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close this book Boiling Point No. 07 - December 1984
View the document Acknowledgements
View the document Editorial
View the document International Stoves Network
View the document A Package Deal of Measures to Combat Deforestation - in Pakistan
View the document Sahelian Stove Conference
View the document Measuring the Value of a Stove
View the document The Nada Chula
View the document Danger Signals to Human Health
View the document Testing of Samples from The Gambia
View the document Reviews
View the document Publication News
View the document Cookstove News

Measuring the Value of a Stove

by Bill Stewart

Fuel conserving stoves can potentially save a much greater value of fuel over their lifetime than the original cost of the stove. In these cases they are usually promoted as a sound financial investment. The simplest method of analysis is to multiply the assumed percentage savings by the original yearly fuel expenditure and the assumed lifetime to calculate the 'value' of the stove. For a stove that is assumed to save 20% of an original yearly fuel cost of $30 for three years the value of the stove would be 20% x $30/yr x 3yr = $18.

However, this simple analysis does not take into account a number of factors that should be considered. One important factor is that many households will not consume the assumed average amount of fuel or will pay a different price for it so that their yearly fuel costs may be considerably different than the average costs. Another important factor is that the overall savings may vary because the improved stove is not used for all cooking, the traditional stove was very inefficient, etc. Tables 2-4 are sensitivity analyses which take these factors and others described later into account. They show how the yearly benefits change with changes in the original yearly fuel expenditure or the percentage of overall fuel savings.

Two other important factors are the operating lifetime of the stove and how the benefits in the later years will be valued against the expenditure on the stove that has to be made at the beginning. Two, three and five year lifetimes are used to give a reasonable range for the lifetime of simple pottery or steel stoves. In "The Ten Commandments of Renewable Energy Analysis" (1982) by David French he presents a succinct description of a benefit cost analysis in which discount rates are used to calculate the 'net present value' of a system that requires an original financial outlay and then provides a stream of benefits later. "First" he states "we take for granted that people who buy a system will expect to receive more resource" from it

('benefits') than they put into it ('costs'). Second we assume that people will attribute different values to given flows of benefits (or costs) depending on when these take place - today' next year, or 10 years from now". The use of discount rates is one way to quantify the

value of benefits that occur in the future. Discount rates reduce the value of Later benefits because the money could have been used in other ways, invested in the bank or lent out where it could have earned interest. The convention for calculating with discount rates is to assume the investment is made in year 0 and the benefits come at the end of year 1, 2, 3 etc. Three discount rates are used in the tables to show how they can affect the results. A 0% discount rate is used because benefits (fuel savings) start to accrue immediately after the stove purchase and the price of fuel is often increasing faster than the local interest rates (which can be used as a proxy for the discount rate). 15% and 30% discount rates are used as they are closer to subsidised and unsubsidized interest rates. For example a benefit of $10 at the end of year one has a 'net present value' of $8.7 at a 15% discount rate ($10/1.15) and $7.7 at a 30% discount rate ($10/1.30).

Table 1. Effective lifetime for calculating the net present value

0% Discount Rate

15% Discount Rate

30% Discount Rate

2 yrs

1.626 yrs

1.346 yrs

3 yrs

2.283 yrs

1.791 yrs

5 yrs

3.352 yrs

2.390 yrs

Tables 2-4 present the net present value of the fuel saved for different original yearly fuel costs, percentage overall savings, stove lifetime, and discount rates.

