGLIN, 1977; H. SCHWARTZ,1977.)
45.
SIREEN, Irving A. 1975. Risk Analysis and Uncertainty.
Document 01-975-0090.
Washington, D.C.:
World Bank,
Economic Development Institute.
January.
A project's
internal
rate of return
(IRR) may vary
greatly
with changes in important
variables.
If
assigning
the least favorable
values to all such variables still
yields an IRR greater than the opportunity
cost of capital,
the project
is unacceptable.
Otherwise, it may be useful to calculate
several IRRs, in
each case using a pessimistic
value for one variable
and the most likely
values for the rest.
coupled with
-63estimates as to the probabilities
of each outcome,
this information
will help planners decide whether
the project
is too risky to undertake.
More sophisticated
results
are possible using a computer and thQ
"Monte Carlo" method, by which the probabilities
assigned to behavior of key variables
are combined
to show the probability
of achieving
alternative
rates of return.
46.
SMITH, Douglas V. 1977. Photovoltaic
Power in Less
Developed Countries.
Report to ERDA. Lexington,
Mass.:
MIT, Lincoln Laboratory.
March 24.
Compares photovoltaic
and diesel systems, on the
assumption that:
the diesel systems themselves are
worth their cost; credit
is available
at 10%; there
are no costs for transporting
equipment from the U.S.
or installing
it in the country of use; solar arrays
have a lifetime
of 20 years with no management or
maintenance costs.
Under these conditions,
solar
cells would be competitive
with diesel for low-lift
irrigation
pumps at Lake Chad, assuming year-round
agriculture
and a solar array cost of $1 per peak
watt.
Photovoltaic
irrigation
is less competitive
in Bangladesh, India and Pakistan,
where sunlight
is less and fuel costs lower.
For solar cells
to be competitive
for providing
drinking
water,
rice hulling
and lighting
in a typical
Indian village,
diesel fuel would have to cost $.30 per liter
(67%
above current levels)
and solar cells $.50 per peak
watt (94% below current costs).
There is no reason
to assume that photovoltaics
will offer more benefit
to the poor than any other expensive system for providing power (diesel,
grid).
This is especially
obvious in the case of water pumping, for which
"Photovoltaics
are as capital-intensive
a . . . technology as can be imagined."
47.
.-
SMITH, Douglas V. and Steven V. Allison.
1978. Micro
Irrigation
with Photovoltaics.
MIT Energy Laboratory
Report MIT-EL-78-006.
Cambridge, Mass.:
MIT, Energy
Laboratory.
April.
Considers feasibility
of photovoltaic
irrigation
systems for farms of l-2 hectares.
Estimates that such
systems would be financially
attractive
under the
following
conditions:
the soil is exceptionally
fertile;
abundant water is available;
the peak watt cost
of a power pack used for rice irrigation
is less than
$8.60 where surface water is used and less than $2.75
in the case of ground water; there are no costs for
such items as irrigation
canals, maintenance,
management or extension;
life of the system is 15 years; and
complete financing
is available
to farmers at 10% interest.
Since solar cells can now be bought for $8 per
peak watt, the report concludes that "Solar pumping
of irrigation
water is thus economical today."
Recommends a program to place 10 million
phottivoltaic
pumping units in developing countries
over the next
20 years, at a Capital
cost of $3.5 billion.
48.
SQUIRE, Lyn and Herman G. van der Tak. 1975. Economic
Analysis of Projects.
A World Bank Research Publication.
Baltimore:
The Johns Hopkins University
Press.
Discusses benefit-cost
analysis
of development projects,
with emphasis on ways of calculating
shadow prices.
Considers methods for taking explicit
account of a
project's
impact on the distribution
of income between
investment and consumption and between rich and poor.
49.
SUBRAMANIAN, S.K. 1978.
"Biogas Systems in Asia:
Survey. " In A. BARNETT et al., 1978.
A
Reviews biogas experience in a dozen Asian countries,
with special attention
to events in India
South Korea,
the Philippines,
Thailand,
Indonesia,
and'Japan.
In
general,
biogas plants have been installed
by the relatively
rich, a+ded by substantial
government subsidies.
