1. Introduction
The advancement of renewable energy sources represents a crucial aspect of enhancing national energy security and mitigating the detrimental effects of energy production on the natural environment [
1,
2]. The “Energy Policy of Poland until 2040”, developed by the Ministry of Energy and the Environment, posits the limitation of the adverse impact of the energy sector on the natural environment. This objective is to be achieved, in part, through the accelerated development of renewable energy sources (RESs). It is anticipated that by 2030, renewable energy sources (RESs) will account for at least 23% of gross final energy consumption and that greenhouse gas (GHG) emissions will have decreased by 30% compared to 1990 levels [
3]. Agricultural biogas plants are one of the specific sources of energy that will contribute to this reduction. Biogas production has become a common practice in many countries [
4,
5]. Many factors determine the success or setbacks of this method of energy production. These are economic, technological, and institutional factors [
6,
7,
8]. Positive external effects related to the operation of agricultural biogas plants that allow for the reduction of environmental pollution are also important. This is particularly significant in terms of the possibility of using organic residues from agri-food processing and organic waste of farm origin, such as manure and crop residues, to generate renewable energy [
9,
10]. Besides biogas, an agricultural biogas plant produces digestate. The utilization of digestate as a soil amendment represents the most environmentally beneficial option [
11], and furthermore, it has a favourable impact on economic outcomes.
The generation of energy from agricultural biogas plants is a popular method across European countries, especially those characterized by intensive animal production. The largest producer of biogas is Germany, followed by Italy, but also Denmark, Switzerland, Austria, and the Czech Republic [
10,
12,
13,
14,
15]. In the European Union (EU-27), the primary energy output produced from biogas in 2022 (15,763 Mtoe) was more than twice as high as in 2010 (6996 Mtoe) [
16], and Kampman et al. [
17] posited that another doubling could be feasible by 2030. The development of this sector may encounter many technical, social and cultural, market, regulatory and institutional, political, and environmental, and especially economic and financial barriers [
18,
19]. In the area of economic and financial barriers, the attention is drawn to high investment costs and long payback periods, especially in the case of small investments, high investment risk, high operating costs, and low profitability [
8,
18,
20,
21]. In addition, attention is also paid to market barriers [
18,
22]. In the literature on the subject, the issue of economic efficiency of operation and investment in agricultural biogas plants is relevant [
23]. Research draws attention to the low profitability of agricultural biogas plants [
21,
24,
25,
26] and the costs of substrate transport and their impact on the profitability of energy production [
27,
28,
29,
30,
31]. In addition, there is a substantial body of literature on medium- and large-scale biogas projects [
32,
33,
34,
35,
36]. Moreover, it is emphasized that investments in agricultural biogas plants are very sensitive to changes in market conditions and energy policy [
37]. This generates a higher level of investment risk and consequently results in the need to obtain a higher rate of return on investments, which in many cases may lead to the lack of economic justification for their implementation. Therefore, such investment projects may require support from public funds. In the case of investments in agricultural biogas plants, an important aspect is also the identification of social and ecological benefits, which are significant from the point of view of public interest.
Agricultural biogas plants in Poland are typically situated in close proximity to large animal farms, utilizing the otherwise noxious waste products of slurry and manure as their substrate [
38,
39,
40]. Investment in this type of business activity must be based on rational economic calculation. To the best of our knowledge, there is a lack of research focusing on aspects of assessing the efficiency of investments in agricultural biogas plants, especially small ones located on dairy farms, identifying factors determining the profitability of this type of investment, and research on analyzing the current economic and financial situation of these facilities. On the one hand, it is necessary to identify the economic benefits and costs associated with the operation of such a project, which allows reducing the risk of failure and may be a factor encouraging farmers to make this type of investment. On the other one, a detailed analysis of the factors determining the economic efficiency of investments in biogas plants will allow the preparation of appropriate policy tools for the development of this energy production sector. For this reason, the presentation of the results of already operating biogas plants provides interesting conclusions for both politicians and future investors. For this reason, the aim of this research is to analyze the economic efficiency of investing in an agricultural biogas plant operating on a farm engaged mainly in the production of dairy cattle. The case-stage method was applied in this study.
