Introduction > Develop Project Plan > Assess Feasibility > Identify and Select Finance Source/Instrument > Mitigate Risks > Secure Permits and Approvals > Seek Project Funding/Finance > Structure and Close Financing > Case Studies > Acknowledgements
Step 2: Assess Feasibility
Step 1 made an initial assessment of the technical and financial feasibility of a project concept. Step 2 entails a more detailed assessment of the technical and financial viability of the project to provide documentation that supports financing mechanisms. Assessing the feasibility of a project is a fundamental step before committing resources to execute the project. The assessment involves two key aspects:
- Evaluating the financial readiness and creditworthiness of involved organizations, such as the municipality or other developers that will develop and manage the organic waste management project.
- Determining the project’s technical and financial viability.
Assessing the financial readiness and creditworthiness of the organizations involved, including the municipality, developer, or both, is important for the implementation of an organic waste management project. You should assess administrative capacity, credit history, the political and regulatory environment, and the legal framework. Demonstrating credibility and financial management capabilities is essential for securing funding from investors, cities, national or state governments, and project developers.
The assessment of the technical feasibility involves the choice of technology, operational requirements, and capacity of the working team. The assessment of financial viability includes analysis of projected cash flows, projected financial returns, and profitability.
Best Practice Activities for this Step
Assess municipal-level factors, if applicable
To ensure that the municipality can manage and sustain the project, conduct a review of the municipality’s audited financial statements, revenue streams, track record of past environmental projects, administrative strength, and political support in the project area.
Assess national-level factors
To understand the broader economic and policy environment and regulatory frameworks that could impact the project, review national-level credit ratings, economic growth projections, exchange rate risk, policies supporting climate mitigation, and budget allocations.
Assess credibility of private developers and technology solutions, if applicable
To ensure that the project will be executed effectively, any private developers involved in the project must demonstrate financial stability through audited financial statements, proven project experience, secured financing sources, and robust risk mitigation strategies. You can assess the commercial viability of the proposed technology solution by reviewing operational history, reliability, market penetration, capital costs, and value proposition.
Assess the regulatory and policy feasibility
Evaluate whether the project can be implemented under current national, subnational, and local regulations or policies. Governments may need to design and implement policies to create an enabling environment for organic waste management projects. Examples of enabling policies include organic diversion targets, waste separation mandates, and bans on or fees for organic waste disposal.
The assessment includes identifying potential regulatory risks such as permitting regulations, including potential future changes, land use regulations, taxation associated with projects, poor enforceability of contracts, collateral, and security, as well as changes in state or local administration that may affect permitting and approval of projects. Consider general political support, budget allocations for national and subnational governments, and the capacity of these governments to facilitate an enabling policy/regulatory environment conducive to investment.
Assess the technical feasibility
To identify and mitigate risks and ensure successful implementation and long-term sustainability of the project, assess the viability of the project’s technical aspects. This analysis includes an assessment of feedstock availability and characteristics (source and type of feedstock); recoverable products such as biogas, digestate, compost, and other products and their end-use applications; required technologies; facilities and equipment; availability of qualified staff; impacts of climate conditions on production rates; and potential unplanned operational challenges or closures.
Assess the financial viability
Determine financial viability, which includes projecting the project’s profit and loss, balance sheet, and cash flow statements over the project lifetime based on the revenue sources, capital costs, and operational costs as shown in the table below. Estimating capital and operations and maintenance (O&M) costs helps to establish the required initial investment and working capital needed for the project.
Common methods for determining financial viability include calculating the payback period on the initial investment, the cash flow of the project, the internal rate of return, cost-benefit analysis, or the net present value of the investment.
Table 1. Sample revenue sources, capital costs, and O&M Costs
| Revenue Sources | Capital Costs | O&M Costs |
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Sources: EPA, 2016; EPA, 2021; EPA, 2020; *EPA, 2018.
As part of the financial viability analysis, identify potential financial risks. These may include:
- Financing risks, such as insufficient capital to fund project development and cover payments during development and operation
- Liquidity risks, which are associated with revenue shortfalls or mismatches between the timing of cash receipts and payments
- Market risks, which can arise when product sales and customer demand do not generate enough revenue to sustain plant operations
- Currency risks, which can arise when a project has revenue in one currency and loan payments in another
Conduct a pilot project, if applicable
Piloting through a small-scale initial implementation can be an important part of assessing the feasibility of organic waste management projects. Pilot projects allow for testing viability, gaining political acceptance, and identifying potential risks before scaling up when similar initiatives have not been previously undertaken in a region. For example, a city could pilot organic waste collection and composting in one area to evaluate technical, operational, and public acceptance aspects. Data from the pilot phase informs risk mitigation and project optimization and validates feasibility for larger, multi-location projects.
