Poultry Biodigester Project Proposal - Edwards … Painter/businessplans... · Web viewBusiness Plan for Poultry Manure And Poultry Processing Wastes to be Used in a Biodigester 1.0

WPF Bio-Gen _________________________________________________________________

WPF Bio-Gen

Business Plan for Poultry Manure

And Poultry Processing Wastes to be

Used in a Biodigester

Comm 492.3 College of Commerce and Agriculture, University of Saskatchewan 1

WPF Bio-Gen _________________________________________________________________

1.0 Introduction

1.1 Mission Statement

WPF Bio-Gen is dedicated to providing an economically effective energy source while

improving environmental conditions. WPF Bio-Gen plans to capitalize on the use of poultry

byproducts to become self-sufficient in electricity and heat generation while improving the

quality of sewer water and efficiency of manure removal. WPF Bio-Gen will strive to profit

from the production of heat and electricity to decrease overhead within the operation, at the same

time increasing the value of materials, which were previously disposed of at a cost, and

increasing their contribution to the rural economy and economic development.

1.2 WPF

Wynyard Poultry Farms (WPF) is owned and operated by Ted Baas. The farm was

originally built in 1962 and currently produces 1.5 million broilers per year. Mr. Baas worked

for this operation for ten years before buying it in 1998. In addition to WPF, Mr. Baas also

manages a farmer owned co-op broiler operation adjacent to WPF property. This brings the

operation total production capacity of 2.3 million birds per year. Mr. Baas is continually looking

for ways to manage costs and increase the profitability of his operation.

Currently the broiler barns that are in use are heated by forced air furnaces that run on

natural gas. In addition, electricity is needed to run the ventilation fans in the barn and lighting

on the farm.

Manure, straw and other waste materials are disposed of, at a cost to the farm, on the

fields of neighboring farmers or through a rendering facility in conjunction with Lilydale Foods

of Wynyard. It is this waste material that has the potential to provide the energy needs of WPF.

1.3 Biodigestion

A biodigester is any containment facility that is capable of breaking down organic

material through fermentation to create new by-products of which one is methane (Hills and

Ravishanker, 1984). Methane gas created from the waste material can then be used as fuel for

heating or the generation of electricity. WPF hopes to make methane gas out of manure, straw,

town sewage, hatchery losses, and mortality losses from the broiler barns. The methane will be

used to create heat, through the use of a boiler, for the barns in the winter. The excess methane,


WPF Bio-Gen _________________________________________________________________

in the summer, will be used to produce electricity. There is also the potential to contribute

processing wastes, from either a newly constructed facility by WPF or from the Lilydale plant,

into the biodigestion processes which could significantly increase the production of the

biodigester with minimal additional infrastructural changes to the system.

Biodigester technology is relatively untested in cold climates such as Saskatchewan (pers.

comm. Clay Sparks). It will therefore be necessary to work closely with technological and

engineering firms that are familiar with the environment.

1.4 Goals

1.4.1 Short Term

The purpose of this project is to cut down the costs of WPF. WPF hopes to cut down on

heating costs due to the price of natural gas and the ever increasing potential for prices to

continue to rise (www.saskenergy.com/rates/sehistoricalrates.htm). If enough net energy can be

captured in the system, electricity will be produced to supply WPF needs, then the surplus will

be sold. At the moment WPF is paying local farmers to spread the manure on their land. If this

expense can be converted into a cost saving venture with a reasonable return on investment it

would be a huge benefit to WPF.

1.4.2 Long Term

Long term plans at WPF include both vertical and horizontal integration through new

business ventures. These include a facility capable of processing the birds they are producing,

which would produce an additional waste stream capable of being used in the biodigester as well

as spin off enterprises that may incorporate some of the byproducts of the biodigester. One

possibility may include a greenhouse to use up byproduct manure and water. This creates the

opportunity for a fully integrated Holistic Farming operation (Shih, 1993) which is, to be able, to

be self sustaining and value added.

2.0 Overview

2.1 Industry

The poultry industry in Saskatchewan produced 34 million kilograms of chicken in 2001-

2002 and has the room to expand significantly if industry problems are corrected


WPF Bio-Gen _________________________________________________________________

(www.agr.gov.sk.ca/docs/processing/poultry/poultry.asp). In Saskatchewan WPF makes up 12%

of the total poultry meat production making them the largest private producer in the province.

2.2 Environmental Impact

As the industry continues to expand, more focus and attention will be paid to it and other

intensive livestock operations and there effect on the environment. The intensive and large-scale

production of food animals and animal products has generated an enormous waste disposal

problem for the animal industry. These wastes, which include animal excreta, mortalities, hair,

feathers, and processing wastes, are largely organic materials and are convertible to useful

resources (Shih, 1993). Even though poultry litter has great potential as sources of fertilizer,

energy, and feed, it is most often viewed as an important source of pollutants in surface and

ground water (King, 1996). These large quantities of poultry manure production pose serious

socio-economic problems, the most prominent of which is the protection of our environment and

our environmental resources (www.agr.gc.ca/misb/aisd/poultry/manure.pdf).

2.3 Potential Benefits

“Animal wastes were regarded as valuable fertilizer wastes 95 years ago. With the

advent of intensive animal production systems, the wastes were regarded as pollutants and

nuisances. During the last decade or two the wastes have again been recognized as valuable if

they are managed properly” (Fontenot et al, 1983). Anaerobic fermentation has been shown to

not only generate combustible fuel but it also prevents pollution, provides a nutritionally rich

sludge usable as fertilizer (El-Shinnawi et al, 1989), provide solid residues that are usable as

feedstuffs, and has been shown to destroy pathogenic organisms thus protecting environmental

health (Shih, 1993).