2. Development of Agricultural Biogas Plants in Poland
The “Energy Policy of Poland until 2040”, developed by the Ministry of Energy and the Environment, posits the necessity of limiting the detrimental impact of the energy sector on the natural environment. This objective is to be achieved, in part, through the advancement of renewable energy sources. Poland has significant potential for using agricultural production to generate energy [
41,
42,
43,
44]. It can be argued that a particularly important role is played by agricultural biogas in the process of enhancing the contribution of the agricultural sector to the production of renewable energy. It is noteworthy that Poland possesses considerable and untapped potential for the production of biogas and biomethane using available substrates [
45,
46].
The development of agricultural biogas plants in Poland commenced in 2005 when legislative solutions pertaining to energy and environmental protection law were introduced. The amendment established public support systems dedicated to renewable energy sources, thereby implementing EU law into the legal system (Directive 2001/77/EC). This was followed by the establishment of the first agricultural biogas plant [
44]. In 2023, there were 119 biogas producers with 143 installations (
Figure 1). Based on these installations, 795.61 GWh of electricity and 374.09 million m3 of agricultural biogas were generated in 2023 (
Figure 2). The rise in the generation of agricultural biogas and electricity can be attributed to two factors. Primarily, this can be explained by an increase in the number of agricultural biogas plants in Poland. Secondly, there has been a notable rise in investment interest in this particular area [
47]. However, the number of biogas plants in Poland compared to the production capacity of the development plans adopted by the public administration should be considered very small [
44]. In the adopted program for the development of agricultural biogas plants in Poland, approximately 2000 agricultural biogas plants (with a total capacity of approximately 250 kWe) were to be in operation by 2020 [
48]. For instance, there are 11,269 biogas plants in Germany, 1710 in Italy, 890 in France, 578 in the Czech Republic, and 423 in Austria [
49].
In the structure of biogas plants, the largest share is taken by biogas plants with a capacity of 0.5–1 MW (39.5%), followed by biogas plants with a capacity below 0.5 MW (31.5%) (
Figure 3). In turn, the installed capacity of biogas installations is mainly concentrated in biogas plants above 1 MW (
Figure 4). These data indicate that the development of small agricultural biogas plants (below 1 MW) in Poland is in the initial phase. The development of small installations is mainly determined by exogenous factors, i.e., applicable legal regulations and financial support from public sources [
51,
52,
53]. The low importance of the biogas sector in Poland is also indicated by its share in the total installed renewable energy capacity, which is low (
Figure 5). In 2023 it was about 2%. Wind energy and photovoltaic installations are the renewable energy sources mainly developed in Poland.
The substrate employed in the technological process represents a crucial factor that influences the economic efficiency of a biogas plant. The majority of biogas plants in Poland and Europe are based on NaWaRo technology or related solutions [
44]. In the nascent stages of development, agricultural biogas plants were predominantly constructed in proximity to large hoggery farms. This strategic location enabled the utilization of copious quantities of agricultural substrates, including slurry and maize silage, which served as the basis for the input for NaWaRo technology [
48]. For this reason, in 2011–2012 the share of slurry and maize silage was high (
Table 1). In the following years, the structure of the substrate used changed. The importance of waste from the agri-food industry is increasing. This is attributable to the fact that a considerable number of new agricultural biogas production plants commissioned in Poland are situated at agri-food processing facilities [
54]. This process should be considered beneficial since the biogas plant acts as a bio-waste utilizer. Moreover, it does not adversely affect food security [
55]. Supplying biogas plants with crops grown for food can be controversial because of the competition for land between energy and food crops. This also increases the risk of intensification of agricultural production and the risk of creating monocultures.
Figure 5.
Structure of installed renewable energy capacity in Poland [%]. Source: [
56].
Figure 5.
Structure of installed renewable energy capacity in Poland [%]. Source: [
56].
4. Materials and Methods
This research used the single case study method. The case-stage method, despite criticism, has been popularized and used in social sciences since the 1980s. [
84]. A case study, classified as a qualitative method, differs from quantitative methods in terms of the size of the research sample. The advantage of employing large samples is the breadth of data that can be obtained, whereas the disadvantage is that the depth of analysis is limited. In a case study, the situation is the opposite. It is essential that both approaches be employed in order to ensure the sound development of social science [
85]. The use of the case-stage method in research allows for the analysis of phenomena in their natural context [
84], but also provides the opportunity to use case studies for theorizing [
86]. The case studymethod is also a common method used to analyze the economic efficiency of agricultural biogas plants [
9,
35,
87,
88,
89]. In studies of this type, it is emphasized that this method allows an analysis of the functioning of sample agricultural biogas plants in order to optimize future technological solutions and develop appropriate policy tools for the development of this sector. This study is a look at the problem of operating this type of facility from the point of view of the stakeholders—farmers interested in this type of investments and politicians creating appropriate policy tools for the development of biogas plants.