No community biogas systems appear to be in use, although
only systems of this sort are likely
to serve the poor.
While the greatest
benefits
of biogas derive from the
use of slurry as fertilizer,
reliable
data do not exist
on the actual value of slurry for this purpose.
Other
benefits
include provision
of cooking gas, better
health,
increased self-reliance,
expanded technical
skills,
reduced deforestation,
and cleaner living
conditions.
At least outside of China, researchers
have had little
success in attempts to reduce the cost of biogas installations
through use of PVC or local construction
materials.
50.
THERM0ELECTRONCORPORATION. 1977. Proposal to the Government of Senegal:
A Solar Thermal Water Pumping y
for Bakel, Senegal.
Waltham, Mass.:
Therm0 Ele%EtErn
Corp.
December 15.
A primarily
technical
review of a 30 kw (40 hp) solar
pumping system for use in an irrigated
agriculture
scheme
along the Senegal River.
A brief economic analysis
compares solar and diesel systems, concluding
that
the solar pump is competitive
given a low discount rate,
rapid price increases for diesel fuel, and a long,
trouble-free
lifetime
for the solar pump.
.
-6551.
U.N. INDUSTRIAL DEVELOPMENTORGANIZATION. 1972.'
Guidelines
for Project Evaluation.
New York:
United
Nations.
A basic work on benefit-cost
analysis
of development
projects.
For commentary on the UNIDO approach, see
entries
under J. HANSEN, 1975; D. LAL, 1974; S. MARGLIN,
1977; H. SCHWARTZ,1977.
52.
U.S. AGENCYFOR INTERNATIObJALDEVELOPMENT. 1977.
Small Irrigated
Perimeters Project Paper (Bakel, Senegal),
2 Vols.
Washington, D.C.:
U.S. AID. May 15.
Provides details
of the irrigation
project
into which
the Bake1 solar pump is to be introduced.
(See entries
under D. FRENCH, 1978; THERM0ELECTROEJ
CORP., 1977;
U.S. AID, 1978a.)
53.
U.S. AGENCYFOR INTERNATIONAL DEVELOPMENT. 1978a. Bake1
(Senegal) Solar Pump (project
paper amendment).
Washington, D.C.:
U.S. AID. March 10.
Provides funds to cover U.S. costs of a 30 kw solar
as well as evaluation
of the system's
pump ($625,00(I),
social and economic impact ($75,000).
In addition,
the Government of France will pay $625,000 for those
components of the pump to be made by SOFRETES. Upon
installation,
the pump will be able to provide irrigation water for 200 hectares of land along the Senegal
River.
54.
U.S. AGENCYFOR INTERNATIONAL DEVELOPMENT. 1978b. Mali
7"Economic
Renewable Energy Project Paper (Appendix I:
Analysis").
Washington, D.C.:
U.S. AID. June.
Compares photovoltaic
and diesel pumps to irrigate
about
Ini3.4 hectares of vegetable gardens in Mopti, Mali.
tial cost of a 1300-watt solar pump is $48,150 ($23,400
for solar panels and hardware, delivered
to Bamako;
$7,100 for pump, control
system, and motor; $500 to
transport
equipment from Bamako to Mopti; $6,500 for a yell;
$9,800 for storage tank and fence; $850 for supervision'of
Initial
cost of a diesel
the pump's installation).
system is $10,000 ($3,500 for a diesel pump, delivered
to
Fuel, lubricants
and maintenMopti; $6,500 for a well).
ance would cost $1,360 annually for the diesel pump
Under these
and about $200 for the photovoltaic
system.
conditions,
the photovoltaic
pump would not be competi-,
tive with a diesel pump even if the solar cells were free.
I
The photovoltaic
system might look better if costs of
storage and fencing were reduced and diesel fuel became,
vegetable yields in this
Apparently,
more expensive.
area are sufficient
to make pumping by diesel
(but not by
photovoltaics)
financially
attractive.
55.
WALTON, J.D., Jr.; A.H. Roy; and S.H. Bomar, Jr.
1978.
A State of the Art Survey of Solar Powered irrigation
Puws r Solar Cookers, and Wood Burning Stoves for Use
in Sub-Sahara Africa.
