A BPlan on using Green Algae to create Carbon Credits!


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Detailed Business Plan around an innovative approach to create a company around Carbon Credits and MicroAlgae. I had worked on this as a part of small competition that I participated during School. We could't follow it up completely because nobody in the team had the real expertise on MicroAlgae.

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A BPlan on using Green Algae to create Carbon Credits!

  1. 1. Credal Indian Institute of Technology Gandhinagar Making Power Greener Team: Kai Date: 16 September 2012 Indian Institute Of Technology, Gandhinagar VGEC Campus, Off- Visat Gandhianagr Highway Chandkheda Ahmedabad India Tel: +918460714907 +919998383694 Email: saurya@iitgn.ac.in ravi@iitgn.ac.in Skype username: sauryaprakash Page 1
  2. 2. Credal Table of Contents 1. Company Description 1.1. Mission Statement 1.2. Goal and Objective 2. Product And Services 2.1. Incubator Design CAD Model 2.2. Suppliers 3. SWOT Analysis 4. Marketing Plan 4.1. Market Size and Statistics 4.1.1. Carbon Credit market 4.1.2. Algae (Biomass) Market 4.2. Target Customers 4.3. Prospective Partners 4.4. Existing Market Players 4.5. Pricing Strategy 4.6. Initial marketing Strategy 5. Opportunity Estimation 6. Operational Plan 7. Management And Organisation Structure 8. Start-Up Expenses 9. Financial Projections 9.1. Financial Results 9.2. Internal Rate of Return 9.3. Payback period 9.4. Funding Requirements 10. Sustainability Impact 11. Financial Plan 11.1 Income Statement 11.2 Costs 11.3 Cash Flows 11.4 Cost estimation for plant Page 2
  3. 3. Credal Executive Summary The use of fossil fuels for generation of energy is fraught with several serious challenges. Among these, the release of very large amounts of CO 2 poses a significant environmental concern. The limited efficiencies of alternative sources of energy as well as their higher cost complicate the scenario especially in a country like India, which has only recently begun consuming energy at a higher per capita rate than ever before. The countries large population and dependence on traditional fuel sources for powering its infrastructure necessitate a nuanced approach to the problem of CO2 emissions. Credal is a medium sized carbon consulting and algae producing firm located in Ahmedabad, India. It specializes in providing carbon sink solutions by leveraging on algae for carbon sequestration. The algae sink absorbs emissions from the power plants. This absorbed CO2 is quantified in terms of captured carbon and converted into carbon credits. The credits are rationed or sold to the partners as per the agreements. The company also provides algae which could serve as the raw material for biomass and other algae based firms. The company will begin its operation by partnering with the Torrent thermal power plant in Ahmadabad. The carbon sequestration algae incubators will be set up near the power plant. The initial batch of required algae for sequestering CO2 would be bought from the local vendors. The carbon sequestration process will produce large amount of algae which will be sold to the partners and algae based companies. In the first phase, city municipal corporations and algae based food and cottage industries would be targeted as potential customers for algae. Steel and fertilizer plants like IFFCO, GSFC have been identified as potential second phase partners. An initial capital of $ 12,21,000 would be invested for acquiring the land. $ 5,85,000 would be used for purchasing the initial stack of algae. A total fixed cost of $ 81,40,600 will be needed for complete construction of the incubator. Details of the cost have been provided in the Financial plan section of this plan. $ 15,84,900 is required for running daily operations for the first 6 months. By the end of first year revenue expected is $ 71,64,300. The projected revenue for the 2nd year is $ Page 3
  4. 4. Credal 1,43,28,700. The internal rate of return (IRR) is 19% and the payback period is 2.8 years. The team constituting Credal comprises of Ravi Agarwal, Saurya Prakash Sinha, Tarkeshwar Singh and Dipesh Dayama. Ravi and Dipesh are final year Mechanical Engineering undergraduates while Saurya and Tarkeshwar are final year students from the Electrical Engineering department. Their previous roles in firms and organisations like Ricoh, UL, ISRO, IIM-A and several others have sharpen their technical and marketing acumen. The team’s complimentary skill set and insight gained in previous roles makes them apt for executing Credal. Credal represents a paradigm shift in the operation of coal-based thermal power plants, and forges a unique syncretic relationship between entities that normally do not have overlapping objectives. Its model of operation is expected to revolutionize the energy sector in the country and will usher in real emissions reduction without comprising on installed power requirements. Page 4
  5. 5. Credal 1. Company Description We are a start up firm that essentially specializes in generating Carbon Credits by setting up Sequestration plant employing algae as trappers. Our motivation lies in making the carbon emitting plants cleaner by reducing their the atmosphere. The idea of providing incentive for less emission in emission has high a potential of bringing down the reductions. This trading scheme has been implemented in EU in two phases and there has been a decline of 11% in emission which proves its effectiveness. The dumping of emission coming out from the power, steel plants has been one of the major challenges which India faces. Our approach here has been to reduce carbon di oxide by channelizing the emissions into an algae incubator, which uses algae for trapping carbon di oxide. The quantization of trapped by the algae will have two benefits: one, it will help the plants to get rid of their emissions and simultaneously it is going to generate credits in terms of trapped. The plant can trade the credits depending upon the model agreement and generate revenue. The end product of this whole process are two: carbon credits and algae. It is expected that the revenue will be 60%-40% from the two products respectively. The expectations have been justified in the monetary details provided in the Financial Plan. The by product algae, generated from the plant will be traded as a raw material for various businesses which rely on algae as the starting or intermediary component. We are also considering the possibility of mixing algae with the waste and using it as a landfill material in urban areas. We believe in openness and collaboration and yes, we do know that we cannot do it alone. We have taken the role of algae facilitators and kept he platform open for anyone to come and build on our shoulders. Page 5