The analysis of the economic efficiency of the investment was carried out on the example of an agricultural biogas plant with a capacity of 0.499 MW located on a farm dealing mainly with dairy cattle breeding. The total area of the farm is 1500 ha, of which 75% is meadows and pastures. The analysis used the financial statements of the biogas plant for the years 2015–2023, i.e., starting from the first year of operation of the investment. The choice of this type of biogas plant was dictated by the fact of their large share in the structure of biogas plants in Poland (
Figure 3) and that the literature draws attention to the need to carry out economic analyses for this type of biogas plant [
47].
In order to analyze the profitability of investing in a biogas plant, financial information about the completed project was used. This information concerned realized net cash flows for the audited period and the level of investment. The analysis is ex post and covers the period from the commencement of the investment until 2023.
The investment profitability was assessed using the net present value (NPV) and internal rate of return (IRR) methods. To assess the profitability of the investment, economic results at current prices were used. This approach will avoid the selection of appropriate indicators to adjust prices, but it also results from the ex post approach of this research. The NPV method is commonly used for ex ante analysis, i.e., before making an investment decision. The ex post approach used in this work allows the assessment of investment profitability according to the actual cash flows obtained, and not the expected cash flows. In our opinion, this approach allows for the knowledge of the existing reality, which can be used in the process of assessing similar projects implemented in the future. This has an educational and practical dimension.
NPV may be regarded as a measure of the pure economic benefits of the project, representing the total present value of the net cash flow [
35,
90]. A positive or equal zero net present value (NPV) indicates that the project is profitable. The formula for calculating the net present value (NPV) can be expressed as follows:
where:
NPV—net present value,
NCFt —cash flows in particular years,
i—interest rate,
t = 0, 1, 2, …, and
n—another year of the calculation period.
In the analysis of economic efficiency, the interest rate i = 8% was assumed, which includes 4% as the risk-free rate (the risk-free rate is assumed to be equal to the average interest rate on government bonds) and 4% as the risk premium (the risk premium assumed by the investor).
This research also calculated the internal rate of return (IRR) according to the following formula:
where:
i1—the interest rate for which the NPV is positive but close to zero;
i2—the interest rate for which the NPV is negative but close to zero;
NPV1—NPV value calculated for
i1; and
NPV2—NPV value calculated for
i2.
The internal rate of return (IRR) of a project is the discount rate that ensures that the net present value (NPV) of the inflows is equal to the cost. This is tantamount to requiring that the net present value be equal to zero. The internal rate of return (IRR) represents an estimate of the project’s rate of return.
6. Discussion
One of the barriers to the development of agricultural biogas plants is their low economic efficiency of investment. The reasons for low economic efficiency are mainly related to the following aspects: high investment costs [
23,
95,
96,
97] and the lack or insufficient level of subsidies for this type of investment [
23,
95,
98]. The analysis carried out in this paper showed that investment in a biogas plant was highly capital-intensive, which had been confirmed by previous research [
37,
99]. This makes it difficult to achieve an appropriate level of economic efficiency that satisfies investors. Reaching an appropriate level of economic efficiency may require not only public aid, but also preparation of special forms of financing for this type of investment [
100]. It is reasonable to posit that a significant proportion of existing and currently constructed biogas plants in Poland would likely not have come into being without the provision of public financial assistance [
38]. Our own research showed that the profitability of this type of agricultural biogas plant depended on public support, but also on the possibility of full use of the energy and heat produced. For the success of such a project there must be a wide range of enabling factors. One of them is obtaining funding from public funds. Without support, such an investment may not be profitable. This confirms the importance of financial tools in the development policy of the renewable energy sector. Similar results were also obtained in the study by Klimek et al. [
37], where investing in biogas plants without government subsidies is unprofitable. These authors indicate that the required level of subsidies in investments should be as much as 60–70%. The literature on the subject often emphasizes that the possibility of obtaining subsidies, grants, tax breaks, etc. is a motivating factor to undertake this type of activity [
101,
102,
103,
104,
105,
106,
107]. This research also concluded that if it was not possible to fully use the obtained production, investment in a biogas plant requires a subsidy of 40–60% of funding. In turn, the analysis of the economic efficiency of the operation of an agricultural biogas plant conducted by Akbulut [
89] shows that success of such an investment project is characterized by a positive NPV. In this case, the analysis was carried out taking into account the income from milk sales obtained on the farm. This approach to the problem of investment efficiency in agricultural biogas plants fits into the holistic systems approach in the analysis of farm organization [
108]. This allows capturing the impact of an agricultural biogas plant on the economic and financial situation of the entire farm but may artificially inflate economic results. The question arises whether, without a biogas plant, an agricultural farm with only agricultural production would achieve better economic results. In the case of our own research, it is clearly visible that the loss generated by the biogas plant will burden the economic result of the farm. However, it should also be noted that the method of calculating the economic result adopted in the examined biogas plant and farm does not fully reflect the benefits obtained for the farm. Estimation of the full benefits at market prices will allow one to obtain satisfactory results. Moreover, it should be noted that the success of such a project requires public infrastructure related to the possibility of selling the produced heat to households. Without such infrastructure, such an investment does not use its full potential. The development policy for this type of investment project should not only take into account support for farmers, but the support must also cover other investments located in the vicinity of agricultural biogas plants.
