ASSIGNMENT 2: BUSINESS MODELS...ASSIGNMENT 2: BUSINESS MODELS ASSIGNMENT OVERVIEW In this assignment, you will define the business model for your chosen energy project in the agriculture

ASSIGNMENT 2: BUSINESS MODELS ASSIGNMENT OVERVIEW In this assignment, you will define the business model for your chosen energy project in the agriculture sector and apply three important methods of capital budgeting. The main goal is to develop a specific business model for a realistic project in a location of your choice, considering the parameters suitable to the local requirements. Please follow the subsequent steps:

1. Carry out this assignment in a group of about ten people. If you are not in a team yet or if you have problems to find a team, our tutors will help you.

2. (new) The group leaders will be sent the submission link, and only they have to submit

the final document. Please make sure to mention all contributing team member in the documents.

3. In addition to submitting your team-assignment, reading of and commenting on two of your peer’s submissions is obligatory in order to earn the ‘Assignment 2 Badges’.

After you submitted and the peer review is ongoing, work is to be done on our end:

4. Afterwards, the course instructor will review your report and evaluate it for its eligibility to obtain the badge.

5. Also, the instructor will upload a summarized common feedback to this assignment, addressing the relevant issues observed in different group reports.

6. The Assignment 2 Badges will be awarded to the participants who passed the course instructor’s check and have reviewed at least 2 fellow groups’ assignments.

In order to simplify the review process, you need to follow the below given structure for your report (chapter 1 to chapter 6). You can use this template simply by writing your input in the required fields. Please note that the deadline for uploading this assignment is the 20th of March. Please note that the last day to complete the peer review is the 25th of March. Additional information In the assignment of week 2 you were asked to calculate the required PV panel size for a solar powered irrigation system (SPIS). This week’s task is to develop an appropriated business model either for the SPIS project that you already planned last time or for another agro-energy project of your choice in the context of this week’s contents.

POWERING AG MOOC | TEPMLATE FOR ASSIGNMENT TWO 2

LEADERSHIP TRACK UNIT 01 2014 04 14 2

In the next paragraph some information about possible revenue and cost items of a SPIS is given. For a small-scale gasifier, a biogas plant or a solar dryer you can find similar information in this week’s reader. Please take into account that these lists are not complete and are meant only as guidelines. Making a similar list of revenue and cost points can help you to answer the questions of this assignment. In general SPIS have relatively high initial costs, but no fuel costs and low maintenance costs (due to few moving parts, only cleaning of panels and regular check of pump and controller). By distributing the costs over the life time of such a system and by taking into account the possible revenue, you can calculate the financial viability. The possibilities for gaining revenue with the SPIS are: - If you are currently using no or an inadequate irrigation system, implementing a SPIS could

increase your harvest and this raises your profit. - If you are currently using a fuel-driven irrigation system, you have the avoided payment for the

fuel as indirect revenue. - Depending on your business model, you can generate additional revenue by supplying water to

the fields of your neighbours if you agree upon a monthly fee beforehand. In the long run, SPIS can be a cost-efficient alternative to fuel-driven systems. For a better comparison of the costs for such scheme with your currently operating irrigation scheme, calculate the costs per cubic meter of water for both schemes for a longer time period, for instance 5 or 10 years. Sum up the costs (initial cost, fuel cost, cost for fuel deliveries/refilling, maintenance and repair costs, etc. taking price increases and subsidies into consideration) for the chosen time period. You may then divide it by the square meters of irrigated field. Now you can compare these two specific numbers (cubic meter water or square meter of irrigated land).