The arrival of the Kyoto Protocol in 1997 has changed corporate thinking towards

greenhouse emissions. New emphasis will be placed on technology to reduce greenhouse gases

and create carbon sinks. Monetary penalties will be placed on companies who continue to

produce carbon while companies that decrease their greenhouse emissions will potentially be

rewarded. This reward will come in the form of carbon credits which the company will be able

to sell. As of now, a value is yet to be determined for these carbon credits but they could


http://www.agr.gc.ca/misb/aisd/poultry/manure.pdf

http://www.agr.gov.sk.ca/docs/processing/poultry/poultry.asp

WPF Bio-Gen _________________________________________________________________

represent significant financial advantage to those companies which work to decrease greenhouse

emissions. (http://news.bbc.co.uk/1/hi/world/38690.stm)

3.0 Methodology

This project will discuss in detail the operations of the new facility, which will include

detailed plans for the yard and building at the proposed site. Also within the operations plan,

there will be research on different types of biodigesters. This biodigester will also follow in

accordance with the laws and regulations that the town and province has set. The human

resources plan will go into detail about who will be responsible for the new facility and the

people who will be employed within it, as well as the costs for hiring and training the new

employee(s). The marketing plan will include possible marketing options for the by-products of

the biodigester, as well as look at the current trends in prices for gas and manure. The marketing

plan will also discuss possible sources of revenue after the setup of the biodigester (greenhouses)

The financial plan will include start-up costs, financing options, analyzing financial

benefits/downfalls and a ten year projection of the finances.

4.0 Operations Plan

4.1 Location

4.1.1 Considerations

With the start up of any new business venture the location has to be considered. The

proximity to raw materials that the business will require to run as well as its distance to the buyer

of the end products can be vital to the success or failure of the entity. In the case of WPF Bio-

Gen, it is therefore necessary that the operation be located close to Wynyard Poultry Farms. This

is the only logical location as it will allow for minimal transportation costs of the raw manure

and a short distance for the resultant energy that is produced to be transferred.

Another consideration is the space required for development of the facility. A sufficient

site size will be necessary in order to provide manure storage, handling, and processing, as well

as the biodigester buildings, and any end product processing that will be needed.


http://news.bbc.co.uk/1/hi/world/38690.stm

WPF Bio-Gen _________________________________________________________________

4.1.2 Building Layout and Site Plan

Figure 2 represents a layout of the entire site at Wynyard Poultry Farms (WPF) and the

location of the biodigester relative to it. This diagram shows the relative distances of the poultry

barns from the biodigester and the location of the town of Wynyard’s sewer line.

Figure 1- Site Map of WPF and proposed location of WPF Bio-Gen


WPF Bio-Gen _________________________________________________________________

Representation of the biodigester system is seen in Figure 2. This diagram shows the

entire system designed by ClearGreen Biotechnologies and the components that it entails. The

major system components will be constructed on site and will be built outside with no exterior

building to house them. This system has been designed to be operated in the Saskatchewan

climate and is the only technology that has been used here. The components necessary for

nutrient extraction of the digested slurry will be housed in a building of their own. The

individual components of the biodigester system will be explained in greater detail in section 4.2

under equipment.

Figure 2-Major Components of Biodigester

Figure 3 shows the site layout and the orientation of the Clear-Green system as adapted

for WPF Bio-Gen. The additional components that have been added are required because of the

change to poultry manure rather than hog manure, for which the system was designed. The

poultry manure requires additional handling and storage concerns in order to make the product

usable.


WPF Bio-Gen _________________________________________________________________

Figure 3-WPF Bio-Gen site layout

4.2 Equipment

4.2.1 Storage

Storage is necessary in order to keep a supply of fermentable organic material to feed the

biodigester. Because the poultry barns are cleaned out once per growing cycle it is necessary to

have enough storage capacity for the total manure output from one cycle. In order to accomplish

this it will be necessary to construct a building to keep the manure out of the elements and free of

debris. Construction of a 40ft x 60ft building will be done to achieve this. The building will be

manufactured with a 6 inch concrete floor in order to carry the load that will be on it and 10ft

high 1ft thick concrete walls on three sides. In order to have a 16ft high ceiling a 6ft wall will be


WPF Bio-Gen _________________________________________________________________

constructed of wood and tin sheeting on top of the concrete wall. When the barns are cleaned

out at the end of each cycle the entire manure production will be stockpiled in this storage shed

to be used over the 56 day period until it can be filled again. On the north-east end of the storage

shed will be a large gravity bin that will be able to be filled with one or two days worth of

product.

4.2.2 Processing

The materials to be used in the biodigester will be mostly manure that is removed from

the poultry barns. In addition to this there will be the bedding material from the barns, death

loss, hatchery waste, and the processing waste from Lillydale Foods in Wynyard. The waste

streams from Lillydale will be constantly produced and will be trucked in by Lillydale to WPF

Bio-Gen and added to the biodigester. Because of the inconsistent nature of all these products it

will be necessary to process them to a uniform particle size. This will also aid in the

biodigestion of the material by increasing the surface area to be fermented by bacteria. A large

hammer mill will be used to do this. Purchased from Wholberg Industries in Saskatoon, Sk the

hammer mill will be capable of processing 1.5-2.0 tonnes of product per hour.

4.2.3 Pre-mixing

In order for the material to be digested it is necessary for it to flow through the system

and for bacteria to act on the material. Water will be added in the pre-mixing stage to a level of

10% solids. The water for the biodigester will come from two sources. As much water as

possible, will be recycled from the nutrient separation process and added back to the pre-mixing

tank. This will recuperate the energy that has been put into heating the water up in order to start

the digestion process. Not all of the water can be recycled because some is needed in the

fertilizer products. Additional water will be taken from the town of Wynyard’s sewage system

and be drawn from the line adjacent to WPF Bio-Gen. This will allow for a free source of water

as well as the potential to capitalize on the availability of any human wastes that can be

fermented in the biodigestion process. The use of this water supply needs to be monitored

because users of this sewer line include Wynyard Union Hospital and Lilydale Foods which are

both users of antimicrobial agents that can upset the digestive bacteria and interrupt the process.