In our opinion, in the economic efficiency calculation, treating a biogas plant operating within a farm as a separate unit will allow a more accurate assessment and capture of all connections with the farm and the social environment. The weakness of this approach is the need to evaluate the benefits for the farm in the form of digestate and the electricity supplied, as well as the need to evaluate the costs related to the raw materials delivered from the farm. This approach fits into the analytical model of economic efficiency assessment, where such an assessment is carried out separately for individual farm activities. Both approaches, holistic and analytical, have their advantages and disadvantages. They can result in different conclusions. This is a methodological problem that indicates the complex nature of efficiency assessment in agriculture resulting from the interrelationships of individual parts of a farm. The systems approach demonstrates that each component of the farm can exert an influence on the behaviour of the other parts of the farm. Furthermore, the nature of this influence is also contingent upon the state of other components within the system. This implies that the system should not be conceptualized as a collection of discrete components, but rather as a unified entity. It is difficult to understand the functioning of the whole by analyzing only the individual components [
109]. The analytical approach is founded upon the isolation of the phenomenon under study, which is then subjected to analysis within this isolated context. However, this analysis is deficient in regard to feedback, which is the foundation of the internal relations between the components of the system [
110]. The analytical approach will allow a deeper insight into the conditions for the functioning of individual parts of the entire facility. However, one should be aware of the mutual connections and couplings between the individual components of the entire system (the internal couplings in the system) and the system’s surroundings. In the analytical approach, there is also a need, and at the same time difficulty, to monetize benefits and costs that are not strictly accounting in nature, as in the case of biogas plants: the value of digestate, costs of raw materials obtained from the farm, but also benefits related to public goods. Such an attempt was made in our research. It turns out that a full valuation of the benefits allows for a more precise assessment of such an investment project.
For this reason, when making an economic calculation of the operation of an agricultural biogas plant, attention should also be paid to intangible benefits [
38]. They are difficult to estimate, but their identification and estimation are an important issue necessary to be included in the profitability calculation of such investments, especially from the point of view of the policy supporting the development of agricultural biogas plants. Estimation of positive external effects allows for overcoming socio-cultural, environmental, and political barriers. Social and cultural barriers are related to the reluctance and concerns of local communities about the impact of biogas on their comfort of life, adverse perception of technology, and cultural and religious beliefs with stigmatization as users’ literacy and education about the use of biogas are still low [
23,
111]. Environmental barriers are mainly related to concerns about the negative impact of biogas plants on the natural environment, in particular: noise and odor pollution, high volume of water requirement, inadequate water access, and pollution (air, water and land) [
111]. Political barriers include the lack of institutional solutions, the lack of a clear policy for the development of this type of installation, and a lack of promotion of this type of installation [
112,
113]. These types of barriers can be eliminated or their impact can be limited by correctly quantifying the costs and benefits of operating biogas plants, taking into account the full calculation, not only the calculation in the economic sense, but in a holistic approach, taking into account the full range of both private and public benefits.