Key Tools/Resources Related to this Step
Project Feasibility Resources:
Risk Analysis Checklist for Biogas Projects
U.S. Environmental Protection Agency
2023. This checklist is intended to help project developers, government agencies, financial institutions, and other stakeholders assess the feasibility of a proposed biogas project to ensure the project addresses critical technical and financial aspects.
AgSTAR Project Development Handbook – A Handbook for Developing Anaerobic Digestion/Biogas Systems on Farms in the United States
U.S. Environmental Protection Agency
2020. This Handbook provides an overview of what makes a successful anaerobic digestion or biogas project, how to conduct a pre-feasibility study, and how to make the business case for a proposed project. Chapter 7 includes information on conducting feasibility studies.
Landfill Gas Project Development Handbook
U.S. Environmental Protection Agency
2021. This guide includes best practices for assessing the policy, technical, and financial feasibility of landfill gas energy projects. Chapter 2 includes information on modeling technical feasibility, and Chapter 4 includes information on financial feasibility.
Project Feasibility Tools:
Anaerobic Digestion (AD) Screening Tool
Global Methane Initiative
2022. This is an Excel-based tool that allows users to perform rapid, screening-level assessments of potential biogas generation and emissions reductions benefits of anaerobic digesters. You can use this tool to assess the technical feasibility of a proposed anaerobic digestion project.
Landfill Gas Screening Tool
Global Methane Initiative
2021. This is an Excel-based tool for assessing the feasibility of landfill gas energy projects. It provides an estimate of how much landfill gas a site could collect and whether that fuel supply is sufficient to support a modest-sized landfill gas energy project.
Solid Waste Emissions Estimation Tool (SWEET)
Global Methane Initiative
2023. This is an Excel-based tool for quantifying the methane, black carbon, carbon dioxide, and other emissions impacts of organic waste management projects. It can be used to evaluate the baseline and projected future emissions under alternative scenarios.
Biogas Wastewater Assessment Technology Tool (BioWATT)
Global Methane Initiative
2016. This is an Excel-based tool that provides a quick and preliminary assessment of wastewater-to-energy projects. Through BioWATT, users can receive a specific summary of their biogas production estimates for various wastewater-to-energy technologies, electricity generation potential from the produced biogas, greenhouse gas savings associated with biogas-generated electricity, and more.
Financial Readiness/Credit Worthiness Resources:
Financing Readiness Questionnaire for Municipal Solid Waste Sector
The Climate and Clean Air Coalition
2018. You can use this questionnaire to identify financial weaknesses or potential financial risks of your project.
The Readiness and Preparatory Support Programme
Green Climate Fund (GCF)
No date. This program prepares all developing country Parties to the United Nations Framework Convention on Climate Change for GCF funding.
Financial Readiness/Credit Worthiness Tools:
Organics Economics (OrganEcs)
Global Methane Initiative
2021. These are Excel-based tools that assist users in determining the expected internal rate of return (IRR) given user inputs for a composting or anaerobic digestion project. You can use these tools to assess the financial feasibility of a proposed project.
Biogas Economic Assessment Tools
Cornell University
2008. This link includes two tools that you can use to conduct a financial analysis of anaerobic digestion projects. The tools require users to have information about the project’s capital and operating costs and use a variety of assumptions for estimating biogas and energy generation potential.
Cost of Renewable Energy Spreadsheet Tool (CREST)
National Renewable Energy Laboratory
2013. This Excel-based tool is for evaluating the financial feasibility (i.e., cost of energy per unit of production to meet investors’ minimum required after-tax rate of return) of different renewable energy technologies. You can use the anaerobic digestion version of this tool specifically for anaerobic digestion projects.
Case Studies
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Pilot Testing Source-Segregated Collection in Indore, India In Indore, India, the local governing body conducted a pilot project focused on the segregation of wet (i.e., organic), dry, domestic hazardous, and e-waste from households and bulk waste generators at the point of generation. Read about Indore |