WPF Bio-Gen _________________________________________________________________

Because of the dilution factor of any of these agents it is not anticipated that this will be a

problem.

At the pre-mixing stage the temperature of the material needs also to be heated up to

around 37oC in order to achieve optimal digestion. This will be done through heat produced by

biogas from the digester as well as the recycling of water back to the pre-mixing stage once the

digestion process has been completed.

4.2.4 Biodigester

The biodigester is the primary site for the majority of the fermentation of organic

material. In this system the tank is a 48ft tall structure that is 48ft in diameter. It is made from

an oxygen proof surface that is steel with a glass surface fused to the inside. The outside will be

covered with 6 inches of insulative material that will help to maintain fermentative temperatures

at a steady level. A large paddle agitator rotates inside the tank to keep the slurry mixing and

through fluid dynamics moves the digested material up to the top of the tank to flow off and

move into the next tank. Any biogas that is produced in this tank comes off the top and is piped

into the gas storage in the next tank.

4.2.5 Dual Purpose Tank

The dual purpose tank is named so because it serves two functions as both gas storage

and secondary digestion. The dual purpose tank is a concrete structure that is 28ft tall with the

bottom third in the ground the middle third with sloped dirt around it and the top third exposed.

The tank is filled with the material that comes out of the biodigester and further gas production is

compiled along with the gas that comes from the biodigester. The biogas is stored in a large

neoprene bladder that sits on top of the dual purpose tank. Between the bladder and the concrete

is a layer of tamarak wood that is a host for sulfanogenic bacteria that cleave the free sulfur out

of the atmosphere to prevent sulfur being present in the biogas. From the biogas storage bladder

it then can be used in both the power generator and/or the boiler unit.

4.2.6 Energy Capture Units

The biogas can be used in place of natural gas in either a turbine generator or a pressure

boiler in order to produce energy. In the case of WPF Bio-Gen the gas production will be used


WPF Bio-Gen _________________________________________________________________

to fire a boiler in order to produce electricity. Heat from this process will be recovered and piped

to the poultry barns for heating. Electricity that is generated will be sold to WPF to be used in

the barns, sold to the town of Wynyard, or sold to Sask Power for the Green Power program.

4.2.7 Technical Building

The majority of the system will be automated and will require a building to house the

computer equipment. This will be a simple 20ft x 20ft building with sufficient room for an

office and meeting room as well.

4.2.8 Membrane Separation

Once the digestion process is complete the digested slurry will be separated in to

elemental components that will allow for the sale of value added products. The addition of

membrane separation, filtration, and reverse osmosis equipment will be used to separate the

products into elemental fertilizer components. A 10% nitrogen solution and a 4% phosphorous

and 4% potassium solution will be produced and stored to be sold for liquid fertilizer application.

The two products could also be blended into a fertilizer product containing all three elements of

whatever proportion the customer may want. This could be done easily at the plant at time of

delivery. Once the water was been filtered through this system it is once again potable and could

be returned back into the town drinking system, used for irrigation, or a variety of other uses.

4.3 Physical Product Flow

Figure 4-Physical product flow sewage from town


Storage

Processing

Mixing Digester

Biogas

CHP Boiler

WPFPower

WynyardPower

ChickenBarns

Slurry

Water

Town Lagoon

Nutrient Separation

Elemental Storage

Waste

Disposal

Storage

Processing

Mixing Digester

Biogas

CHP Boiler

WPFPower

WynyardPower

ChickenBarns

Membrane Separation

Water

Town Lagoon

Nutrient Separation

Elemental Storage

Waste

Disposal

WPF Bio-Gen _________________________________________________________________

The previous diagram (Fig 4) shows the flow of materials through the system and the

potential for recovery and production of products.

4.4 Production Levels

There are five main products that will be produced by WPF Bio-Gen. These will include

biogas for heating and electricity production, fertilizer, water, and carbon credits. The volume of

heat and electricity has been determined using equations for energy production from

fermentation of organic material, fertilizer by total product outflow multiplied by their nutrient

content, water levels were not determined because a certain level of this product will need to

remain as part of the fertilizer and the remainder will be recycled into the biodigester, and carbon

credits were calculated based on the business’s ability to remove CO2 from the atmosphere. The

levels of these products are expressed in Table 1.

Table 1- Production Levels

Product Quantity

Biogas (m3) 1,500,000

Organic Fertilizer (lbs)

Nitrogen 413,343

Phosphorous 165,337

Potassium 165,337

Electricity (kWh) 2,750,000

Carbon Credits (tonnes CO2) 40,000

4.5 Work Plan4.5.1 The Average Business Day

The average day for the employee at the site will consist of many tasks. The first thing

the employee will be responsible for is the loading of the daily 5 tonnes of manure from the

storage building into the gravity tank that is also housed within the storage facility. This task

will be done with a small tractor that is rented from the poultry farm operation. Once this

operation is completed, the rest of the system is automated, but will require periodic observation


WPF Bio-Gen _________________________________________________________________

of the pressure levels, gas production, and fluid levels in the tanks. The employee will also be

responsible for the daily inspection of the equipment for any leaks in the delivery systems

between tanks and temperature levels. These observations should be performed three times a

day, once in the morning, afternoon and before the employee leaves for the day. Since most of

the system is automated, the employee does not have to be there all the time, this frees the

employee to do other duties at the poultry operation. Alarms are built into the system in case

anything goes wrong and the system will page the employee/manager alerting them of a potential

problem. During the winter, more care and attention may be required due to the cold and the

potential of the liquids freezing in the pipes or tanks.

4.5.2 The Average Business Week

The average business week will be similar to the daily routine, in the sense that there will

be continuous monitoring of the system. Since the process for the gas production takes so long,

there is little to be done outside the daily routine. The employee will also be responsible for the

proper storage of the by-products until they can be sold or disposed of.