  6. 6. Credal 1.1. Mission Statement We believe in the fact “make an effort where it hits the most”. Our company aims to reduce the Green House Gases emissions from the globe leaving a cleaner and greener environment for our generations. We work collaboratively to reduce emissions and make it clean. Our focus on technology makes carbon market and environment more integrated. 1.2. Goals and Objectives Sustainability is our ultimate goal. The main revenue source is Dead Algae. We aim to capture the market on a region wise basis starting with a relatively small region and moving onto the bigger consumer regions. The company aims to increase its revenue by developing sustainable and long term business partnerships. The initial break-even point comes in the third year and from there the company has a constant growth driven model. The company aims to work on a constant growth driven model. Increasing the efficiency of the incubator and new designs of incubator are our primary goals. Further after the initial break-even, the company will invest in developing new forms of genetically modified Algae for better efficiencies and customer specific products. The target customer base will be focused upon and accordingly new forms of algae will be developed. The company plans to be an institutional seller of carbon credits in the later growth stages. It aims to participate in Carbon exchanges rather than a retail selling. The ultimate decision relies on Post-Kyoto treaty after 2012. 2. Products and Services The plant consists of various chambers containing algae. The emissions are following the paths provided by the conduits and reach the Incubator. The algae present inside the incubator absorbs the passage of time as it adapts to high present and gradually with the environment, its capacity to absorb rapidly increases. This makes the process more efficient with time as if previously Page 6
  7. 7. Credal 30% of the carbon was getting absorbed then now it is absorbing 80%. Researchers at MIT have confirmed the figures .There is some variation in the amount of with the available sunlight and atmospheric conditions but the efficiency remains more than 50%. 2.1 Incubator Design CAD Model Figure 1: Plant Schematic with major units Figure 2: Algae Incubator- flue gas intake from exhaust chimney Page 7
  8. 8. Credal Figure 3: Inner Sectional View of the Incubator with arrays of Algae beds Figure 4: Inner Sectional View of the Incubator with arrays of Algae beds 2.2 Suppliers The initial supply of Algae will depend on initial business partnership. The company aimsto implement its first incubator at an Indian state Gujarat. The thermal power plant near the city Ahmadabad has high carbon emissions and has sufficient space to develop and implement the incubator there. As a result, initial algae will be purchased from a firm located near the city. The supply chain logistics will be quite simple as the Algae supplier delivers its product outside the state too. It has a high algae supplying capacity and has the potential for supplying for a long period if more algae is required. Page 8
  9. 9. Credal 3. SWOT Analysis Strength  Weakness Highly cost effective method for major  carbon dioxide emitting sectors Improper moderation may lead to algae growth inhibition  Low cost raw material  High upfront costs  No problem of carbon dioxide  High incubator maintenance transportation  Incubator limitations, if power plant  No exploitation of underground operates at full throttle resources unlike existing carbon sequestration techniques  Self- sustaining system  Low infrastructure costs in India  Dead algae, low-cost and eco-friendly method of biomass production  Tested, reliable and simple technology  No change in existing power plant design Opportunities  Threats Kyoto protocol is ending in 2012. The  expected cap is between 10-15%  Regions like Australia, New-Zealand,   attractive  investments. for foreign emitter) might not Presence of international market players India, being a fast growing nation, is quite (biggest comply with any post-Kyoto treaty Mexico, California are starting their pilot trading scheme USA Volatile carbon markets and present low carbon prices  Environmental and human risks associated with toxic and infectious agents involved in algal processes. Page 9
  10. 10. Credal 4. Marketing Plan 4.1 Market Size and Statistics The two products that shall come out of the entire process are the Dead Algae in the form of biomass and the Carbon Credits and hence it is necessary to evaluate the market opportunities for both of them individually. This shall help in making an informed judgement about the growth opportunities for the firm. 4.1.1 Carbon Credits Market: Under the Kyoto Protocol, the 'caps' or quotas for Greenhouse gases for the developed Annex 1 countries are known as Assigned Amounts and are listed in Annex B.[9] The quantity of the initial assigned amount is denominated in individual units, called Assigned amount units (AAUs), each of which represents an allowance to emit one metric tonne of carbon dioxide equivalent, and these are entered into the country's national registry. In turn, these countries set quotas on the emissions of installations run by local business and other organizations, generically termed 'operators'. Each operator has an allowance of credits, where each unit gives the owner the right to emit one metric tonne of carbon dioxide or other equivalent greenhouse gas. Operators that have not used up their quotas can sell their unused allowances as carbon credits, while businesses that are about to exceed their quotas can buy the extra allowances as credits, privately or on the open market. This opened up a completely new market which has grown exponentially in the last decade. Some of the interesting statistics and observations about the Carbon trading Market:  The Carbon markets worldwide grew by 11% in 2011 to reach a net size of $176 billion1.  The transaction volume in terms of CO2 emissions reached 10.3 billion tons.2 1 2 Source: State and Trends of the Carbon market, 2012, World Bank Report Source:State and Trends of the Carbon market, 2012, World bank Report Page 10
