Welcome to the sixth week of the Powering
Agriculture MOOC on "Sustainable Energy for Food".
Within that initiative, USAID, 
the governments of Sweden and Germany
as well as Duke Energy an OPIC
promote clean energy solutions in
the agriculture and food sector.
For the MOOC, the partners are co-operating
with TH Köln,
a university for applied science
based in Cologne, Germany.
Hello everyone and welcome back to the
Powering Agriculture's Massive Open Online Course
on sustainable energy for food!
Today we are in the sixth week of our course.
The topic for this week is energy and
agriculture on micro level,
and I'm Stefania Bracco, from the 
UN Food and Agriculture Organization in Rome.
As you know, energy is an essential input throughout 
the agri-food chain, and
sustainable energy interventions, such as
renewable energy technologies
and energy efficiency options can be adopted by
small and medium farmers as well as
by large agri-food businesses.
This lecture is meant to help you in assessing,
whether a specific energy investment is a good
deal or not!
Obviously, this decision depends on many aspects.
Therefore, today we will discuss a reliable methodology
to evaluate the sustainability and
profitability of a project.
The content for this week is structured in two parts:
First, we will see the different scales
of agri-food enterprises
which show differences in management and incorporation of renewables
since they adopt diverse energy inputs and have different capital availability.
In the second part, we will describe
the investment planning
for sustainable energy interventions
in agricultural and food enterprises.
You will learn how to perform a
cost-benefit analysis on energy investment;
and some tools for
small agri-food businesses will be provided.
Let's then start by analysing
the scale of enterprises.
Operators in the agri-food value chain range from
basic subsistence smallholder farmers 
growing food for their own consumption
to family farms and small businesses for which different energy option exist
depending on their degree of modernization;
up to large commercial, corporate farms
supplying huge supermarket chains across the world.
These farm systems vary according to their dependence on energy and energy sources,
and they show different capacity for investing in
and managing renewables.
For instance, large corporate businesses have access to finance for capital investment;
therefore, they have large potential to
substitute fossil fuels with renewable energy sources
and to invest in energy efficiency options for production or processing activities
such as solar or wind irrigation systems, 
solar refrigeration, geothermal drying, and so on.
Still, coordinated networks of subsistence farmers and small farmers and businesses can also benefit
from sustainable energy systems, such as,
for instance, solar heat for crop drying, on-farm produced biogas for cooking,
or electricity generated from a
solar photovoltaic system.
By looking at the recommended reading material for this week you can learn more details about
the classification of agro enterprises and their
potential for sustainable energy solutions.
Let us now move to present the necessary steps to plan investment
and to analyse feasibility, and financial and economic costs and benefits
related to sustainable energy interventions
along agri-food chains.
When planning an investment in renewable or energy efficient technologies,
the farmer or project manager should first perform a feasibility analysis.
This is an analysis of the
ability to complete a project successfully,
taking into account economic,
institutional, social and technical factors.
A feasibility study allows to investigate the possible negative and positive outcomes of a project
before investing too much time and money.
The financial and economic cost-benefit analysis of an investment in sustainable energy solutions
is instead comparing the incremental costs and benefits of the project,
in order to assess, whether all actors have enough incentive to participate in it.
A cost-benefit analyses (so-called CBA)
requires a comparison between the
potential situation 'with' and 'without' the project.
So, the first step in a CBA is the identification
and description of both,
the benchmark or reference scenario which normally consists in fossil-fuel power technologies
and the renewable energy scenario where the technology is adopted.
The second step is the identification of
the investment's outcomes,
including the capital and operating costs of the technology and the monetized benefits.
Since costs and benefits do not occur at the same time
- as costs generally precede and exceed benefits during the initial years of the project -
the comparison requires discounting techniques.
The third step in a CBA is the determination of
the project' s incremental net flow
- financial and economic -
which results from comparing costs and benefits of the project with the benchmark scenario.
With all these elements, it is possible to calculate the corresponding project profitability indicator.
In general, a cost benefit analysis provides
four main profitability indicators.
the Net Present Value (NPV), showing the monetary value of the project's net benefit over its lifetime;
the Internal Rate of Return (IRR)
which is the discount rate
at which the Net Present Value of the cost equals the Net Present Value of the benefits;
the Benefit/Cost Ratio,
the ratio between discounted benefits and discounted total costs associated with energy intervention;
and the Payback Time, which
indicates the number of years required
for the discounted sum of benefits
to equal the discounted investment costs.
All these indicators and terms will be explained in more detail in the provided reading material.
In financial analysis, all costs and benefits are valued at market prices
since the main goal is to examine the financial returns to project stakeholders.
Financial analysis is so undertaken from the point of view of the individual agents performing the investment.
Instead, economic analysis is undertaken from the perspective of the overall economic system
and it deals with the costs and benefits to society.
The main differences between financial
and economic analyses are three:
First, the economic analysis attempts to
quantify 'externalities', such as
GHG emissions, water savings, and other environmental and social impacts resulting from the project.
Second, the economic analysis removes transfer payments, such as fossil-fuel subsidies and taxes.
And third, the economic analysis makes use of
'shadow prices'
that eliminate market distortions and reflect the effective opportunity costs for the economy.
We have introduced the CBA methodology
very shortly here.
I hope this lecture helped you to get a general overview
on how to perform a micro assessment of investments in sustainable energy solutions.
You can go through the lecture materials to learn more details, and you will find there tools
and a case study that will help you
understanding this topic better.
In fact, several online tools are
available to support small and medium businesses
in performing cost-benefit evaluation of their investment in an energy-food context.
The reader document will link you to some of them.
Thank you for your attention,
and good luck with the quiz!