4.5.3 The Average Business Month

The average business month will require an inventory of the amount of manure that is left

on hand to ensure that the process can continue. The amount of power and heat that the boiler

and generator is producing will also have to be inventoried to see if the system is producing at

it’s optimum level. If there is excess power that is being generated from this system the owner

will have to decide whether to sell the energy back to Sask Power, or to store the energy in a

series of batteries. Every year the biodigester will have to be shut down so that it can be cleaned

out by removing all the materials from the system, this will result in a lag period of two weeks

before the system will be producing at optimum.


WPF Bio-Gen _________________________________________________________________

4.6 Cost of Goods Manufactured

Table 2-Cost of Goods Manufactured

Cost of Goods Manufactured in first year (2004)

Direct Materials 0 no charge for raw material - manure and processing waste

Direct Labor 33,342one technician hired to maintain and operate facility

Variable Mfg Overhead:

Maintenance 44,730 affected by the capital cost of equipment

44,730Fixed Mfg Overhead:

Property Taxes 0 tax exemption for first five yearsCapital Cost Allowance 452,300Electrical and Natural Gas 9,000

$461,300

Cost of Goods Manufactured $539,372

4.7 Cost of Goods Sold

Table 3-Cost of Goods Sold

2004 2009 2013

Beg Finished Goods Inv $0 $61,152 $61,152

Cost of Goods Manufactured $539,372 $546,382 $386,769

Goods Available for Sale $539,372 $607,535 $447,921

End Finished Goods Inv $30,576 $61,152 $61,152

Cost of Goods Sold $508,796 $546,382 $386,769


WPF Bio-Gen _________________________________________________________________

4.8 Operating Expenses

Table 4-Operating Expenses

2004 2009 2013

Telephone 600 678 749Salaries (SG &A) 0 0 0Benefits (SG &A) 0 0 0Marketing Expenses 0 0 0Admin Expenses 3,500 3,500 3,500Training Expenses 2,000 0 0Start-up Costs 10,000 0 0Interest - LT Debt 183,520 109,200 25,323Total Expenses 199,620 113,379 29,573

4.9 Capital Expenses

Capital costs (given in table 5) include all capital purchases that need to be made in order

to construct a working biodigester and the necessary infrastructure to support it. The largest

expense is the biodigester itself at $2,800,000.00. However, this price includes the pre-mixing

tank, biodigester tank, dual-purpose tank, electrical generation equipment, boilers for heat

production, and all technical equipment and plumbing necessary for the digester to function. The

nutrient separation components of the capital expenses includes membrane filtration, and reverse

osmosis equipment that is capable of separating the nitrogen, phosphorous, and potassium

components out of the digested material. This cost also includes the fertilizer product storage.

Table 5-Capital Expenses

Capital Expenses

Land Cost 5 acres $5,000Building Cost Storage Facility 40x60 $80,000 Technical Facility 20x20 $20,000Land and Building Cost $105,000

Equipment Cost Biodigester $2,800,000 Nutrient Separation $1,400,000 Hammer mill $8,000 2 Conveyors $7,000 Water hook-up $8,000 Piping/Boiler $250,000


WPF Bio-Gen _________________________________________________________________

Total Equipment Cost $4,578,0004.10 Organizational Structure

WPF Bio-Gen is to be set up as a limited company with the owners to be Ted and

Shannon Bass, who are the current owners of WPF. The project is to be equity funded for 50%

of the total capital cost with the remainder of the money coming in the form of a loan from a

financial institution. The owners will give management duties to Ted Bass who will also be

provided with technical expertise from ClearGreen Biotechnologies, in return for the purchase of

the technology. The single employee of WPF Bio-Gen will be responsible for undertaking duties

of running and maintaining the biodigester and additional duties handed down by the manager.

Figure 5- Organizational Structure

5.0 Human Resources Plan5.1 Job Description

The design system that will be built utilizes a lot of automated technology and is not

labor intensive. However it does require the addition of one full time employee that will be

responsible for the management of the facility and coordinating work efforts.

Because the work load will be variable, due to maintenance and manure movement, it is

suggested the hiring of one full time employee by WPF Bio-Gen who will do part time work for

WPF and one full time employee who will do part-time work for WPF Bio-Gen. This will allow

for the convenience of being able to put two workers on a single job when it is required but not

require the expenditure of two salaries.


OwnersTed and Shannon Baas

ManagerTed Baas

Technical ExpertiseFrom Clear GreenBiotechnologies

General Laborer

WPF Bio-Gen _________________________________________________________________

5.2 Duties

The majority of the labour required will be in organic material handling and processing.

The nature of the material to be digested in this project requires the physical handling,

processing, and mixing of the materials. This will take up the majority of the employee’s time

and any additional time that is left in a work day will be spent working for WPF. At times of

emergencies or routine maintenance the shared employee of WPF will be used to help out at

WPF Bio-Gen.

5.3 Training

Technical expertise will be provided by ClearGreen Biotechnologies Inc. so a great deal

of training will not be needed. A small amount of training will be required to become familiar

with the operation of the biodigester, maintenance of the system, and trouble shooting problems.

An amount of $2,000.00 has been budgeted in the financial plan for introductory training and

any certificates the employee may require (i.e. boiler papers). Every two years after, an amount

of $1,000.00 will be allotted for refresher courses and upgrades in expertise.

5.4 Personality

The type of person to be sought after for this job will be someone who is good with their

hands and mechanically inclined but higher education is not a necessity.

5.5 Management

Management of day to day operations in the biodigester will be the responsibility of the

WPF BioGen employee but any major decision to be made will be directed back to the owner

and manager of WPF and its board of directors.

Book keeping will be handled under the current staffing of WPF.