Group’s name Team Global 1 Team Members:

1. Sibel Raquel Ersoy, Germany 2. Himalaya Bir Shrestha, Nepal 3. Josephine Bukowiecki, Germany 4. Nyambe Mununka, Zambia 5. Bernard Thompson, Barbados 6. Lynette Rudder, Barbados 7. Revocatus Valery Kimario, Tanzania 8. Akbikesh Mukhtarova, Kazakhstan 9. Jackson Mutegeki, Uganda 10. Ronald Marumbi, Zimbabwe 11. Chimaobi Omeyi, Nigeria

Chapter 1: Project description The proposed project will be located in the following area:

Continent Asia

Country Nepal

Region Aabu Khaireni-6, Tanahu

Coordinates Latitudes: 27°54'50.15"N Longitude: 84°32'31.83"E Elevation: 1186 feet or 361 metre

Project Type Biogas Plant Installation at a Cow Farm in Nepal

Short description about the socio economy of the region (max. 300 words)

Nepal is a country located in South Asia with population of 28,374,709 (World Population Review: 2016) and GDP per capita 2,375 US$. (IndexMundi: 2015). Nepal counts as a low income country with 25% population living below poverty line. (World Bank: 2016). Agriculture remains Nepal`s principal economic activity, employing 80% of population and providing 37% of GDP (International Business Publication: 2012). Agricultural land accounts for 28.8% of the total land area with arable land at 15.1%, permanent crops 1.2% and permanent pasture 12.5%. (CIA World Factbook: 2015). Substandard equipment and pesticides along with the medieval mode of agriculture has made farming a tough affair. Nepal’s agricultural products range from pulses, rice, corn and wheat. The main hindrances to the economic growth are political uncertainty, difficult business climate, landlocked geographic location, persistent power shortages and underdeveloped transportation infrastructure. Nepal



produces 3.516 billion KWh of electricity and consumes 3.239 billion KWh. (CIA Worldfact Book) Tanahun District where our site is located covers an area of 1,546 km² and has a population of approx. 400,000. (Tharunews: 2012). Current environmental issues such as deforestation (overuse of wood for fuel and lack of alternatives) together with contaminated water (with human and animal wastes) have influenced our decision on preparation of our case study: the construction of a biogas plant on a cow farm located in Aabu Khaireni Municipality, Ward No. 6, Tanahun district. Composition of Fuel Consumption in Tanahun district varies: about 27, 000 households use electricity while the majority about 37, 000 of households use Kerosene. And only 127 of houses are using Biogas while 344 of them use other fuels. Other six hundred houses are not stated in types of fuels they use for lightning purpose. (OneClickNepal: 2016). Geographically, the district is divided into lower tropical, upper tropical and subtropical climate zones. It is very hot in the summer and quite cold in the winter with temperature fluctuation from 38 degree to 6 degree Celsius throughout the year.



Appendix 1: Photograph



Appendix 2: Google Images



Appendix 2: Climate Data

The Climatological records measured in Khairinitar shows the following climatic characteristics near project area.

Location Year Temperature (degree C) Precipitation (mm)

Mean Absolute Extreme Total Max in 24 hr

Max Min Daily Max Min Khairinitar Lat: 28˚02’N Lon:84˚06’E Elevation:500 m

2008 29.2 17.4 23.3 36.4/ July 7 5.7/ Feb 1 2122 134/ Aug 30 2009 30.1 17.4 23.8 38.7/April 24 7.3/Jan 5 1685 128/ July 28 2010 29.9 17.7 23.8 37.9/ April 13 6.0/Jan 26 1877 122/ July 30

Reference: Climatological Records of Nepal, 2008, 2009, 2010. Location: Khairinitar. Index: 0815



Chapter 2: Defining of business model Your project (maximum 500 words)