The literature suggests that biomethane offers a range of models for a circular bioeconomy that are in line with the Sustainable Development Goals (SDGs). The importance of biomethane–biogas production as an alternative option for decarbonizing many sectors of the economy is pointed out. This would reduce global emissions and contribute to the management of increasingly large amounts of organic waste [
114,
115,
116,
117,
118]. The following effects, which are part of a closed-loop bioeconomy, can be observed at the facility under analysis: the utilization of organic waste for energy production and the use of digestate for crop fertilization. This is of particular importance to the agricultural sector, where large quantities of reusable agricultural waste are generated. The reduction of environmental pollution and the creation of added value for farmers and other stakeholders are two key benefits of this process [
114,
119,
120]. It is additionally noteworthy that biogas production aligns with a model of sustainable rural and agricultural development. The utilization of local resources and the transformation of organic waste materials into marketable products facilitate an increase in income in the agricultural sector and for local workers [
114]. Furthermore, agricultural biogas plants offer a potential avenue for achieving global sustainable development goals, including poverty reduction, ensuring access to affordable, reliable, sustainable and modern energy for all, substantially increasing the share of renewable energy in the global energy mix, economic growth, increasing industry value added by small enterprises, and responsible production and consumption [
114]. The realization of these objectives is of particular importance with regard to social welfare and should be a significant argument for politicians in the creation of models for the development of this economic sector.
The analysis of economic results carried out for the tested biogas plant indicates a high sensitivity of the generated profit to changes in market and political factors related, in particular, to energy prices and certificate prices [
21,
37]. The influence of market and political factors can be clearly seen in our own research, where low electricity prices clearly influenced the low level of profit or even loss generated by the tested biogas plant. The literature on the subject also emphasizes that obtaining renewable energy from other sources such as solar, hydro, and wind is also cheaper than biogas [
23,
112,
121,
122]. This may also be a factor negatively affecting the development of biogas plants.
The results of our research indicate the problem of economic efficiency of small agricultural biogas plants located on farms. In order to resolve this issue, it is necessary to explore the potential of institutional solutions that are related to government incentives. These include feed-in tariffs, long-term financing, capital grants, viability gap funding, and tipping fees for waste collection and handling [
23]. With the lack of appropriate policy tools for the development of agricultural biogas plants, especially those operating on a small scale, such projects are characterized by a lack of profitability, which discourages private investors.
7. Conclusions
The analysis carried out is a valuable case study in the context of the need for the development of renewable energy in Poland, in particular those based on dispersed agricultural biogas plants operating on dairy farms. It has been shown that this type of investment requires public support, as well as a kind of regulatory “protection”, which would ensure relatively stable conditions in terms of the possibility of selling the produced energy and energy certificates at relatively stable prices.
The low economic efficiency of the investment in the researched agricultural biogas plant and the inability to fully use the potential production indicate the need to use solutions supporting this type of investment project. Especially in the investment phase, private investors (mainly farmers) may face a serious capital barrier that is difficult to overcome. In such a situation, the development of appropriate policy instruments for the development of agricultural biogas plants operating on farms is an important factor in stimulating the development of such a sector. An important solution is the use of non-returnable investment subsidies from public funds, allowing them to cover at least 40–60% of investments. Such support allows overcoming entry barriers for small private players/developers. Moreover, support also requires the construction of appropriate technical infrastructure, enabling the transmission and full use of the obtained production.
The use of interventionist instruments in the development policy of agricultural biogas plants requires justification. Such arguments can be sought in the area of social benefits related to increased energy security, environmental benefits related to the reduction of greenhouse gas emissions, or a positive impact on the vitality of rural areas. In the tested agricultural biogas plant, the following positive effects can be noted: a reduction of methane emissions, an elimination of nuisance odor associated with fertilization with manure, there is no associated seepage of harmful nitrites and nitrates into groundwater, the possibility of using heat generated by the plant to heat a housing estate and to dry grain on the farm (necessary additional investments), and the production of substrates for biogas plants on farms limits the transport of raw materials for energy production and eliminates the negative impact of transport on the natural environment. Further research should focus on quantifying and valuing the positive externalities of such projects. This will allow a full assessment of the investment’s efficiency, taking into account not only measurable economic effects, but also the value of public goods. A full cost–benefit calculation will be particularly useful to build out the development policy for this sector. The limitation of our research results from the adopted research method is related to the case study. We assessed the efficiency of only one technological solution. In further research, we plan to compare biogas plants operating with different technologies and of different sizes. This approach will provide answers to the question of what solutions should be promoted for farms interested in such investments.