5.6 Salaries and Benefits

Salary for this position will be paid out in a similar manner to that currently being used

by WPF. Because of the responsibility that this employee will have they will receive a slightly

higher salary than the laborers on the poultry farm but not that of the manager there. The

position will be in the form of a salary rather than an hourly wage which is how the staff of WPF


WPF Bio-Gen _________________________________________________________________

is currently being paid. The job will pay an annual salary of $30,000.00 before taxes and

deductions (CPP and EI) plus benefits. EI contributions were calculated using the employers

portion of 1.4 x 2.1% of salary and C.P.P. contributions are 4.95% of the employees salary.

Benefits will be the same for the employee of WPF Bio-Gen as they are at WPF.

Because of the relatively small number of employees a benefits package is supplied through a

private financial company. Medical coverage is provided for 80% of drugs purchased, dental is

covered up to $1,500.00 per year, and both long and short term disabilities are covered. This is

provided for a premium paid by the employer of $300.00 per year per employee. Additional

contributions are made into a pension fund every month for every employee in the amount of

2.5% of their monthly salary.

Table 6-Salary and Benefits

Employee Salary

2004 2005 2006 2007 2008Full Time Employee Wage $30,000 $30,750 $31,519 $32,307 $33,114 E.I. (2.9%)* $882 $904 $927 $950 $974 C.P.P. (4.7%)* $1,410 $1,445 $1,481 $1,518 $1,556Pension Contribution (2.5%)* $750 $769 $788 $808 $828Benefits premium (1%)* $300 $308 $315 $323 $331Total Wage Cost $33,342 $34,176 $35,030 $35,906 $36,803

* - % = percentage of gross salary

6.0 Marketing Plan

6.1 Products, Pricing, Promotion, and Placing of Products

WPF Bio-Gen plans to sell five main products from the operation. These products are in

the form of heat produced by a boiler, generated electricity, water, carbon credits, and fertilizer

components that are to be extracted from the digested material. There is also the potential to

market the water for irrigation use. Pricing of products from the biodigester will be done in such

a way to remain competitive in the marketplace, but to also capture any premium value added to

these products due to their environmentally friendly nature. Promotion for the products

produced will be minimal because the majority of the products are to be sold internally. The

ability to market the products internally will also help with the placement of the facility since

most materials will be used at the site.


WPF Bio-Gen _________________________________________________________________

6.1.1 Heat

Biogas that is produced in the digester will be captured in the dual purpose tank to be

used as fuel for energy production. In order to heat the poultry barns at WPF, the biogas will be

used to fire a boiler that will heat water which will be piped into the poultry barns in order to

maintain them at a stable temperature through the cold months. This will be done at a cost that is

on par with what the current energy costs which are paid by WPF. Sask Energy is currently

charging $0.25 / m3 of natural gas. Biogas is only 60% as efficient as natural gas so its price will

be reduced to 60% of that of natural gas or $0.15 / m3. WPF is willing to look at this technology

and whether it is profitable to do so, but they are not willing to subsidize the biodigester at a cost

greater than what they are currently paying for energy.

6.1.2 Electricity

The process of heating water to produce heat for the poultry barns will also allow for

electrical generation. This will decrease the efficiency of heat production but produce an

additional product that can be marketed. Electrical generation will be done by capturing the

steam in a microturbine generator. Electricity that is produced in excess of WPF demands will

be sold to Sask Power for their Green Power Program. The Sask Power Green Power Program is

a voluntary program where a power user can sign up to pay an additional 20% on their power bill

to offset some of the additional costs of producing “green power” (pers comm. Brian Mohr).

Power sold back to the utility company is bought by them a premium to the purchase price of

conventional power. Electricity sold to WPF will be priced similarly to the heating costs, in that;

it will be at the same rate that Sask Power would be charging WPF. Currently Sask Power is

charging $0.08 / kWh. This will be done because the rate that Sask Power charges, even for

conventional power, is greater than that which they will pay for power under the green power

program.

6.1.3 Fertilizer

There will be fertilizer products produced from the digested material through membrane

separation which will be available for sale. This product can be either a N,P,K blend that can be

marketed as such or individual elemental products. This will depend on the consumer demand

for the different products. This product can be marketed as an organic fertilizer which should


WPF Bio-Gen _________________________________________________________________

command a premium price in the marketplace due to its environmentally friendly nature and

improved public perception of the product. Total production of fertilizer from the facility will be

413,343 lbs of nitrogen, 165,337 lbs of phosphorous, and 165,337 lbs of potassium of actual

elemental product. This product will be produced in a liquid form in a 10% nitrogen product and

a 4% phosphorous and 4% potassium product. The targeted market for these goods is either

urban municipalities or golf courses. The organic nature of the products lends itself to current

thinking in safety management of public play areas as well as the ability to administer the

product through existing water lines makes the product desirable. Another alternative market is

the use of the products in agriculture. Many farmers are already set up to transport and apply

liquid fertilizer. The location of WPF Bio-Gen is ideal for the targeted markets as it is located

centrally between the cities of Saskatoon and Regina. There is also a golf course in Wynyard

and another 20 when Saskatoon, Regina and the area between are included.

6.1.4 Water

The digested slurry is made up of the fertilizer components and water. Most of the water

from this slurry will be extracted through the membrane separation process and either be

marketed as the medium for the fertilizer product or redirected back into the pre-mixing chamber

prior to biodigestion. Some of the water will remain with the fertilizer components in order to

provide a medium to keep them stable and allow for application methods. Water which is

directed back into the pre-mixing tank of the biodigester will be done so because there is more

benefit from recuperating the spent energy to heat the water up prior to digestion than from using

cold sewage water. It is also possible for the water to be used in an additional enterprise if it

could be cost productive. The water, because of the treatment it has gone through, is a potable

water source and could be directed back to the town for human consumption. This is unlikely

due to the perception of the product but it would be ideally suited to an aquaculture, hydroponics,

greenhouse, or nursery business. This would require a holding facility to store it during the non-

growing season or else a year round customer for the water. This product will contain some trace

mineral elements that are not removed during the membrane separation which will have some

value. It is possible that a market can be generated for the waste water that is produced and if

this is realized a price could be put on the water. Pricing of the water treatment is also possible


WPF Bio-Gen _________________________________________________________________

as the water that would be discharged to the town lagoon system would already be treated and

not need further treatment by the town.

