Credal

Page 1

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

Indian Institute of Technology

Gandhinagar

Making Power Greener

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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

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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 CO2 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 $

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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.

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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 emission in

the atmosphere. The idea of providing incentive for less 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.

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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 present and gradually with the

passage of time as it adapts to high environment, its capacity to absorb

rapidly increases. This makes the process more efficient with time as if previously

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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

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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.

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3. SWOT Analysis

Strength Weakness

Highly cost effective method for major

carbon dioxide emitting sectors

Low cost raw material

No problem of carbon dioxide

transportation

No exploitation of underground

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

Improper moderation may lead to

algae growth inhibition

High upfront costs

High incubator maintenance

Incubator limitations, if power plant

operates at full throttle

Opportunities Threats

Kyoto protocol is ending in 2012. The

expected cap is between 10-15%

Regions like Australia, New-Zealand,

Mexico, California are starting their

pilot trading scheme

India, being a fast growing nation, is

quite attractive for foreign

investments.

USA (biggest emitter) might not

comply with any post-Kyoto treaty

Presence of international market

players

Volatile carbon markets and present

low carbon prices

Environmental and human risks

associated with toxic and infectious

agents involved in algal processes.

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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

1Source: State and Trends of the Carbon market, 2012, World Bank Report

2Source:State and Trends of the Carbon market, 2012, World bank Report

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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,

3Source: A Cost Curve for Greenhouse Gas Reduction, Report by McKinsey 4Source: http://www.environmentalleader.com/2010/09/20/biomass-market-to-hit-693-billion-by-2015/ 5Mtoe stands for Million tons of oil equivalent 6Source: Biomass 2020: Opportunities, Challenges and Solutions, Report by Eurelectric. 7Source: Biomass 2020: Opportunities, Challenges and Solutions, Report by Eurelectric

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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 bio-

molecular 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

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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 CO2

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

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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

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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 pilot-

scale 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 bio-

diesel 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.

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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

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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.

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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

8Source: A Cost Curve for Greenhouse Gas Reduction, Report by McKinsey

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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.

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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.

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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 30-

40% 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.

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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

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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

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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 CO2 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

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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

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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.

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11. Financial Plan

11.1 Income Statement

Revenue from Dead Mass sales $ 1,02,65,625 Revenue from Partner Firm $ 18,13,135 25% Assumptions:

Net Revenue $ 1,20,78,760

Power plant Size(MW) 50

CO2 Conversion Rate 0.5

Expenditures

CO2 emission rate(Kg per Mwh) 900

Plant Operation Costs $ 15,84,976 Admininstrative and Operating

Costs(35% of revenue) $ 42,27,566 Interest on Loan $ 14,40,000

Net Expenses $ 72,52,542

Initital Algae Requirement(in Kgs) 225000

Algae Reproduction time(in hrs) 10

Profits: $ 48,26,219

Algae Purcahsing Cost(per Kg) $ 2.6

Dead Material Selling price(per ton) $ 125.0

Cabon Credit Price $ 11.0

Per day dead Mass production in tons 225

Carbon Credit Credit Genrated per day 450

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11.2 Costs

Capital Costs

Percentage of Fixed Costs

Per Module Cost

Number of modules needed

Land Cost $ 12,21,091 15%

Algae Supply $ 5,85,000

Incubator Costs

Chimney Construction Cost $ 40,16,454

$ 2,86,890 14

Algae Containers $ 56,000

$ 4,000 14

Pipes, including connectors, valves, etc $ 28,000

$ 2,000 14

Intake mechanism for CO2 $ 2,80,000

$ 20,000 14

Water tank(including pupms etc) $ 8,40,000

$ 60,000 14

Carbon Destruction Projects Application Cost $ 3,00,000

Administrative overhead $ 8,14,061 10%

Total Fixed Cost $ 81,40,605

Operational Costs

Nutrient Supply $ 89,547 1.10%

Flocculants $ 1,05,828 1.30%

Maintenance $ 4,07,030 5.00%

Labor and Overheads $ 5,04,718 6.20%

Waste Disposal $ 1,70,953 2.10%

Water Costs $ 1,62,812 2.00%

Overhead(@ 10%) $ 1,44,089

Total Operatopnal Costs $ 15,84,976

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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 $ 54,39,406

Initial Costs $ 81,40,605

Total Cash Balance $ -80,40,631

Internal Rate of Return 19%

Cashflows for IRR Calculation:

Discounted Cash Flows(@ 15%)

Minimum Cash Balance needed $ 5,00,000

Payback Period 2.8 yrs

1st Year

$ -80,40,631 $ -80,40,631

Surplus(Deficit) Cash $ -85,40,631

NPV: $ 4,09,449

2nd year

$ 51,85,587

$ 45,09,206

Initial Capital $ 36,00,000

Net Profit Margin: 40%

3rd Year

$ 52,11,806

$ 39,40,874

Loan Amount $ 96,00,000

NPV= $ 4,09,449

Cash Flow projections for Second Year

Sources of Cash Revenue $ 1,20,78,760

Cash Balance C/F $ 51,59,369

Uses of Cash Operating Costs $ 72,52,542

Loan Amount Payment $ 48,00,000

Total Cash Balance $ 51,85,587 Minimum Cash

Balance needed $ 5,00,000

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Surplus(Deficit) Cash $ 46,85,587

Cash Flow projections for Third Year

Sources of Cash Revenue $ 1,20,78,760

Cash Balance C/F $ 51,85,587

Uses of Cash Operating Costs $ 72,52,542

Loan Amount Payment $ 48,00,000

Total Cash Balance $ 52,11,806 Minimum Cash

Balance needed $ 5,00,000 Surplus(Deficit) Cash $ 47,11,806

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11.4 Cost Estimation for Plant

Cost Estimation for STEEL Stack

Steel Stack Dimensions in feet in meters

Stack Height 90 27.439

Stack Diameter 40 12.195

Stack Thickness (Average-Assumed) 0.0150

Note: Average thickness of steel stack assumed as 15 mm

Sr. No. Particulars Quantity Rate

Amount($)

1 Steel Plate Volume 15.761

cubic meter

2 Steel Plate Density 7.865

tonne/cubic meter

3 Steel Plate Material including 123.958 $2,000 $2,47,916

its Fabrication Tonnes (Material plus

Fabrication cost)

4 Foundation

@7% of (3) $17,354

5 Design Consultancy

@5% of (3+4) $13,264

& supervision charges

6 Contingency

@3% of (3+4+5) $8,356

7 Sub-total (1 to 6) $2,86,890

Estimated cost of the stack will be about $300 thousand + 20%.