gc21.giz.de · Web viewAccording to powered by word press 2016 the prices of bio digesters vary conferring to volume and ‘the payback period for the small plant (digester volume

ASSIGNMENT 2: BUSINESS MODELS

Assignment OverviewIn 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.

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).

POWERING AG MOOC| TEPMLATE FOR ASSIGNMENT TWO 2

Group’s name

Africa Unite

Team

Assignment 2

Names of all contributing group members

1. Jamie Krovontka

2. Nawa Sililo

3. Ngombo Kalimbwe

4. Fuh Michael Apolonius

5. Victoria Solbert

6. Hillary Allison Cirka

7. Alberto Serena

8. Salwa Bouadila

9. Laura Serena

10. Hadijah Nantambi Ssekyondwa

11. Rolayo Omitogun


Chapter 1: Project description

The proposed project will be located in the following area:

Continent On which continent is your case study located?

Africa

Country In which country is your case study located?

South Africa

Region Please describe the site of your case study.

Mpumalanga Province, South Africa

Coordinates Please provide the coordinates of your site: nn°nn'nn"N/S nn°nn'nn"E/W (e.g. take it from google map)

Mpumalanga Province Site:Nelspruit

Geographic latitude:29° 48’ 46" (29° 48’ 77) S

-29.81292 in decimal degrees

Geographic longitude:30° 38’ 11" (30° 38’ 18) E 30.63646 in decimal degrees

Latitude/longitude: 25°28′28″S30°58′13″E

Decimal coordinates: -25.4745 30.9703

Project Type Biogas plant

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

Please explain shortly the relevant information for the type of your energy project. Relevant points could be for example: Population size, main agricultural activity, main irrigation mechanisms, electricity supply (grid connected or off grid), source of electricity supply, used fuel for cooking and lighting, main economic activities, market access and demand for the end-products, climate conditions.


Mpumalanga Province has an area of 78 370 km² or 6.4% of South Africa’s total area and

a population of approximately 3 million.

The average temperature is 18.3 °C with about 913 mm of precipitation falls annually.

The area has about 4.675 commercial farming units with the total of 101.051 farm

workers, and subsistence farming which dominates the agricultural sector. They grow

Citrus and tropical fruits, maize and sorghum, exotic trees and many others.

Livestock products are the second largest income of the province, which include cattle,

sheep, goats, pigs, horses, donkeys, as well as poultry.

South Africa has an open market policy which has integrated into a global economy and

industrial development. The department of Trade and Industry have created national

policies that encourage export of products and the promotion of sustainable investments

and one of them is renewable energy. Therefore agricultural products are usually sold

locally and exported globally to different countries. However, the bio gas and other

renewable energies are new technologies and are still being researched and developed in

this region.

80% of coal used in South Africa is sourced from Mpumalanga. This region has 11 coal-

fuelled power stations which provides the majority of the electrical power used in South

Africa. Because the market has a high demand for coal, companies have invested money

for new mining technology and opening more mines. However, because the use of fossil

fuels is not sustainable and environmentally damaging, we would like to propose a biogas

plant to provide a green-source of energy to be used in rural communities. Due to large

number of animals being farmed in the region, using farm slurries and manure as the

organic matter source is practical.

References:

1. Irrigation technology in South Africa and Kenya, Rodrigo Otávio Câmara MonteiroI 2010

2. Mpumalanga Agricultural Education and Training report department of Agriculture, conservation and

development and environment, Mahlangu E and Sekgota MGB

Free encyclopaedias, November, 2015

3. http://www.southafrica.info/business/investing/opportunities/mpumalanga.htm#.VugCrfnhDIU


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

1. Describe your project a bit closer. Why do you want to start this kind of project? Is there a market potential for the end product in your area? Who are your potential customers? How is the access to the market of the respective end-product and are there competitors?

We would like to begin a small farm biogas plant in rural Mpumalanga using

‘bag digesters bio system management. The main incentives would be to decrease

dependency on buying kerosene, cooking fuel and fertilizer. When there is a

surplus of gas produced, it would be possible to sell it on a small scale level. One

cow can produce enough manure and subsequently enough biogas to provide a

family of 8, enough biogas for cooking 3 meals per day.

This initiative is for profit making, yet, we have also a social contract to support

biogas ‘as part of an environmental solution to reduce the cutting and burning of

wood, still prevalent in rural areas as well as help rehabilitate degraded land’

IFAD

The bio gas plant will be installed in the area of ‘livestock agriculture along with

other residues and relatively high energy prices’.

We are convinced the area has a market potential because South African

government and markets are demanding for clean energy. Thus, Mpumalanga is

mandated to move from electric utility to the use of renewable energy sources.