Our study site of a biogas plant is the Amrit Cow Farm. It is a family run farm owned by Mr. Amrit KC. They also possess 3 fish ponds. Currently they have 45 cows of different sizes: large, medium, small and calves. Milk is collected, stored and supplied to the market daily. The potential for the production of biogas and fertilizer exist from the use of the animal waste without buying a substrate. Presently, firewood is used as the main fuel for cooking (thermal) in various parts of the district. One of the main objectives of our project (biogas implementation) is to discourage the use of firewood by managing the available wastes. The project site is located near a settlement area and the nearest market Aabu Khaireni Bazaar is at a distance of about 1 km. Access to the market is good. Moreover, there are many agricultural fields in the proximity which provide a ready market for the sale of compost (outputs of the biogas plant) in the future. Currently, there are no other cow farms nearby. Consequentially we do not anticipate any major competition in the short to medium term from any of the neighboring farms. River Marshyangdi and River Khahare flow at a distance of 200 m to 300 m respectively from the plant site hence little possibility of river contamination from intrusion of slurry. A community forest called Puranokot is also located in the vicinity of the proposed biogas plant site.

1. Do you have the required resources available? Do you have access to the necessary plant, technical components, etc.?

Amrit Cow Farm currently use about 30 kg of firewood per day for cooking and the preparation of fodder for the cows. The objective it to minimize the use of firewood, hence the proposal for the installation of a biogas plant. The design proposed is Modified GGC 2047, a fixed dome technology which is currently popular in Nepal. Although a larger size biogas plant is feasible given the volume of available inputs consideration is given for the construction of a biogas plant of 20 m^3 volume, taking into account land and monetary constraints. From the biogas calculation tool provided by Alternative Energy Promotion Center (AEPC) Nepal, we calculate:

Waste from 5 big cows and 3 medium cows is enough to construct 20 m3 biogas plant. Manure per day= 5*15+3*10kg= 105 kg

Dilution water required= 133 lt=0.133m^3 Biogas plant volume= 20 m^3 Digester volume= 13.3 m^3

Biogas production= 4.2 m^3/day



2. What is the expected life time of your project? Do you want to finance your project by loan or your own saving or both?

With proper operation and maintenance, the biogas plant can run smoothly up to 25 years or more. Currently, the government of Nepal provides thermal subsidy of Rs. 4000 per m^3 of the biogas plant volume for commercial biogas plants. Commercial biogas plant here refers to the biogas plants which are installed in private firms or residences.



Appendix 4: Waste characterization and manure Link to the biogas calculation tool: w2ebazaar.org.np/download/8 Link to the user guide: w2ebazaar.org.np/download/4

Waste Characterization:

Biogas yield (m3/kg) C:N ratio

OLR (kg VS/m3 day) TS%

VS (%of TS)

Biogas yield (m3/kg VS)

CH4 content %

Cow 0.040 20 3 20.00% 80% 0.25 62.50% Manure per head per day (kg):

Cow big 15 medium 10 small 8 Calf 4 Waste and Gas Production:

Type of animal

Manure per day (kg/hd/day)

No of animals / population

Substrate production (kg/day)

Gas production (m3/day)

Cow big 15 5 75 3.00

medium 10 3 34 1.36



Chapter 3: Calculation of cost

Cost of the project (maximum 400 words)

1. Calculation of the CAPEX (one-time expenses) The bill of quantities for the installation of the 20^m3-biogas plant is given in the appendix 5. Using these parameters we can thus calculate the CAPEX:

-Material Cost for the Construction (MC)= Rs. 224400 -Land costs -Although, the land is fully owned by a farmer and his family, however he has to pay also an annual tax on land and property in amount of RS. 1505. -Appliance Cost (AC)= Rs. 63626 -Labor Cost (LC)= Rs. 141250

-> Total Cost (TC)= MC+AC+LC+SC= Rs. 454276 -Construction Company Overhead Cost (OC)= 10% of TC= Rs. 45427.6

-> Grand Total Cost (GTC)= TC+ OC= Rs. 499703 Approximately, the grand total cost for 20 m^3-biogas plant installation is Rs. 500000, which is equivalent to 5000 US Dollars. As the Government of Nepal provides thermal subsidy of Rs. 4000 per m^3 of the biogas plant, the farmer has to spend less money on his own:

-Total subsidy= Rs.4000*20= Rs. 80000 -> CAPEX= Rs. 500000 – Rs. 80000 = Rs. 420000

2. Calculation of the OPEX (operating expenses) The operation requires resources like dilution water, land rent and labor. However, the plant is located in a site where there is abundant supply of water from natural source free of cost.