  11. 11. Credal  The European Union Allowance volumes increased to a valuation of $148 billion.  The imminent end of the first commitment period of the Kyoto Protocol has brought in a lot of uncertainty in the prices of the Carbon certificates being traded through the exchanges.  Under business as usual projections, the Carbon emission of the world shall reach 56 Gig tons by 2020. Even if all the countries adhere to the Copenhagen Accord the projections stand at 49 Gigatons of CO2 emissions annually.  The projected emission reduction demands for the period 2013-2020 worldwide is between 2156-2706 billion tons of CO2 emission reductions.  The minimum projected demand till 2030 for CER certificates is projected at 8.9 Gigatons of CO2e.3 4.1.2 Algae (Biomass) Market: The biomass market has seen a recent rise because of its increased applications ranging from Biodiesel, organic foods and fertilizer based usages. Some of the interesting statistics about the biomass market are:  The Global biomass market is expected to increase to $693 billion in 2015 from $573 billion in 2011. This corresponds to a CAGR of 3.9%.4  Primary solid biomass use for EU power and heat sector will increase to 146-158 Mtoe5 in 20206.  Bio-energy use will increase by 2.5 times till 2020.  The import requirement for Biomass for the European Union shall stand somewhere between 26-38 Mtoe by 20207. 4.1.3 Algae Market: Algae are grown commercially mainly for being processed into bio-fuels such as ethanol and biodiesel and as neutraceuticals. While the utility of algae in providing a variety of useful compounds has been known for a long time, 3 Source: A Cost Curve for Greenhouse Gas Reduction, Report by McKinsey Source: http://www.environmentalleader.com/2010/09/20/biomass-market-to-hit-693-billion-by-2015/ 5 Mtoe stands for Million tons of oil equivalent 6 Source: Biomass 2020: Opportunities, Challenges and Solutions, Report by Eurelectric. 7 Source: Biomass 2020: Opportunities, Challenges and Solutions, Report by Eurelectric 4 Page 11
  12. 12. Credal appreciation for algae as a major fuel source is a recent phenomenon. In particular, variations in the environmental culture conditions such as nutrient supply, length of growth period and speed of operation can influence the biomolecular diversity of algal biomass. Notably, while the lipid and carbohydrate content of algae vary widely across different species, they can both be converted into forms that can be used as fuels. Nevertheless, nutrition and health products continue to dominate the algae market and there are no commercial algae plants operating with the consistent purpose of producing bio-fuel. For prominent market players, see section 6.4. The market for algae as a source material is extraordinary considering the targeted annual processing of million tonnes or more of algae for most of the companies listed in section 6.4. The market is still in its nascent stages considering rapid technological developments pertaining to bio-fuel and biodiesel refining from algal species. A conservative estimate of the relevant algae market based on algal strain used, in terms of compatibility with existing industries, is pegged at 1 -5 million tonnes annually. The vast majority of current enterprises focus on the ability to process algae into fuels that can compete with traditional petroleum and other fossil fuels. Thus, to an extent a steep growth in the algae market especially in the context of bio-fuels has been restricted by the price of petroleum. This is likely to change in the recent future due to expansion of operations of the major players as well as increased use of algal strains as feedstock and neutraceuticals. 4.2 Target Customers The product being presented is a B2B product and hence the customers are more like partners who shall have a longer time horizon of partnership. These customers in principle can be anyone who wants to buy carbon credits or algae. However the following sectors shall be primary targets for the products:  Cement Industry: Cement manufacturing releases CO2 in the atmosphere both directly when calcium carbonate is heated, producing lime and carbon dioxide, and also indirectly through the use of energy if its production involves the emission of CO2. The cement industry produces about 5% of global man-made CO2 emissions, of which 50% is from the Page 12
  13. 13. Credal chemical process, and 40% from burning fuel. The amount of CO2 emitted by the cement industry is nearly 900 kg of CO2 for every 1000 kg of cement produced. With the increasing stringent impositions on pollution control, the cement industry can be targeted as a major customer for the sale of Carbon Credits.  Steel Industry: Today, the world steel industry accounts for between4 % and 5 % of total man-made greenhouse gases. The average CO2 intensity for the steel industry is 1,9 tons ofCO2 per ton of steel produced. Taking into consideration the global steel production of more than 1,3 billion tons, the steel industry produces over two billion tons of CO2.Over 90 % of emissions from the steel industry come from iron production in nine countries or regions: Brazil, China, EU-27, India, Japan, Korea, Russia, Ukraine, and the USA.  Thermal Power Plants: Thermal power plants are a primary contributor to the total greenhouse gas emissions worldwide. Among the thermal power plants, coal combustion results in greater amounts of carbon dioxide emissions per unit of electricity generated (2249 lbs/MWh) while oil produces less (1672 lb/(MW·h)) and natural gas produces the least 1135 lb/(MW·h). According to a report published in 2008, out of the total 28 Gigatons of CO 2 generated worldwide, 8 Gigatons was contributed by Coal based thermal power plants. Cost of reducing CO2 emissions by a ton is estimated to be $25 to $30 and hence Carbon Credit shall be a favourable option for the industry to undertake.  