Actually, a single farm can produce enough manure to sustain a profitable

renewable energy. The initiative company also believes that with climate change

and increased load shedding, there will be a high demand of waste biogas plants

all over Mpumalanga and South Africa at large. And since it is a small scale

business, the target customers shall be small villages or suburb households and

farmers of Mpumalanga.

Meanwhile South Africa is progressing fast in the use of clean energy, the area is

experiencing a boom of many renewable energy-competitors who are mainly

clustered only in the cities. This means the initiative has a lot of potential and

opportunity to develop in the rural areas of Mpumalanga where there is high

demand of energy.

2. Do you have the required resources available? Do you have access to the


necessary plant, technical components, etc.?

There is quite a large number of livestock raised in this region and so farm

manure and slurries would be a practical source of Organic matter. A bag

digester uses simple and inexpensive equipment. However, being able to

acquire a geomembrane (the bag) may be the most difficult part in

building this system. We shall therefore, screen and then determine the

possible way to purchase the bag within the country.

On the other hand, the use of clean energy is new and in progress in South

Africa. There are very few people trained in Bio Gas management,

consequently the project will have a challenge in employing capable

human resource, who can manage to collect and deliver the manure and

other inputs to the plant and be able to maintain the required temperature

and the capacity to analyse the risks associated with the process. The

initiative shall therefore incorporate continuous in-house training for all

staff.

Reference: overview of biogas market in South Africa, G. Munganga, 2013

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

By 2025, Renewable Energy in South Africa Seeks New Bids for 3,200

Megawatts of Green Energy in installing biogas capacity. Due to the

predicted stiff competition in the future, the expected life time of our

project is 8 years.

Reference: awsassets.wwf.org.za//report

We expect to finance our project with loan through the South African

Commercial Banks- Ned Bank.

Ned bank is the firm’s preference due to its policies and support as regards

renewable energies. Their interest rates are also reasonable.



Chapter 3: Calculation of cost

Cost of the project (maximum 400 words)

1. List and calculate your CAPEX (initial investment and required reinvestment). Don’t forget to include permits, land purchase, construction of buildings, machinery, equipment, etc. if relevant.

The establishment of a small biogas station is possible with a small investment. It is important to determine the following in the initial investment: The profit, the risk factor on the funding, the current buying price-is it sufficient to make the bio gas a profitable venture?

Therefore a digester of fixed-dome plants with a masonry structure is preferred because of the following advantages:

Technical- stable, gas- and liquid tightness

cost-effectiveness

May be available in the region through agents

transport costs are fair

Availability of skilled Labour

According to powered by word press 2016 the prices of bio digesters vary conferring to volume and ‘the payback period for the small plant (digester volume up to 5m3) takes longer than the pay back of period with digester volumes above 50m3.’

Therefore we assumed that the bio plant with small and medium scale business can be purchased with the high volume in order to pay back with minimum 2 years.

The figures used in the capex are calculated according to international and South African standard.


2. List and calculate your OPEX. Also think about required resources, labour for operation and maintenance, and rent for buildings. In case that you want to take the loan, consider the interest.

The calculation of equipment insurance is an estimation based on the current rate with €250 a deductible of our choice which gives us an estimated annual cost of €798.32.

Reference: University of Washington, Seattle, 2016

Acquisition of substrate per month is €208.33 which will come to the annual cost of €2,500 (Euro)

The monthly cost for water supply for cleaning the stables and mixing substrate is €200 which comes to an annual total € 2,000.

Straight line method depreciation calculator is used to determine a monthly


CAPEX € (EURO) Land 0Bio Gas digester Plant 53'221.00

Excavation work 2'278.07

Construction of the digester and gasholder 18'050.08

Piping system 5'000.00

Gas utilization system 5'700.00

Dang storage system 2'000.00

Other materials 3'000.00

Real estate/ building ( Construction) 10'000.00

Labour input 9'924.00

Business permit and Licence 300.00

Insurance 798.32

Total investment 110'271.47

depreciation cost of €492.79 of the bio gas plant which is an annual cost of €5913.44 for the next 9 years (108 months).

The monthly minimum wage in South African Rand is as follows:

General workers: R2,511.00 (€146.14) x 4 workers x 12 months Employees not specific: R3,101.00 (€180.48)x 12 months Driver R3,197 (€186.07)x 12 months Supervisor: R4,3269 (€1107.26) x 12 months Piece work per hour is R9.30 ( 5hours x4 temporal workers x12months)

Estimation:1 EUR = 17.1780 ZAR

Reference:Mywage.co.za is connected to the Wage Indicator Network

https://www.google.com/finance/converter

We assume that the bank interest charges are very low due to the

promotion of renewable energy by the government.

The principal and interest on loan is based on 6.75% rate.