The plant is located on the land which is owned by the farmer, hence no payment of rent/lease for the land. The assumption is that there are no statutory requirements in the form of permits or other fees payable for the establishment of the plant. However, the farm owner should pay a land ownership tax every year to the government for using the land where the biogas plant is installed. The OPEX is a sum of land tax and opportunity cost which amounts to Rs. 1505 approximately.

Hence, OPEX= Rs. 1505 3. From 1 and 2,

The CAPEX is incurred only once in the beginning of the project.

Therefore,



Costs incurred in the first year =CAPEX+OPEX =420000+1505

=421505 From the second year onward, only operating cost is incurred. Therefore,

Total annual costs =Rs. 1505



Appendix 5: Bill of Quantities for 20m3 biogas plant installation

Cost estimate for 20 m3 Bio-digester

SN Particulars Unit Quantity Rate Amount Materials

1 Cement Bag 76 1000 76,000.00 2 Brick Nos. 4500 12 54,000.00 3 Stone m3 4 3,000.00 12,000.00 4 Sand m3 8 3500 28,000.00 5 Aggregate m3 6 3,800.00 22,800.00 6 MS rod Kg 350 85 29,750.00 8 Binding wire Kg 2 110 220.00 9 Acrylic emulsion paints Litre 5 326 1,630.00

Sub Total(1) 2,24,400.00 Appliances

10 Biogas stove Set 2 5000 10,000.00 11 Main gas valve Set 1 650.00 650.00 12 Water drain Set 1 250 250.00 13 Gas tap Set 3 500 1,500.00 14 Gas Pipe Set 1 1200 1,200.00 15 Rubber hose pipe meter 10 62 620.00 16 Mixer Set 1 15,000.00 15,000.00 17 6" HDPE pipe for toilet connection and

inlet Rm 4 950 3,800.00

18 Teflon tape Pcs 10 15 150.00 19 Pressure meter set 1 456 456.00 20 Other tools and flow meter lump sum 1 15,000.00 15,000.00 21 Pipe fitting (from digester to the end use

point) lumpsum 15,000.00

Sub Total(2) 63,626.00 Manpower

22 Skilled Labour Nos. 45 1250 56,250.00 23 Un-Skill Labour Nos. 100 850 85,000.00

Sub Total(3) 1,41,250.00 Total (1+2+3) 4,29,276.00

Supervision cum Transportation (Lumpsum): 25,000.00 Total: 4,54,276.00

Construction Company's Overhead (10%): 45,427.60 Total cost: 4,99,703.60



Chapter 4: Calculation of revenue

Revenue of the project (maximum 400 words)

1. As the biogas is primary used for reducing the use of firewood, this

reduction of cost have to be seen as main revenues, being an indirect revenue. - Firewood use per day before biogas implementation= 30 kg

- Firewood saved per day= 18.5 kg, Firewood saved per month= 18.5 * 30 = 555 kg - Cost of firewood per kg in Nepal = Rs. 8.25

-> Firewood expenditure savings per month = 555 * 8.25= Rs. 4578.75 Annual revenue by firewood savings= Rs. 4578.75 * 12 = Rs. 54945 2. The biogas is the main end product of the biogas plant which is used as fuel in the kitchen for cooking purpose. The amount of manure produced by a single cow is enough to produce biogas to refrigerate its own milk leaving enough to cook a meal for the household. Biogas systems are self-sustaining, the manure fed into a biogas digester may also be used to power appliances. Along with the biogas, compost is produced as a by-product. The compost produced has rich nutritional value, which helps to make the soil fertile and increase the agricultural yield as well as increases income. Therefore, such compost has huge demand in the agricultural fields. The 20m^3- biogas plant installed at Amrit Cow Farm would yield 23 kg of compost per day. We consider that 50% of the compost will be applied by the Amrit Cow Farm in their own gardens and the surplus 50% will be sold in the market or to nearby agriculture fields at a very minimum price of Rs. 4 per kg. - Compost produced per day = 23 kg - Surplus compost = 0.5 * 23 kg = 11.5 kg per day