6.1.5 Carbon Credits

An intangible benefit being produced by the biodigester is the “concept” of a carbon

credit. A carbon credit is a valued decrease in greenhouse emissions to the environment that can

be purchased by a polluting entity in order to offset their greenhouse gas production. Because

the biodigester produces energy from a renewable resource in an environmentally friendly way it

is a carbon sink under these carbon credits and therefore is available for sale. WPF Bio-Gen is in

a position to be considered a carbon sink and be able to market a decrease in CO2 emissions of

40,000 tons per year. As of now there is no central “trading desk” for the purchase and sale of

these credits or a set value has not been set for them but activity has taken place where these

credits have been exchanged already. Pricing for these carbon credits will be according to

market value. Because this is a paper transaction there is no need for a proximity to the market

so markets could be world wide.

6.2 SWOT Analysis

Table 7- SWOT Analysis

Strengths Weaknesses Opportunities Threats• Self-sufficient • Labor • Green Power • Sask Power/Energy• Waste Management • Financial

Resources• Carbon Credits • Weather

• Labor • Energy Prices • Foreign Materials• Financial Resources • Technology Leader

• Public Perception• Future Business Development

6.2.1 Strengths


WPF Bio-Gen _________________________________________________________________

Physical Resources

Self-sufficient

The biodigester is a self-sufficient unit which alleviates many input costs. The

biodigester also alleviates utility costs to WPF.

Waste Management

The biodigester turns waste that is currently being spread at a cost to WPF, into products

that can be sold for profit. The process is also environmentally friendly.

Labour

- Simplified Labour Force

WPF Bio-Gen will require very minimal labour for operation. A single employee will be

able to operate the biodigester and will require very minimal training.

Financial Resources

- Possible Source of Income

One of the by-products from the biodigester will be organic fertilizer, which can be sold

at a premium. This will add to the profitability of the biodigester.

- Savings for WPF

The biodigester will provide WPF with a cheaper source of energy, making the

operations of WPF more profitable as well.

6.2.2 Weaknesses

Labour

- Minimal Labour

The operation of the biodigester will only need 1 person. This person will not have

enough work to be busy full time.

- Increased Managerial Labour

The biodigester will mean more managerial work for Ted and Shannon Baas.

Financial Resources

- High Capital Cost


WPF Bio-Gen _________________________________________________________________

The initial investment is large for a sole proprietor. Debt will have to be incurred from a

financial source.

- Failure Consequences

In the event that the biodigester is a failure, resale value will be extremely low. As well,

WPF could be severely damaged financially as a result of the bad investment.

- Maintenance Costs

Maintenance costs are unknown and will not be realized until operation. If many things

require adaptation, redesign, or fixing, additional costs will be involved.

6.2.3 Opportunities

Green Power

With the growing trend towards green power in the province, WPF Bio-Gen could then

sell the excess energy that is produced back to Sask Power. By selling the excess green power to

Sask Power, WPF Bio-Gen would receive a premium price.

Carbon Credits

At the moment, the concept of having a value on Carbon Credits is still unknown, but

with the government’s concern over greenhouse emissions, the carbon credits could be sold to

industries that produce too much pollution.

Organic Market

The by-products that come from the biodigester could be considered organic in nature,

and these by-products could then be sold to local organic producers. Local golf courses and

community parks could also be considered to buy the fertilizer.

Energy Prices

With the prices of gas and electricity increasing, an alternate source of energy production

would be usable for WPF and profitable to the corporate structure through WPF Bio-Gen.

Technological Leadership


WPF Bio-Gen _________________________________________________________________

WPF would be a pioneer in the biodigester industry. This project would be the first

poultry biodigester in Saskatchewan which will put WPF Bio-Gen at the forefront of a

developing industry. In a business where ideas and technology have value, this leadership role

may lead to future investment opportunities and sales of biodigester information and expertise.

Public Perception

The residents of Wynyard will be more appreciative of the farm if odor is reduced by the

biodigester. The project may also give the residents a sense of pride over the new and innovative

project.

Future Business Development

There may be opportunities for future business options in conjunction with the

biodigester. For example, a greenhouse may be set up to use the excess water, fertilizer, or

energy. Irrigation could also be set up to use excess water.

6.2.4 Threats

Sask Power and Sask Energy

The government utility companies will be the main competitors to the energy sales of

WPF Bio-Gen and as such will be the major threat. Natural gas prices, which are controlled by

Sask Energy, will affect the profitability of WPF Bio-Gen because the cost of energy that is sold

to WPF will be relative. Sask Power also will have the ability to affect profitability through both

the rates that they charge and what they are willing to pay for power that they purchase. With

energy being the primary product that is produced by WPF Bio-Gen, these two corporations pose

the biggest threat.

Weather

WPF is located in a very cold climate during the winter months and keeping the digester

running and at a proper temperature level may be difficult.

Foreign Materials


WPF Bio-Gen _________________________________________________________________

WPF will be using the town sewage as the supply of water. If a harmful chemical is

carried into the digester through the water supply, it could destroy the digestive process and

interrupt energy production.

6.3 Market Analysis

6.3.1 The Market

The products that will be produced at WPF Bio-Gen will be, for the most part, marketed

to WPF to be used in the poultry barns. This simplified the market analysis greatly because there

is a guaranteed customer for the products to be produced which does not need to be competed for

and will buy up the energy that is produced in the biodigester. Fertilizer products will need to be

marketed which will take up the majority of marketing needs.

-Heat

The burning of biogas will produce heat energy in a boiler, which will be piped into the

poultry barns in order to keep the barns at an elevated temperature. This heat energy will be

marketed to WPF or used internally by WPF Bio-Gen in order to preheat the digesta before it

goes into the biodigester tank.