Financial Banks: The growth in Carbon trading as a commodity has promoted the financial banks across the world to take significant positions in the market. These banks deal with the Future trading of Carbon Credits where they are made to deliver credits at the end of the fixed time period. The high fluctuations and short time horizon provide opportunities of earning more for each carbon credit sold to investment firms or brokerages.  Public Transportation Systems: Public transportation Systems form a major component of voluntary Carbon offsets. These are generally government owned and shall act as potential buyers of Carbon Credits.  Organic Food Industry: The organic food industry has seen a dramatic rise in the last few years primarily because of the growing concern among Page 13
  14. 14. Credal people on the harmful effect of the use of fertilisers and pesticides in crop production. Algae biomass shall have huge applications in this industry.  Organic Fertilizers: Organic fertilizers have seen wide adoption because of the growing understanding among farmers about the long term problems created by Chemical Fertilizers.  Bio-diesel plants: Algae has seen industry wide adoption in Biodiesel production which is increasingly being tried and tested for the power generation and transportation purposes. This makes biodiesel plants a potential customer for the firm. 4.4 Prospective Partners The partners for the firm shall have the major role of providing the Carbon emission that shall be used by the microalgae to multiply itself. In principle any carbon emitting industry shall be potential partner for Credal. However, based on the carbon emissions of different industries, the following can be highlighted as the priority for partnering:  Thermal Power plants  Cement Industry  Steel Industry 4.5 Existing Market Players About 70 companies worldwide manufacture specific algal species for the neutraceutical industry. Prominent among these are the Taiwan Chlorella Manufacturing Company which produces nearly 400 tonnes of dry algal biomass per year. In India, the algae Spirulina is widely produced in total amounts of close to 300 tonnes annually. Spirulina production and use has been widely promoted especially in southern states as a sustainable for of rural agro-economic development. Dabur and EID Parry are major producers of the algae in India. The global demand of Spirulina alone is estimated at 5000 tonnes annually only half of which is met currently. In addition to the growing market of food and health products from algal sources, several companies worldwide have begun start-up or pilot scale projects towards using algae for biofuel production. Prominent among these is Algenol Biofuels, that Page 14
  15. 15. Credal uses cyanobacteria (species of blue-green algae) to prepare ethanol which can be easily separated from the culture medium. Algenol Biofuels is currently at the pilotscale and is working in collaboration with the Dow Chemical Company, National Renewable Energy Company and Georgia Institute of Technology. Sapphire Energy is a start-up venture based in New Mexico and is engaged in the production of biodiesel from algae. Hawaii-based Cellana was previously prominent in feedstocks and personal care products and has diversified into algae-bio-fuel production utilizing industrial emissions of CO2. Solazyme specializes in algae-based jet-fuel production. The US Navy purchased 150,000 gallons of the jet fuel at a total cost of $10 million. Arizona based Heliae Development, LLC is involved in development of multiple algal strains and products that are ultimately refined into jet fuel. There are a lot of existing carbon brokers and wholesalers in USA and a few in India. The potential market competitors to our firm are: AtmosClear Climate Club:- It is a USA based for-profit organization providing carbon offsets to individuals and institutions. Consumers become an AtmosClear Climate Club member by purchasing credits in blocks of 1, 3, 6, 12 and 25 tons. Buyers of these credits are provided with special deals from sponsors of the program such as ski resorts. Offset projects include methane trapping and renewable energy projects. They have invested at the Des Plaines Landfill based northwest of Chicago, Illinois and have third party verification by Environmental Resources trust. They charge a carbon price varying from US $3-$25 per ton of CO2.  Atmosfair:- It is a Germany based for profit organization which provides offsets for GHG created by air travel. Passengers can determine their travel emission online through Atmosfair’s online calculator and then purchase credits from them. The company invests in Gold standard CDM certified climate protection projects. They have invested in electricity generation from waste, projects in University of Rio (Brazil), solar heaters for kitchen at schools, hospitals and temples in India and electricity projects in South Africa. Under the CDM mechanism these projects are carried out according to Kyoto rules and are monitored by UN accredited technical organization. Page 15
  16. 16. Credal  The Climate Trust:- The Climate Trust is a US based not-for-profit organization investing in emission reduction projects on behalf of businesses, individuals and organizations. It is one of the largest offset buyers in USA. The company invests in renewable energy, carbon sequestration, cogeneration, material substitution and transport efficiency projects. It manages the projects for over lifetime and retires credits on behalf of emitters. Generated credits are exclusively owned by the company. It has invested in Oregon Paper plant, wind farms in Oregon and Washington etc.. It has offset 4.5 million tCO2 till date. The average price range of the credit is US $6-$10 per ton of CO2 .  