It is very cardinal to this OPEX that economic lifetime of the plant, the rate

of interest for capital invested and the amount and development of the

running costs create an essence for critical analyses leading to decision

making. Therefore the running costs of the bio gas plant should not

amount to no more than 10% of the initial bio gas cost per year.

OPEX € EuroAcquisition(purchase, collection and transportation) of the substrate

2'500.00

Water supply for cleaning the stable and mixing the substrate

2'000.00

Feeding and operating of the plant 1'800.00

Storage and application of the bio 1'500.00 Depreciation 5'913.44 Salaries/wages 21'671.28

Maintenance of Bio plant 500.00

Routine vehicle/ tractor( Fuel) 300.00

Bank interest charge 0.10

Taxes 150.00

Principal and interest on Loan 665.00

Total Annual operational cost 36'999.82


Estimation:1 EUR = 17.1780 ZAR

3. Calculate the total annual costs

The total annual operation costs is Euro 36, 999.82

Chapter 4: Calculation of revenue

Revenue of the project (maximum 400 words)

1. Will you have avoided payments for former used diesel, kerosene, cooking gas, grid power, etc.? If so, calculate this avoided payment on an annual basis as indirect revenue.

Building a 250kWel Biogas plant will bring about an Indirect revenue generation from cost

reduction from payments for Grid power.

A publicly owned national power utility, Eskom, generates 96 percent of the country’s

electricity, owns and controls the national high-voltage transmission grid, and distributes

approximately 60 percent of electricity directly to customers. Embedded Transmission use of

system (ETUoS) for Distribution connected Rural loads based on annual utilised capacity >

or equal to 500V is 15.72 rand VAT inclusive. (Eskom schedule of standard prices 2015/16

(Rev 00 1 April 2015)

Eskom’s standard offer programme rebate of R1.2/kWh for biogas projects.

(http://www.esi-africa.com/sa-not-using-its-biogas-potential/)

1£ = 22.14 rand

15.72 rand = 0.71€

1.2 rand = 0.054 €

Assuming we use manure and energy crops

380kWel Biogas plant can produce 3,223,878kWh electricity/year

(http://www.biogasheat.org/wpcontent/uploads/2015/02/brosura_ENGL_web.pdf)


http://www.biogasheat.org/wpcontent/uploads/2015/02/brosura_ENGL_web.pdf

250kWel Biogas plant will produce (250kWel x 3,223,878kWh)/380 = 2,120,972kWh

electricity/year.

Assuming we produce only 10% electricity from the plant to be used on the site, we will be

producing (10 x 2,120,972kWh)/100 = 212,097.2kWh electricity/annum

Eskom rate for that amount of electricity/annum = 212,097.2 x 0.054£ = 11453.2£

This amount represents the Income Revenue.

2. Will you have revenue from selling the end-products to neighbours or on the market? If so, at what price can you sell these products and which quantity per year is probable according to your available resources and the market demand? Calculate the possible annual revenue from sales.

This project will generate revenue from the sale of green energy in the form of biogas to

rural households.

300kWel Biogas plant produces 1,500m3/day of biogas

(http://www.biogasheat.org/wpcontent/uploads/2015/02/brosura_ENGL_web.pdf)

250kWel Biogas plant will produce (250 x 1,500)/300 = 1,250m3/day of biogas

Since we are using 10% of the manure to produce electricity, we are left with 90% to produce

biogas. So we will be producing (90 x 1250)/100 = 1125m3/day of biogas.

1.2m3 of biogas is sold for 10 Ethiopian Birr (This is in the writer’s context)

(http://www.bbc.com/news/business-33972995)

1 rand = 1.40 Ethiopian Birr

1.2m3 of biogas will be sold for 7.14 rand

1.0m3 of biogas will be sold for 5.95rand

1 rand = 0.045€

1.0m3 of biogas will be sold for 5.95 x 0.045 = 0.27€


Revenue that will be generated from 1125m3/day of biogas = 1125m3 x 0.27€ = 303.75€

Total revenue from biogas/annum = 303.75€ x 365days = 110,868.75€

3. Calculate the probable total annual revenue.

Total Annual Revenue = Total Indirect revenue/annum + Total revenue from

Biogas/annum =1145.3€ +110,868.75€ = 112,014.05€

Chapter 5: Applying important methods of capital budgetingCalculation of payback period, NPV and IRR (maximum 500 words)

1. Please calculate the payback period of your project

Annual cash flow is: Cf = 112014.05 € - 36999.82€ = 75014.23 €

payback period of the project = initial investment/Annual cash flow

= 110271.47/75014.23 = 1.47 years

Loan summary

Payment option fixed term loan

1st monthly payment $6,819.82

Loan amount $110,271.00

Annual Percentage Rate 6.75%

Term 1.47 years (17 months )