Final Report to Al Dir'Iyyah
Institute.
Atlanta:
Georsia Institute
of Technolocv.a-8Engineering
Experiment Station.
January.
With respect to solar pumps, notes that a French company,
SOFRETES, has already installed
36 systems in Africa and
Latin America.
A 1-kw SOFRETESunit costs about $50,000;
larger systems are $25,000-62,500
per kw, depending on
size and manufacturer.
In an attempt to reduce these
prices,
designers are working on concentrating
rather
than flat-plate
collectors,
as well as on simpler pumps.
The authors recommend study of a 2-3 kw system using
a parabolic
dish concentrator
ba-sed on microwave antenna
technologies.
Such a system might cost about $5,000 per
installed
kilowatt.
56.
.
WEISS, CHARLES. 1976. Solar Photovoltaic
Cells in Developing Countries.
Science and Technology Report Series No.
26. Washington, D.C.:
World Bank. November.
.
I
.
57.
Summarizes findings
of an earlier
paper by C. WEISS and
S.' Pak (1976).
Notes the prevailing
assumption that
solar cells will necessarily
have a long and "troublefree" life.
Since experience is as yet insufficient
to
ensure that this is so, manufacturers
may need to guarantee their systems for six to ten years in order to
gain widespread acceptance for solar cells in developing
countries.
WEISS, CHARLESand Simon Pak. 1976. Developing Country
Applications
of Photovoltaic
Cells.
Science and Technology
Report Series No. 7. Washington,-D.C.:
World Bank.
January.Concentrates
on solar cells to run devices of high (if
unquantifiable)
value:
educational
television,
refrigerators for rural dispensaries,
appliances
in remote
tourist
hotels.
In considering
such applications,
analysts must calculate
costs according to actual electricity
used rather than a system's potential
output,
since systems are unlikely
to be fully
employed year-round.
At
$20 per peak watt, solar cells for television
may be
competitive
both with primary cells and (given very high
fuel costs) with gasoline generators.
At $5 per peak
watt, solar cells might also find markets for refrigeration
and tourist
uses, as well as being competitive
with conventional
power for water pumping in some remote areas.
Since solar cells involve heavy initial
investments,
buyers in developing
countries
may require credit
from
suppliers
or export banks.
l
-6758.
p?OBLDBANK. 1975a. Agricultural
Credit:
Sector
Washington, D.C.:
Paper.
World Bank. May.
Policy
Notes that "real" costs of agricultural
lending
(adjusted
to eliminate
inflation)
range up to 22% for efficient
institutions
in developing
countries.
On the other
hand, real interest
rates charged for agricultural
credit
average about 3%. Most of this subsidized
credit goes to relatively
large farmers, leaving small
farmers to borrow from such sources as moneylenders
and landlords
at real rates of 20-66% or more. To
meet the requirements
of small farmers, there is need
for decentralized
institutions
able to provide extension and marketing services as well as credit.
Also
useful would be creation
of cooperatives
and other
local associations
to help administer
credit
programs.
59.
WORLDBANK. 1975b. Appraisal
of Lake Chad Polders
Project,
Chad. Washington, D-C.:
World Bank. October
16.
Considers feasibility
of an irrigation
project
to grow
cotton and wheat on 1200 hectares of Lake Chad polders.
60.
WORLDBANK. 1976.
Paper.
Washington,
Villaqe
D-C.:
Water Supply:
A World Bank
World Bank. March.
Most villagers
in developing countries
lack access to
safe water, which experts assume is essential
for good
Especially
in poorer areas, the answer is likely
health.
to be simple hand pumps to draw water from shallow wells.
Generally,
villagers
should pay operating
and maintenance
expenses for these systems , plus at least 10 percent of
construction
costs.
For water supply programs to succeed,
governments will have to provide substantial
long-term
support in the form of subsidies,
training,
demonstration projects,
and related
services.
Since benefits
from improved public health are impossible
to quantify,
village
water projects
resemble other "social"
activities
in drawing justification
more from national
priorities
than from careful cost-benefit
analysis.
-68-
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