Terrapass:-It is a US based offering motorists a way to offer their car emissions through the purchase of emission offsets. It works with wholesalers and CCX to purchase credits and invests in GHG abatement projects. Uniquely it publishes its transaction history online. It is certified by the organization Green-e. It has offset 12000-15000 tCO2 till date. The average price band of carbon credits is US $9-$12. Although none of the above market players are involved in algae production but they are solely into carbon management business. The above mentioned organizations are some of the biggest carbon credits producers and sellers. 4.6 Pricing Strategy The pricing strategy of a product is critical to its success. The product being mentioned here is a B2B product which implies that pricing shall be a major component of the marketing strategy. The Dead Mass produced from the processes shall have a fixed pricing structure which shall be in sync with the market price for each ton of biomass. However, the Carbon Credit pricing can have two possible structures because of the possibility of Customer and raw material (carbon emission) provider being the same. The following are the two possible partnering structures: I. The first type of partnership will involve our company and the firm providing carbon dioxide, as raw material, are the only stakeholders. Here the firm providing emissions will be the same who will be using the credits generated Page 16
  17. 17. Credal and hence we will charge a carbon credit price of approximately $11 for the service we are offering. II. The second type of partnership will involve our company, the emission provider and the credit purchaser. Here we will charge a carbon credit price of $ 15-20 (approx.) to the third party and the emission provider will be given $5 (approx.) per ton of emission supply. Note:- The carbon credit prices mentioned above are highly subjected to the prevailing market prices of credits at the concerned time and volumes of purchase and hence will be modified accordingly. 4.7 Initial Marketing Strategy 4.7.1. Web advertising (Google Ad sense) The initial web presence will be communicated using the Google advertising platform. It will help us target the potential partners and consumers. 4.7.2. Approaching power plant through presentations and seminars Approaching thermal power plants locally and offering joint partnerships. This would be in terms of presentations and meetings. 4.7.3. Initiating partnerships with major players in this field Approaching the existing players and persuading partnerships on regional basis. Here we will approach different state governments for developing initial partnerships with various state government ruled bodies. 4.7.4. Inviting Universities Environmental and energy department to partner with us. Making our presence among the Universities and reaching out to the academia. Company will provide internships for students and long term relationships will be developed for promoting research in this field helpful to the company. In the later stages we could sponsor some of the PHD positions in the universities. These positions would be focussed on the financial aspects of the environmental engineering. Page 17
  18. 18. Credal 4.7.5. Presence in environmental conference Conferences will provide us a platform to reach the interested group of people and land for partners. 4.7.6. Floating a few ads in Business media (If budget permits) A short commercial making our case could be floated in media. 5. Opportunity Estimation8 The opportunity size for the firm shall vary significantly with the growth of CO2 abatement ways that come up for the major Carbon emitting industries. Hence, it becomes necessary to estimate the market left for the product after taking in consideration these factors. An interesting insight about this was made in a report published by McKinsey in 2007.The report discusses the cost curve for the Greenhouse Gases reduction for various industries. It makes projects trends till 2030 and predicts the Global CO2 emissions to be 26.7 Gigatons in 2030. The report further goes onto prove that 70% of these reductions shall be met by cost effective ways where each ton of CO2 emission reduction shall have a marginal cost of less than 40 Euro. The rest 30% shall act as the worst case market opportunity for the firm which comes out to around 8.9 Gigatons per year in emissions. 6. Plant Operational Plan The incubator is fed with the emissions coming out of the power plants. Suction pumps placed at the bottom of the incubator are used for sucking the emission inside the incubator. These pumps create a vacuum at the bottom which helps in circulating the emission through the central conduit. The incubator has algae plant beds which are placed at vertical positions. The emitted gases are captured by the algae when passed through them. The efficiency of capture depends upon the algae being used and the duration of the daytime. The incubator has been designed while keeping in mind the sunlight requirements of algae. A transparent borosilicate glass has been used of making the top of the chimney for facilitating the sunlight to come in. Inside the incubators, reflectors have been used to for spreading the sunlight across the algae beds. Each algae beds or 8 Source: A Cost Curve for Greenhouse Gas Reduction, Report by McKinsey Page 18
  19. 19. Credal pond has a capacity of 5000 litres and has 250 kg of algae (Taking 50g of algae per litre of water). The overall estimated size of the incubator is 3,200,000 litres and contains 13.5 tonnes of algae at one go. The expected cost of the setup comes somewhere around 3 Crores. The incubator will be placed somewhere near the chimney and exhaust pipes from the chimney would be connecting the plant to the incubator. The algae is getting doubled in a time duration of 7-8 hrs. Meanwhile a sufficient amount of algae is maintained inside the incubator so that the incubator could effectively reduce the emissions. The doubled algae will be carefully taken out from the incubator after 48 hrs on a regular basis. Part of the algae would be kept in ponds for their renewable after 48 hrs. The batch of algae taken out will be used for selling to other industries which primarily uses the algae as the raw material. The plant has conduits which are connected to each of the algae beds for supplying water. The algae which have been exposed to the emissions are automatically