People looking to invest in the circular economy have to take specific risks into account and this can make it hard to build a strong business case. Using the MERIT model, Wageningen Economic Research is able to analyse the economic feasibility of circular and biobased innovations in advance.
“Parties wishing to invest in the closing of cycles are often entering virgin territory,” says Coen van Wagenberg, scientist at Wageningen Economic Research. “This makes it difficult to correctly estimate the feasibility of a business case. For example, the technology used and the associated processing steps have a big role to play. Moreover, the prices of raw materials may fluctuate considerably: the cost of collected plastic, for instance, largely depends on fossil fuel prices.”
And there are other uncertainties too, such as the frequent difficulty with determining the quality of end products in advance. This in turn makes it hard to assess how best to price these products. “If you are using seaweed as a raw material for the production of protein, for example, the quality will in part be determined by the weather conditions,” Van Wagenberg explains. “Similarly, there are many other factors that affect the economic feasibility of circular and biobased products.”
'The right balance'
To support companies and government bodies in making investment decisions related to the circular economy, Wageningen Economic Research developed the MERIT model (Model for Economically Robust Investment Decisions). Van Wagenberg: “MERIT is a mathematical model which takes into account a variety of economic factors that may affect the success of an innovation. Our principle therein is that the mass balance should be right. In other words: if you use 100 kilos of raw material, the same amount should remain after processing; part will be processed in the end product, while another part may be converted into water vapour that may need to be treated, and yet another retains its value as residual stream. Each part affects the business case in a positive or negative way.”
MERIT is specifically aimed at measuring the economic feasibility of various processing options: is route a, b or c the most promising or is it wiser to do nothing? To illustrate: the model is used in GENIALG, a project in which Wageningen Economic Research is studying the feasibility of seaweed cultivation. “Seaweed can be grown on land and at sea and there are various technological options for extracting valuable components,” Van Wagenberg says. “We are mapping the feasibility of each processing variety. This is also the case in the ‘Closing the P-cycle’ working group, which is focused on closing the phosphate cycle in Dutch pig farming.”
Van Wagenberg and his colleagues will continue the development of the MERIT model over the coming year. This includes creating an interactive visualisation tool that shows the effect of specific changes in the model on the business case. According to Van Wagenberg, MERIT is ideal for application in joint research projects with other research institutions and companies. An example is the European PPS Bio-Based Industries programme, part of the Horizon 2020 programme for which registration has opened on 28 April 2017. Van Wagenberg: “I invite companies to contact me to discuss the opportunities for joint research proposals.”
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