-Electricity

Biogas production in excess of heat needs will be used for electricity production which

will be marketed to WPF or sold to Sask Power. These sales will be time sensitive as the heat

needs will be decreased in the warmer months for both heating the poultry barns and for

preheating the digesta material.

-Fertilizer

The organic fertilizer will be marketed to urban municipalities, golf courses, or to the

agriculture sector to be used for their fertilizer requirements. This will be in a liquid product

which will be sold at a price at the WPF Bio-Gen site. Trucking to market will have to be done

on a custom basis by current infrastructure that is already in place for the liquid fertilizer

industry. The physical volume of the fertilizer that will be produced will not be a huge quantity

so a small number of customers would easily be able to handle the volume that would be salable.

This product would fit into a niche market for these customers as it is an organic product made

with out industrial processes. This would fit into urban park management practices which are


WPF Bio-Gen _________________________________________________________________

moving away from industrial fertilizers on parks and golf courses because of the possibility and

perception of human health concerns.

-Water

Marketability for the water produced by WPF Bio-Gen would need to depend on location

to a business that would be able to use it. It does have potential for irrigation but it is also a

much purer source of water, which could be used in other businesses that require high quality

water. This could lead to spin-off businesses that could be under taken by WPF or outside

investment. Types of markets that could be set up to use this water would be aquaculture,

hydroponics, greenhouses, or tree nurseries, to name a few. This would require the building of

further enterprises to capitalize on the marketability of the water but there could also be a market

for the treatment of the water to the town of Wynyard. The membrane separation done by WPF

Bio-Gen is a tertiary treatment of water that results in a potable water product. Currently water

that goes out to the town lagoons is just primarily treated before it is emptied into Quill lake.

-Carbon Credits

The market for carbon credits lies within the polluting industrial companies that are

producing greenhouse gases. These companies will be required to purchase credits from the

entities that are deemed to be carbon sinks or greenhouse gas reducing businesses. Even though

there is not a set marketplace for these credits they are currently being traded and purchased by

many large industrial manufacturers and oil and gas companies. (pers. comm. Clay Sparks)

These companies are being proactive in there management as final laws are not yet in place or

enforced with respect to greenhouse gas production.

6.3.2 Competition

Primary competition for the products that WPF Bio-Gen will produce will come from

other utility companies as heat and electricity will be the most important products. In

Saskatchewan currently both natural gas and electricity are only available through the

government owned corporations of Sask Energy and Sask Power. As a result these two

companies will be the primary competition but as governments change there may be deregulation

in the industry that will allow further competition. Sask Power and Sask Energy may have some

advantage in the marketplace over WPF Bio-Gen because they are large companies and a better

able to guarantee a constant supply of energy. The main disadvantage of these two companies is


WPF Bio-Gen _________________________________________________________________

price competitiveness within the energy sector as they are corporate monopolies. WPF Bio-Gen

would be able to return profits to WPF as they would be jointly owned where as money that is

sent to Sask Power and Sask Energy can not be recaptured.

There is to be little competition in the marketplace for fertilizer as it will be a niche

market for an organic product. In the event that the product is sold into the agriculture market

than pricing will have to be relative to other fertilizer retailers as they will be the competition,

In the area of carbon credits there will also be little competition as there is a very large

sector of greenhouse gas producers who will be in need of these credits once the final

governmental laws are in place and enforced.

6.3.3 Customers

The primary customer for WPF Bio-Gen will once again be WPF as they will consume

the majority of the products produced by WPF Bio-Gen. All heat produced, as outlined in the

production levels, will be sold to WPF as well as most of the electricity. The remaining

electricity that is produced will have to be sold to Sask Power as they own the entire

infrastructure for electricity distribution in the province. A few urban municipalities, golf

courses, or agriculture producers will be the customers for the fertilizer sales. Water will be sold

to a business in the vicinity or channeled into the town lagoon. Carbon credits will be sold to the

greenhouse gas producing companies that will require them.

6.3.4 Future Market Opportunity

A business venture such as WPF Bio-Gen lends itself to the development of further

ventures that would work in symbiosis with the biodigester. As previously mentioned the water

that is produced as an end product from the nutrient separation is usable for many different

options. It would be possible to use this water in one of these ways and create further value in

that way. The addition of a greenhouse, hydroponics farm, or nursery would also allow for the

fertilizer to be used by the company in order to add additional worth to the products.


WPF Bio-Gen _________________________________________________________________

6.4 Marketing Strategy

6.4.1 Objectives and Pricing

The marketing strategy for WPF Bio-Gen is to supply a consistent source of energy to

WPF at a cost that is competitive to both Sask Power and Sask Energy. These products will be

sold at a price that is the same as the two utilities in order to realize the profits through WPF Bio-

Gen rather than decreasing expenses at WPF. Biogas will be sold to WPF at a cost of 60% of

that of natural gas. This is because biogas is only 60% as efficient (pers. comm. Clay Sparks).

Current pricing of natural gas is $0.25 / m3 (www.saskenergy.com/rates/

sehistoricalrates.htm) so the biogas price is $0.15 / m3. Electricity will be sold to WPF at a rate

of $0.08 / kWh (pers. comm. Brian Mohr).

Secondary to the selling of the energy produced by WPF Bio-Gen to WPF will be able to

sell the fertilizer and carbon credits. These products will be sold into the marketplace at a value

determined by the market and in the case of the organic fertilizer at a premium price relative to

that of industrial fertilizer. For price projections current agriculture prices were used. Nitrogen

was priced at $0.38 / lb, phosphorous at $0.21 / lb, and potassium at $0.15 / lb (pers. comm.

Carman McNab)(pers. comm. Glen Hill). Carbon credits were priced at $3.00 / ton CO2 (pers.

comm. Clay Sparks). Trading in carbon credits has been moderate but a market for all of WPF

Bio-Gen’s carbon credit production has been found. ClearGreen Biotechnologies of Saskatoon,

Saskatchewan is in need to purchase additional credits as they have oversold there own

production. All pricing was increased for the 10 year financial projections by and inflation rate

over the 10 years.