Total payments $115,936.95

Total interest $5,665.95

Ending balance $0.00

Payment Schedule

Time Payment Principal Interest

EndingPrincipalBalance

17Months $110,271.001 $6,819.82 $6,199.55 $620.27 $104,071.452 $6,819.82 $6,234.42 $585.40 $97,837.033 $6,819.82 $6,269.49 $550.33 $91,567.544 $6,819.82 $6,304.75 $515.07 $85,262.795 $6,819.82 $6,340.22 $479.60 $78,922.57


6 $6,819.82 $6,375.88 $443.94 $72,546.697 $6,819.82 $6,411.74 $408.08 $66,134.958 $6,819.82 $6,447.81 $372.01 $59,687.149 $6,819.82 $6,484.08 $335.74 $53,203.06

10 $6,819.82 $6,520.55 $299.27 $46,682.5111 $6,819.82 $6,557.23 $262.59 $40,125.2812 $6,819.82 $6,594.12 $225.70 $33,531.1613 $6,819.82 $6,631.21 $188.61 $26,899.9514 $6,819.82 $6,668.51 $151.31 $20,231.4415 $6,819.82 $6,706.02 $113.80 $13,525.4216 $6,819.82 $6,743.74 $76.08 $6,781.6817 $6,819.83 $6,781.68 $38.15 $0.00

2. Please calculate the NPV of your project for its defined life time. For the discount rate consider your opportunity cost of the capital, meaning the rate of return that you could earn with an investment of comparable risk and size. You can also take the rate of return that you would get for depositing your money to a bank account with a given interest rate.

In this case, the value of the net benefits is discounted – the comparison is

made at the actual moment, referring the future cash flows to their present

value through the rate of return.

Interest rate = 6.75%

Duration =8 years

Using the formula below;

NPV = {(75014.23/(1.0675^1)) + (75014.23/(1.0675^2)) +

(75014.23/(1.0675^3))+ (75014.23/(1.0675^4)) + (75014.23/(1.0675^5)) +

(75014.23/(1.0675^6)) + (75014.23/(1.0675^7)) + (75014.23/(1.0675^8))} –

110271.47

NPV = 342033.1592 €

3. Please calculate the IRR of your project for its defined life time.


Starting from these values:

Annual Cash Flow: 75014,2 €

Initial Investment: 110271,5 €

Investment Time: 8 years

Using an Excel spreadsheet, the expression

∑t =1

8 75014,2(1+ IRR)n =110271,5

Yields an Internal Rate of Return of 66, 8 %.

This value makes the investment very attractive and profitable.

4. Make a short statement on the profitability of your project, based on the calculation results of the payback period, NPV and IRR.

So, after 2 years the initial investment will be recovered. After this time

we will gain profit (assuming the annual cash flows stays the same).

The NPV shows that this is an attractive investment, though the project do not account for the risk and opportunities which are also very important considerations in investment,


Chapter 6: Summary

Project and business model summary (maximum 200 words)

1. Please write down the summary based on the contents of your report

Mpumalanga in South Africa is one of the regions affected by carbon emissions

from coal mines, and climate change. Thus to protect life and the earth itself, an

ethical principal for business with social responsibility is fully supported.

The stated project, above, proposes to build a small-scale bag digester in the Mpumalanga region of South Africa While the government supports and, in fact, has mandated a move to more renewable energy, but such a project faces some challenges: there is a major dependence on coal, kerosene, and cooking fuel. Therefore, obtaining a geomembrane (digester bag) will be difficult. The ongoing training also will be needed, due to a lack of current labour supply with relevant skills to operate the digester. However, this is balanced by an abundance of livestock manure and a supportive government, which will both provide much potential for success.

As soon as the aspects of social life, climate, regulations and economic trends are

examined, the cost and benefit of a biogas (digester) plant are planned and

analysed. Consequently, the decision to get a loan through a commercial bank

and then purchase the plant, has to be decided.

We are sure that the investment through a Bank loan can be tangible and

intangible (costs and benefits) for which a final valuation lies within the


judgement of the decision maker, and thus the rate of interest which we worked

out using a standard investment calculation while stipulating if the plant is

economical or not was examined and determined. In addition to that, the

operational expenditure together with the Annual investment gave a good picture

if there will be profit and loss in the future.

Where there were different alternatives, comparative advantages were taken into

consideration.

Based on the findings and calculations, payback of the loan could be made in approximately 1.45 to 2 years, leaving the remaining 6 full years of the project as strictly income-earning, making this a valuable project.


Documents

gc21.giz.de · Web viewAccording to powered by word press 2016 the prices of bio digesters vary conferring to volume and ‘the payback period for the small plant (digester volume