taken out from the incubator and loaded on the connected train trolleys. The whole process of loading is automatic and does not involve any human intervention. We will be using Programming Logic Controllers for making the system work automatically. After every 48 hrs the existing batch of algae present in algae beds is lowered and the algae present in it gets transferred to the trolleys. In a similar fashion, the new batch of algae is spread onto it which is followed by immersing it in water and then moving it to their respective places. The number of algae beds filled will be depending upon the emission coming in, which would directly be depending upon the capacity at which the plant is operating. The excess algae are taken out and 10% of it is converted in to dry biomass by keeping it isolated from the sunlight. The rest if the algae which is fairly rich in fat content could be possibly employed for making algae oil, biodiesel and could also be consumed (verify). For scaling the incubator capacity, a number of similar incubators could be connected in parallel and these together would be performing the same function as a standalone incubator. Page 19
  20. 20. Credal 7. Management and Organization Structure The company’s management shall be divided into three different sections viz: the Operations Division, the R&D cell and the Financial Section. Each of these shall be headed by one individual and the three of them shall report to the Chief Executive Officer of the company. The heads of the three divisions shall be called Chief Operations Officer, Chief Technology Officer and the Chief Financial Officer. The function and role of each of the divisions and their leads is mentioned below: CEO: Ravi Agarwal, Mechanical Engineering, IIT Gandhinagar He is passionate about working in Carbon markets and his intern at IIM Ahmedabad introduced and gave him a broader perspective about carbon finance. He believes, Economics to be a major market driving force which could generate momentum in pushing reforms for climate change. He has held several managerial positions in the college which has made him familiar with the intricacies of the job and made him suitable for the role of CEO. Ravi plans to take up an MBA after completion of his undergraduate studies. The experience gained through this venture would facilitate him in understanding the challenges associated with the job. Operations Division (COO): Saurya Prakash Sinha, Electrical Engineering, IIT Gandhinagar He has been a connection between the management and the technical division. He has been a part of student team that implemented a nationwide database for fire incident data reporting. He has persuaded and convinced several national and international organisations for collaborations on the same. He is also an adept programmer and electronics enthusiast. In his most recent role he designed high efficiency converters for ISRO Chandrayaan II mission. His previous roles have facilitated him to have a sound understanding of technical and managerial aspects. This helps him in communicating the ideas effectively. Along with it, he brings with him expertise in project planning and project implementation. Saurya, wants to go for Masters’ in the field of Energy management. He believes his role in the organisation would give him a better understanding of the climate change and potential solutions. Page 20
  21. 21. Credal Research & Development (CTO) : Dipesh Dayama, Mechanical Engineering, IIT Gandhinagar During his bachelor’s degree program in mechanical engineering, he has been involved in projects which have had various elements of design – be it space applications, agricultural /farm equipment to designing a controller for finger dynamics. During his recent intern he has designed Optical Fractals for the ISRO Mars mission. He feels this has enabled him to have an appetite for design and optimization linked work, which is always increasing. The relevant experience and practise he looks forward to employ in this start-up wherein he majorly handling the incubator designs. Dipesh, wants to go for Masters in the field of Computer Design Modelling and he believes that his current role would facilitate him get a better understanding of design aspects and practical challenges. Financial Division (CFO) : Tarkeshwar Singh, Electrical Engineering, IIT Gandhinagar He is passionate about finance. Credal has the potential to become the biggest carbon credit and biomass company in India because of scalability and the simplicity of the technology being used. He expects Credal to integrate itself with at least 3040% of the Coal based power plants in India in five years. It’s a challenging goal but he believes the challenge to help grow ourselves and optimize our resources well. He has a significant interest in creation of new businesses. He has worked on product launches in the web space, but he believes that the general learning from these can be applied to any industry. He has been involved in the alpha launch of two such products: BookSnap and RVS Open APIs. He was the part of the launch team of both the projects while working with Ricoh Innovations and currently both the products are being modified for a nationwide beta launch. Tarkeshwar, would be taking up Finances and will go for an MBA in future. His role in the firm would be instrumental in making him better with numbers. Page 21
  22. 22. Credal Advisors: Prof. Bhaskar Dutta Ph.D.: Carnegie Mellon University, Pittsburgh, 2004 Email: bdatta @iitgn.ac.in Phone: +91-2397 2324 Fax: +91-79-2397 2622 http://www.iitgn.ac.in/faculty/chemistry/bhaskar.htm Prof. Vimal Mishra Ph. D.: Purdue University, West Lafayette, USA, 2010 Email: vmishra@iitgn.ac.in http://www.iitgn.ac.in/faculty/civil/vimal.htm 8. Start-up Expenses Having a detailed list of start-up expenses is essential to the launch of any new venture. The major costs involved with the firm apart from the registration costs for the firm, shall be the fixed capital costs involved with the first project. The fixed capital requirements assuming a plant size of 50 Mw based on the designs proposed in the plan approximately sums to around $12 million. 9. Financial Projections Assumptions:  Coal based power plant size: 50 MW  CO2 per MWh = 900 kg  Algae Reproduction time: 8-12 hrs.(10 hrs taken as average)  Time taken for development of a fully developed culture: 48 hrs  CO2 conversion rate: 50%  CO2 Algae Conversion Rate: 1.5-2 Kg CO2 converts to 1 kg of Algae  Dead Mass Ratio for Algae: 10%  Extra Algae is removed from plant every 48hrs  Algae Cost Price in the market: $2.66  Biomass Sales price: $150  Carbon Credit Price= $10.8  Product generated at the end of the day:  Carbon Credits(ton CO2e): 450  Biomass produced: 225 ton Page 22
