Evaluation of Biogas Plants by the Application of an Internal Rate of Return and Debt Service Coverage Approach

Abstract

Energy production using renewable energy has an effect on environmental sustainability and on public expenditure. In fact, this industry is heavily assisted by public support from the European Union and the Italian State. Developing and applying a method to evaluate the return on investment for companies operating in the field of renewable energy allows them to quantify their efficient use of public resources. In this research we develop an assessment method that combines the rate of return on equity capital (IRRE) and financial viability (DSCR), in which IRRE > Ke and sub DSCR >1 for any given period of the investment. This method enables us to quantify both the equity capital return and financial sustainability. The method is applied to a case study of a company’s production of biogas from livestock effluents located in the province of Reggio Emilia, Italy. The analysis shows that biogas investment guarantees financial sustainability, even in the case of financial liabilities, in the case examined. It also shows that IRRE is higher than average, with a return on equity assured both by market average (MRP) and government bonds in the long term. The research could be further developed by quantifying the social welfare generated by public spending and private investment as equity capital, both in terms of its activation of the economy and in terms of assessing the environmental effects that qualify as externalities.