Tables 2-4: Value of the fuel saved for 2, 3 and 5 year lifetimes at 0%, 15% and 30% discount rates - excluding inflation

TABLE 2: 2 YEAR LIFETIME

a) 0% discount rate

% overall fuel savings

   

5

10

20

30

40

Original

10

1

2

4

6

8

yearly

20

2

4

8

12

16

fuel cost

30

3

6

12

18

24

in $US -

40

4

8

16

24

32

 

50

5

10

20

30

40

b) 15% discount rate

% overall fuel savings

 

5

10

20

30

40

10

.8

1.6

3.3

4.9

6.5

20

1.6

3.3

6.5

9.8

13.0

30

2.4

4.9

9.8

14.6

19.5

40

3.3

6.5

13.0

19.5

26.0

50

4.1

8.1

16.3

24.2

32.5

 

c) 30% discount rate

% overall fuel savings

 

5

10

20

30

40

10

.7

1.3

2.7

4.0

5.4

20

1.3

2.7

5.4

8.1

10.8

30

2.0

4.0

8.1

12.1

16.2

40

2.7

5.4

10.8

16.2

21.5

50

3.4

6.7

13.5

20.2

26.9

TABLE 3: 3 YEAR LIFETIME

a) 0% discount rate

% overall fuel savings

   

5

10

20

30

40

Original

10

1.5

3

6

9

12

yearly

20

3

6

12

18

24

fuel cost

30

4.5

9

18

27

36

in $US

40

6

12

24

36

48

 

50

7.5

15

30

45

60

b) 15% discount rate

% overall fuel savings

 

5

10

20

30

40

10

1.1

2.3

4.6

3.8

9.1

20

2.3

4.6

9.1

13.7

18.3

30

3.4

6.8

13.7

20.5

27.4

40

4.6

9.1

18.3

27.4

35.5

50

5.7

11.4

22.9

34.2

45.7

c) 30% discount rate

% overall fuel savings

 

5

10

20

30

40

10

.9

1.8

3.6

5.4

7.2

20

1.8

3.6

7.2

10.7

14.3

30

2.7

5.4

10.7

16.1

21.5

40

3.6

7.2

14.3

21.5

28.7

50

4.5

9.0

17.9

26.9

35.8

TABLE 4: 5 YEAR LIFETIME

a) % discount rate

% overall fuel savings

   

5

10

20

30

40

Original

10

2.5

5

1-0

15

20

yearly

20

5

10

20

30

40

fuel cost

30

7.5

15

30

45

60

in $US

40

10

20

40

60

80

 

50

12.5

25

50

75

100

b) 15% discount rate

% overall fuel savings

 

5

10

20

30

40

10

1.7

3.4

6.7

10.1

13.4

20

3.4

6.7

13.4

10.1

26.8

30

5.0

16.1

20.1

30.2

40.2

40

6.7

13.4

26.8

40.2

53.6

50

8.4

16.8

33.5

50.3

67.0

 

c) 30% discount rate

% overall fuel savings

 

5

10

20

30

40

10

1.2

2.4

4.8

7.2

9.6

20

2.4

4.8

9.6

14.3

19.1

30

3.6

7.2

14.3

21.5

28.7

40

4.8

9.6

19.1

28.7

38.2

50

6.0

12.0

23.9

35.9

47.8

Discussion with reference to Sri Lanka

The improved pottery stoves without chimneys being promoted in Sri Lanka cost $1 - $3 and have expected lifetimes of two to five years. Yearly fuel expenditures where all cocking fuel is purchased were about $30 for low income households in Colombo in late 1982 (Stewart, 1983) and were probably higher for middle and upper income urban households. Expenditures are higher now for all households because of the significant price increases since then. In rural areas the households that purchase fuel are mainly those where most of the household members are involved in town based occupations. Fuel costs can be as low as 50% of, or equal to, Colombo prices. 20-30% fuel savings are reported from laboratory and limited field tests.

For any stove lifetimes and any of the discount rates and even with only a 10% overall fuel saving, the benefits of the saved fuel are greater than the original cost of the stove. However this positive financial analysis does not apply to rural households who do not purchase fuel and place a low value on the labour that would be saved as a result of having to collect less fuel. The demand for fuel conserving stoves will probably be lower in these areas if it is based primarily on the financial advantages. This implies that with sufficient supply and promotion the stoves should prove to be quite popular in urban areas and in rural towns and areas where people purchase their fuel.