- Surplus compost sold per month = 11.5 * 30 kg = 345 kg - Compost unit price = Rs. 4 per kg -> Compost revenue = 345 kg * 4=Rs/kg = Rs. 1380 per month, Annual compost revenue= 1380 Rs/month * 12 month = Rs. 16560 3. The probable total annual revenue is the sum of annual revenue by firewood savings and annual compost revenue.

-> Total Annual Revenue = Rs. 54945 + Rs.16560 = Rs. 71505



Appendix 6: Energy Parameters

From the biogas calculation tool developed by AEPC Nepal,

Cal Value

Stove/Burner Eff.

MJ/kg %

Firewood 21 10% Biogas 22 45%

2. 1 Nm3 of biogas= 1.15 kg of biogas



Chapter 5: Applying important methods of capital budgeting

Calculation of payback period, NPV and IRR (maximum 500 words)

1. Payback period

= (Initial Investment Costs / Annual Cash Flow) We know, Initial Investment Costs = CAPEX = Rs. 420000

Annual Cash Flow = Annual Revenue - OPEX = Rs. 71505 – Rs. 1505

= Rs. 70000

Hence Payback Period

= Rs. 420000 / Rs. 70000

= 6 years

2. In order to calculate the NPV, we consider the life time of our biogas project as 10 years and the discount rate as 10%.. The following table shows the present value of Rs. 1 receivable at the end of nth year:

Discount Rate 10% 15% Year 1 0.909 0.87

2 0.826 0.756 3 0.751 0.658 4 0.683 0.572 5 0.621 0.497 6 0.564 0.432 7 0.513 0.376 8 0.467 0.327 9 0.424 0.284

10 0.386 0.247 Total Sum 6.145 5.019

The annual cash flow is considered constant throughout the lifetime of the project. Therefore, NPV= Annual Cash Flow * 6.145 – Initial Investment Cost

= Rs. 70000 * 6.145 – Rs. 420000 = Rs. 430150 – Rs. 420000



= Rs. 10150

3. In order to calculate the IRR, we calculate the NPV value at higher rate say 15%. NPV at 15%

= Rs. 70000 * 5.019 – Rs. 420000 =Rs. 358883.595 – Rs. 420000 = -Rs. 68670

As NPV at 10% is positive and NPV at 15% is negative, it means that IRR value lies between 10% and 15% at which the NPV is equal to zero.

Now, IRR= LR + { NPV at LR / ( NPV at LR – NPV at HR ) } * ( HR - LR ) Where,

LR= Lower Rate = 10 % here HR= Higher Rate = 15 % here IRR

= 10 + [ 10150 / { 10150 – ( - 68670 ) } ] * ( 15-10 ) = 10 + ( 10150 / 78820 ) * 5 = 10 + 0.13 * 5

= 10 + 0.65 = 10.65 %

4. Payback period indicates that the Amrit Cow Farm’s investment will return in 6 years. In other words, the project will reach breakeven and start making profit after 6 years.

NPV of Rs. 10150 is positive which indicates to invest on the project since the project is profitable. The IRR value is 10.65 % which is greater than the predefined discount rate (here 10%). Therefore, the project is acceptable.



