Biogas Rising: The Biogas Industry in Indochina

By: ASEANForum, Joanna Mayhew

Biogas is becoming an increasingly popular option for generating clean, renewable energy and promoting rural development in Cambodia and Vietnam. But with growing business potential, burgeoning companies will have to pick up the pace to keep up with demand.

Amongst renewable energies, biogas can be considered somewhat of a superstar. As distinct from options such as hydro, solar and wind, biogas digesters — the integrated systems for homes and farms that produce the gas — serve a host of needs, from generating energy and reducing deforestation to improving health, education, waste management and agricultural production.

Biogas also holds big business opportunities, and Asia is at the forefront of domestic biogas development. China has a staggering 42.6 million biogas digester units (or biodigesters), followed by India’s 4.7 million units, according to SNV Netherlands Development Organization. Within ASEAN, Vietnam is leading the charge, with approximately 500,000 installed biodigesters used primarily for pig farms. About 2.5 million Vietnamese now have access to biogas, says SNV, which has overseen the installation of more than 650,000 biogas systems in Asia, Africa and Latin America.

Cambodia launched its own market-based biogas program in 2006. To date, it has seen 22,500 units installed, through 58 local companies.

“It’s still like a baby,” says Lam Saoleng, program coordinator for the National Biodigester Programme (NBP), a government-headed initiative in partnership with SNV, NGOs and private companies. Yet, in 2014, biogas growth in Cambodia was 64 percent, compared with an average of 15 percent in SNV’s 20 biogas countries. “We outpaced the average by far,” says Jon Exel, SNV’s senior renewable energy advisor.

With 85 percent of its population farmers, Cambodia holds great promise for biogas expansion. A 2015 market survey estimates that 1 million households have the technical potential for biodigesters — and with each system sold at $500, this propels the Kingdom’s potential biogas business to $500 million, according to SNV.

Though the upfront investment in biogas is demanding, in an economy where yearly income is around $1,000, farmers can make a return on investment within two years through savings on firewood and chemical fertilizer, and systems can last more than 20 years, according to Exel. As opposed to Vietnam’s waste management focus, Cambodia’s biodigester program primarily addresses energy needs at the household level. For business-minded farmers, biodigesters allow them to funnel their livestock’s dung, as well as human waste, into an anaerobic environment where methane is released, leaving a bacteria-less by-product. Gas rises and is used for cooking and lighting, and the remaining “bioslurry” is used as organic fertilizer.

For the government, biogas uptake contributes to reach broad development goals such as access to energy for rural communities, tackling deforestation and promoting livestock production. “The government wants to use that kind of renewable biogas for cooking instead of using the forest, for manure management because this is part of sanitation management, and for livelihood improvement,” says Saoleng.

Up to 1,000 Cambodians are employed in biogas. These include brick masons, sales agents and after-sales service agents, all of whom are invested in seeing the sector grow, says Exel. While most companies providing these systems remain small and inexperienced, some have produced as many as 700 biodigesters. To be financially viable, companies must produce 80 biodigesters per year, according to Saoleng.

Microfinance institutions are also becoming invested in biogas, by providing low interest loans for farmers to buy their own biodigesters.

“That truly makes a difference,” says Exel, adding that 70 percent of biodigester sales go through microfinance institutions. “Normally farmers don’t have money for the construction, but they have retail money they can pay every month,” adds Vanna Ry, credit department manager for PRASAC Microfinance Institution, which has provided $4.9 million in biodigester loans to more than 7,700 Cambodians. To date, none of these clients have defaulted.

Through the program, farmers also receive a $150 subsidy, deducted from their loans. While this paves the way for farmers to access biodigesters, there is disagreement about whether this approach is sustainable, or best for market growth. “You can ask anybody anywhere what they think about subsidies, and they will have an opinion,” says Exel. In 2013, cutting the subsidy by just $50 resulted in a significant drop in sales, requiring NBP to restore it.

By contrast, Vietnam now implements a result-based financing approach, through providing incentives to companies that construct the biodigesters.

“The most appropriate way to incentivize a specific product depends on the stage of sector development,” says Steven von Eije, SNV’s advisor for domestic biogas in Vietnam. In an underdeveloped sector, ax end-user subsidy is helpful to convince early adopters and create a market, whereas once a market matures vendor subsidies could be more beneficial, he argues. “This increases risk-taking behavior of small enterprises, helps increase marketing efforts, and helps to transfer responsibilities from the program to the private sector.”

In Cambodia, end-user subsidies were used due to farmers being unable to afford the biodigester, suggests Exel. “It was and is the right subsidy at the right time.”

While national contexts may differ, experts state that key conditions must be in place for a self-sustaining and growing commercial biogas market, including appropriate incentives, policy support, regulatory oversight, quality management and after-sales services.

However, Cambodia’s biogas industry remains fragile due to several uncontrollable factors. Labor and material costs have rapidly increased, resulting in biodigester costs rising by 10 percent per year, according to Saoleng. It is also unclear how the country’s development will impact upon the sector. With increased youth migration to cities, ageing farmers struggle to maintain livestock as well as the labor-intensive biodigesters, and many are trading in their cattle, which fuel 85 percent of biodigesters, for handheld tractors, according to Kep Ratana, biogas project coordinator at People in Need, an NBP partner supporting biogas private sector development.

And as rural households gain access to the electricity grid, in line with government development targets, it is uncertain whether they will remain committed to biogas, despite an increase in buying potential, says Saoleng.

Even the upcoming ASEAN Economic Community (AEC) could have an impact upon the sector. Open trade could reduce the price of materials, thereby lowering overall costs for the biodigesters, however labor for these units could be absorbed by neighbouring Vietnamese workers, according to Saoleng.

The AEC could also help bolster Cambodia’s trade in organic produce. With bioslurry, farmers are able to forego chemical fertilizers on fruit and vegetables and increase yield. Almost all biodigester owners (99 percent) use the bioslurry, and each biodigester can produce 15 tons of fertilizer per year, says Saoleng. Pioneering companies are beginning to purchase this bioslurry from farmers at 1,000 riel ($0.25) per kilogram, according to Exel.

Experts agree the next step is to increase private sector capacity. “We need to build the independence and entrepreneurship skills of the companies, including improving their ability to conduct promotion and marketing,” says Ratana. Cambodian government involvement in biogas remains strong, and many companies state they have benefitted from the credibility this lends them in an emerging sector, with increased trust of consumers in the product, says Exel. But when the supply side of the equation improves, the government could reduce its involvement “step by step,” adds Saoleng.

While Vietnam’s domestic biogas sector is well developed, the expected market potential is up to 2 million, compared with the current 500,000, according to von Eije. As such, the sector is expected to further mature, and there remains a large untapped market for medium- and large-scale biogas. One company is exploring making pre-fabricated biodigesters from recycled plastic; a technology that has quick scale-up potential. “Early entrants with a sound business model that can provide a high quality prefabricated product at competitive prices are likely to gain market share and be profitable,” says von Eije.

Optimism is similar in Cambodia’s business-friendly market, though companies remain small and rural customers live remotely. With 179 branches throughout the country, PRASAC is prepared for rapid expansion of loans, should companies be able to keep pace with the market, says Vanna.

“At the end of the day, there’s clearly a demand in the field,” adds Exel. “With ASEAN and the growth of Cambodia, and the entrepreneurial spirit here, and in some of the neighboring countries, I would not be surprised if somebody picks up on it.”

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