  23. 23. Credal 9.1 Financial Results: The detailed financial results are provided in the Financial Plan. 9.2 Internal Rate of Return: The internal rate of return assuming a four year life for the project is 19%. 9.3 Payback period: The discount rate adjusted payback period turns out to be approximately 2.8 years. 9.4 Funding Requirements: The initial funding required to get the plant started and set up shall be acquired through a bank loan and the funding in the form of capital investment. The distribution of the two shall approximately be in the ratio of 3:1. 10. Sustainability impact Sustainability: Short term and long term impacts The global thirst for energy is an ever-increasing reminder of the need to achieve sustainable solutions in energy production and consumption. Factors that complicate efforts in this realm arise from the need to balance the genuine requirements of higher gross domestic product for emerging economies with the use of methods that are efficient but not cost-prohibitive for such economies. In particular, the total energy consumption of all emerging economies combined (including India and China) is expected to surpass that of the mature market economies (US, Canada and Western Europe) within the next 3-5 years. Notably, the per capita energy consumption in India is still one of the lowest among all the major world economies. In this context, a greater use of fossil fuels especially coal in thermal power plant operation, will find great political and economic support from relevant quarters in the short term. However, given the associated problem of greenhouse gas (GHG) emissions, a spurt in coal-based power generation is sure to create long-term issues, unless those are tackled at the outset. Significant improvements have already been made towards using cleaner coal thereby reducing the release of harmful pollutants into the atmosphere. Nevertheless, more efficient coal-usage does not alter the course of significant amounts of CO2 emissions from taking place. Imposition of fines or caps on excess emitting units may only increase the burden on the consumer Page 23
  24. 24. Credal without bringing down the gross emissions. It is in this unique context, that the proposed strategy is expected to benefit coal-powered power generation without being detrimental to the environment or being cost-prohibitive. The major short term impact of the use of algal-mediated CO2 fixation, is to expose the marketplace to a newer model of conventional power generation. The most attractive aspect of the proposed strategy is that it does not require significant alterations in coal-based power generations. On the contrary, the proposed strategy offers a syncretic platform where the power companies can reap benefits from lowering their GHG emissions and from carbon credits trading. The short term impact will also be significant in the algal-mediated method being used effectively as a breeder-reactor to produce more raw materials for other such ventures. While the use of algae for CO2 fixation is a relatively recent development, it has been largely uncoupled from using CO2 directly from emission sources. Both the short-term and long-term impacts of the proposed strategy highlight the multiple beneficiaries involved in the operation and therefore indicate the overall sustainability of the venture. By providing an incentive of benefit from operation, the proposed strategy draws in multiple stakeholders on a fundamental level and is therefore a more holistic approach towards sustainable energy production. Benefits: The specific benefits of the proposed strategy can be demarcated as those applicable to power generating units, consumers, downstream processes and industries, the environment, and to partners and investors. The principle benefit to coal-based power plants forming an integral part of the proposed strategy, is to be able to reduce their emissions without either altering their own infrastructure significantly. The reduced emissions of CO 2 from such participating plants easily lends them a tag of Green or at least ”Greener” energy compared to those that do not. With the suggested mechanism of claiming and trading credits for the lowered emissions, the power companies are provided with a method of increasing revenue sources. The monetary benefits received by the power company could be further shared with energy consumers ultimately increasing the profitability of the entire operation. An attractive feature of the proposed strategy is that it is not reliant on an all-or-none approach. It is recognized that the efficiency of Page 24
  25. 25. Credal CO2 fixation will need to be optimized on a relatively smaller scale, before a full blown conversion is tried out. Also, changes in the efficiency of operation over time could influence the multiple critical partnerships being forged through this venture. It is thus safe to believe that the power companies will be able to grow to the extent desirable and appropriate within a certain efficiency that is achieved. Finally, one very important benefit that is tied in with the lowering of emissions, has to do with the possibly changing the perception of thermal power plants being generally detrimental to human health. Coal-based power plants that operate as part of the proposed strategy could therefore find increased acceptance in political circles, which could ultimately lead to larger energy production. The environment is most-benefited by the proposed strategy by reducing the active GHG emissions in the form of CO2 released from thermal power plants. Previous approaches towards actively reducing CO2 in the atmosphere have explored the idea of sequestering