Appendix 7: Cash Flows

Cash flows

Year Cash Flow

Cumulative Cash Flow

0 -��4,20,000 -��4,20,000 1 ��70,000 -��3,50,000 2 ��70,000 -��2,80,000 3 ��70,000 -��2,10,000 4 ��70,000 -��1,40,000 5 ��70,000 -��70,000 6 ��70,000 ��0 7 ��70,000 ��70,000 8 ��70,000 ��1,40,000 9 ��70,000 ��2,10,000

10 ��70,000 ��2,80,000 11 ��70,000 ��3,50,000 12 ��70,000 ��4,20,000 13 ��70,000 ��4,90,000 14 ��70,000 ��5,60,000 15 ��70,000 ��6,30,000



Chapter 6: Summary

Project and business model summary (maximum 200 words)

1. Our case study is about the construction of a biogas plant of 20 m3 volume for thermal purpose at Amrit Cow Farm which is located in Aabu Khairini-6, Tanahu district of Nepal. The total annual cost of the project is Rs. 420000. The total annual revenue is the sum of the saving in the firewood expenditure and revenue by selling 50 % of compost produced which amounts to Rs. 71505. However, Amrit Cow Farm must pay land tax of about Rs. 1505 per year for the land it utilizes for biogas plant installation. Hence the net annual cash flow is Rs. 70000. Based on our calculations, the payback period of the project is 6 years, the NPV is Rs.10150 with 10 years NPV time period and the IRR value is 10.65 %. The NPV value indicates to invest on the project and the IRR value indicates that the project is profitable. Therefore, the project is financially feasible through our analysis. Overall, biogas has many profits like independent work from the grid, time saving, carbon emission reduction with 5-10 metric tons of CO2 equivalent per year (Mendis Van Nes: 1999).



Appendix 8: Site Schematics of the Project Location



Appendix 9: Fixed Dome Digester Technology



Appendix 10: Design of Modified GGC 2047 model biogas plant

Note: All dimensions are in cm.



REFERENCES:

CIA Factbook. (2015) Nepal. Land use. Available: https://www.cia.gov/library/publications/the-world-factbook/fields/2097.html

Climatological Records of Nepal, 2008, 2009, 2010. Location: Khairinitar. Index: 0815

IndexMundi (2015) Nepal GDP per capita. Available: http://www.indexmundi.com/nepal/gdp_per_capita_(ppp).html

International Business Publications (2012) Nepal Country Study Guide: Strategic Information and Developments. Washington, USA-Nepal. Available: https://books.google.kz/books?id=fkObBQAAQBAJ&pg=PA176&lpg=PA176&dq=agriculture+remains+Nepal%27s+principal+economic+activity,+employing+80%25+of+the+population+and+providing+37%25+of+GDP&source=bl&ots=W7qqzU6Fay&sig=pooFhuI8aDoxFUWEf_ypXhb5ZqE&hl=en&sa=X&ved=0ahUKEwj4u_SpqsXLAhVCCSwKHeKVCl0Q6AEIGzAA#v=onepage&q=agriculture%20remains%20Nepal's%20principal%20economic%20activity%2C%20employing%2080%25%20of%20the%20population%20and%20providing%2037%25%20of%20GDP&f=false

OneClickNepal (2016) Tanahu. Available: http://onecl icknepal .com/tanahu/

Mendis, Van Nes (1999) Biogas in Climate Change Mitigation and Climate Change Adaptation: A Case of Nepal.” Available:http://www.academia.edu/7804752/Biogas_in_climate_change_mitigation_and_climate_change_adaptation_a_case_from_Nepal

TharuNews (2012) Districts. Available: https://tharunews.wordpress.com/page/4/

World Bank (2016) Nepal. Available: http://data.worldbank.org/country/nepal

World Population Review (2016) Nepal. Population. Available: http://worldpopulationreview.com/countries/nepal-population/

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ASSIGNMENT 2: BUSINESS MODELS...ASSIGNMENT 2: BUSINESS MODELS ASSIGNMENT OVERVIEW In this assignment, you will define the business model for your chosen energy project in the agriculture