ambient CO2 inside the earth’s surface. However, apart from the costs involved, limitations abound in terms of efficiently liquefying large amounts of CO2 followed by injection into the earth. In addition, the geophysical consequences of such sequestration are not fully understood. The environment is also benefited by the use of algae that are produced in larger amounts upon growth in the incubation wells. The algae can be used as effective adsorption agents in landfills and for other types of waste management. Finally, the high organic content of the algae can be made use of as fertilizers for growing regular crops and plants. In addition to completing the chain of symbiotic associations inherent in the proposed strategy, this use benefits from being a completely non-synthetic form of soil and crop nourishment. Energy consumers can expect to benefit by way of reduced prices for a cleaner form of energy. Apart from the monetary incentives, consumers will appreciate cleaner air and environment in the vicinity of power plants. A change in perception of the form of energy being produced by the coal-based power plants participating in the proposed strategy could open up possibilities of land development and use surrounding the plants in a manner that cannot be justified at the present time. The proposed strategy offers substantial benefits to partners and investors, in the form of a huge untapped market that is bound to increase with obvious rise in energy Page 25
  26. 26. Credal demand. In particular, partners may earn more than just monetarily, as the proposed platform is suitable for multiple other innovations that can be introduced. For example, a partnering unit may use the algae purchased from this venture for landfilling operations at a particular site and subsequently setup of cement plant that uses very similar algal-CO2 trapping infrastructure. The large untapped market at the early part of this venture is bound to benefit partners who are interested in using the algae as a raw material and would be able to purchase it at a cheaper price. Finally, investors will be benefited by clear financial incentives inherent in the large untapped credits market. In addition, the proposed strategy attempts to optimize the infrastructure and component assets in a fashion that limits their cost to within a reasonable liability range. Also, the ability to invest in a venture that promotes green energy would be a strong incentive and could provide the investors with a unique and underexplored investment niche. Page 26
  27. 27. Credal 11. Financial Plan 11.1 Income Statement Revenue from Dead Mass sales Revenue from Partner Firm Net Revenue $ 1,02,65,625 $ 18,13,135 $ 1,20,78,760 Expenditures Plant Operation Costs $ 42,27,566 $ 14,40,000 Net Expenses $ 72,52,542 50 0.5 $ 15,84,976 Admininstrative and Operating Costs(35% of revenue) Interest on Loan 25% Assumptions: Power plant Size(MW) CO2 Conversion Rate CO2 emission rate(Kg per Mwh) Profits: $ 48,26,219 900 Initital Algae Requirement(in Kgs) Algae Reproduction time(in hrs) Algae Purcahsing Cost(per Kg) Dead Material Selling price(per ton) Cabon Credit Price 225000 10 $ 2.6 $ 125.0 $ 11.0 Per day dead Mass production in tons Carbon Credit Credit Genrated per day 225 450 Page 27
  28. 28. Credal 11.2 Costs Capital Costs Percentage of Fixed Costs 15% Per Module Cost Number of modules needed Land Cost Algae Supply Incubator Costs $ $ 12,21,091 5,85,000 Chimney Construction Cost Algae Containers $ $ 40,16,454 56,000 $ $ 2,86,890 4,000 14 14 Pipes, including connectors, valves, etc Intake mechanism for CO2 $ $ 28,000 2,80,000 $ $ 2,000 20,000 14 14 $ 8,40,000 $ 60,000 14 $ $ $ 3,00,000 8,14,061 81,40,605 $ $ $ $ $ $ $ $ 89,547 1,05,828 4,07,030 5,04,718 1,70,953 1,62,812 1,44,089 15,84,976 Water tank(including pupms etc) Carbon Destruction Projects Application Cost Administrative overhead Total Fixed Cost 10% Operational Costs Nutrient Supply Flocculants Maintenance Labor and Overheads Waste Disposal Water Costs Overhead(@ 10%) Total Operatopnal Costs 1.10% 1.30% 5.00% 6.20% 2.10% 2.00% Page 28
  29. 29. Credal 11.3 Cash-flows Assumptions: 6 months payment Cycle for Biomass and Carbon Credit Sales 3 months payment cycle for the costs Loan taken for 3 years and the payment is made in two equal installments in the later two years Cash Flow projections for First year Sources of Cash Revenue $ 60,39,380 Uses of Cash Operating Costs Initial Costs $ 54,39,406 $ 81,40,605 Total Cash Balance Minimum Cash Balance needed $ -80,40,631 Surplus(Deficit) Cash $ -85,40,631 Initial Capital Loan Amount $ 36,00,000 $ 96,00,000 $ 5,00,000 Internal Rate of Return Payback Period NPV: Net Profit Margin: 19% 2.8 yrs $ 4,09,449 40% Discounted Cash Flows(@ 15%) Cashflows for IRR Calculation: 1st $ Year 80,40,631 $ -80,40,631 2nd $ $ year 51,85,587 45,09,206 3rd $ $ Year 52,11,806 39,40,874 NPV= $ 4,09,449 Cash Flow projections for Second Year Sources of Cash Revenue Cash Balance C/F Uses of Cash Operating Costs Loan Amount Payment Total Cash Balance Minimum Cash Balance needed $ 1,20,78,760 $ 51,59,369 $ 72,52,542 $ 48,00,000 $ 51,85,587 $ 5,00,000 Page 29
  30. 30. Credal Surplus(Deficit) Cash $ 46,85,587 Cash Flow projections for Third Year Sources of Cash Revenue Cash Balance C/F Uses of Cash Operating Costs Loan Amount Payment Total Cash Balance Minimum Cash Balance needed Surplus(Deficit) Cash $ 1,20,78,760 $ 51,85,587 $ 72,52,542 $ 48,00,000 $ 52,11,806 $ 5,00,000 $ 47,11,806 Page 30
  31. 31. Credal 11.4 Cost Estimation for Plant Cost Estimation for STEEL Stack Steel Stack Dimensions in feet Stack Height 90 Stack Diameter 40 Stack Thickness (AverageAssumed) Note: Average thickness of steel stack assumed as 15 mm Sr. No. Particulars 1 Steel Plate Volume Steel Plate Density 7.865 tonne/cubic meter 3 Steel Plate Material including its Fabrication 4 Foundation 5 Design Consultancy & supervision charges 6 Contingency 7 0.0150 15.761 cubic meter 2 in meters 27.439 12.195 Sub-total (1 to 6) Quantity 123.958 Tonnes Rate Amount($ ) $2,000 (Material plus Fabrication cost) $2,47,916 @7% of (3) $17,354 @5% of (3+4) $13,264 @3% of (3+4+5) $8,356 $2,86,890 Estimated cost of the stack will be about $300 thousand + 20%. Page 31