6.4.2 Projected Sales

Projected sales for the WPF Bio-Gen were determined using projected production and

multiplying by expected pricing of the commodities. Sales revenue increases over the 10 year

projection due to the increase in pricing caused by inflation.


http://www.saskenergy.com/rates/%20sehistoricalrates.htm

http://www.saskenergy.com/rates/%20sehistoricalrates.htm

WPF Bio-Gen _________________________________________________________________

Table 8- Projected Sales

Sales Revenue 2004 2005 2006 2007 2008Biogas (m3) 72,400 154,770 162,509 170,634 179,166Organic Fertilizer (lbs) Nitrogen 78,535 160,997 165,022 169,148 173,376 Phosphorous 17,360 35,415 36,301 37,208 38,138 Potassium 12,400 25,421 26,056 26,707 27,375Electricity (kWh) 102,640 216,893 221,231 225,655 230,168 Carbon Credits 60,000 123,000 126,075 129,227 132,458Waste Management 2,314 9,488 9,726 9,969 10,218Total Revenue 345,650 725,984 746,918 768,548 790,899

6.4.3 Channels of Distribution

Figure 6- Channels of Distribution

a. Distribution Channel for Heat and Electricity

b. Distribution Channel for Fertilizer


Sales Revenue 2009 2010 2011 2012 2013Biogas (m3) 188,124 197,530 207,407 217,777 228,666Organic Fertilizer (lbs) Nitrogen 177,711 182,153 186,707 191,375 196,159 Phosphorous 39,092 40,069 41,071 42,098 43,150 Potassium 28,060 28,761 29,480 30,217 30,972Electricity (kWh) 234,772 239,467 244,257 249,142 254,124Carbon Credits 135,769 139,163 142,642 146,208 149,864Waste Management 10,473 10,735 11,004 11,279 11,561Total Revenue 814,000 837,879 862,567 888,095 914,496

WPF Bio-Gen _________________________________________________________________

c. Distribution Channel for Water

The distribution channels for the end products produced will follow the above flow

charts. In the case of carbon credits it is a paper transaction so it does not require physical

transport but can be a wire transaction.

6.4.4 Selling and Advertising

The nature of the WPF Bio-Gen business eliminates the need for advertising of the

products because the products will be sold to WPF or to just a couple of contracted customers.

This will require a minimal amount of time and energy by the staff and therefore there will be no

additional budget allowed for the marketing of WPF Bio-Gen products.

7.0 Financial Plan

7.1 Sources of Funding

There will be two sources of financing for WPF Bio-Gen. 50% of the total capital cost

will be funded by equity put into the business by Ted and Shannon Bass and the other 50% of the

funds will be obtained through debt financing. Farm Credit Corporation (FCC) will be the

lending institution that will be used due to their willingness to work together in funding new

ventures such as WPF Bio-Gen. Because the debt to equity ratio is to be on a 1:1 basis the two

portions will be equal and in the amount of $2,344,250 is required from both sources.

An additional alternative is available if the required equity financing is unobtainable.

ClearGreen Biotechnologies would be willing to become an equity partner in the operation if it

can be shown to be profitable.

Due to the fact that ownership will be maintained by either of the two equity partners it is

not necessary to conduct a share offering in order to raise capital.


WPF Bio-Gen _________________________________________________________________

7.2 Opening Balance Sheet

Table 9- Opening Balances

WPF Bio-GenOpening Balance Sheet

December 31, 2004

Assets LiabilitiesCurrent Assets: Current Liabilities:

Cash $110.500 Long Term Debt $2,344,250 Total Current Assets $110,500 Total Liabilities $2,344,250

Fixed Assets: Shareholders' EquityLand $ 5,000 Buildings $100,000 Share Capital $2,344,250 Equipment $4,473,000 Total Shareholder's Equity $2,344,250

Total Assets $4,688,500 Total Liabilities and Shareholder's Equity $4,688,500

7.3 Summary Tables

The financial model that is used for the base case is for a poultry manure biodigester,

using all wastes produced by WPF as well as the poultry processing waste stream from Lillydale

Foods, with the ability to generate electricity, produce heat, and separate digested materials into

organic fertilizer. Other models were also produced which can be found in Appendix A or on

Microsoft Excel under WPFBIOGEN.xls. These models include one for a digester using just

WPF wastes without electrical generation (due to insufficient energy production) and a model

using WPF wastes and Lillydale wastes without electrical generation (to see if the decrease in

capital costs would offset the increased revenues from electrical generation). The option of

eliminating the nutrient separation component of the biodigester was also explored to determine

if any financial benefit could be realized. This was discarded due to the unprofitable results in

the financial statements.


WPF Bio-Gen _________________________________________________________________

7.3.1 WPF Bio-Gen Base Case

All of the following results and analysis are based on the financial models for WPF Bio-

Gen Lilly w Generation, including a base, best, and worst case scenario, which are available in

Appendix A or on Microsoft Excel entitled WPFBIOGEN.xls.

Table 10 – Base Case Results

Net Present Value $(774,929)Internal Rate of Return 3.2%External Rate of Return 2.2% 2004 2008 2013Cash Flows to equity $ (102,300) 240,984 192,189 Net Income $ (360,766) 39,069 371,701 Biogas 482,667 982,667 982,667 - Price $/m3 0.15 0.18 0.23 Fertilizer - Sold(pound) 372,008 744,017 744,017 Nitrogen $/pound 0.38 0.42 0.47 Phosphorous $/pound 0.21 0.23 0.26 Potassium $/pound 0.15 0.17 0.19 Electricity 1,283,000 2,658,000 2,658,000 - Price $/kWh 0.08 0.09 0.10 Carbon Credits 20,000 40,000 40,000 - Price $/CO2 ton 3.00 3.31 3.75 Waste Management 819 1,638 1,638 - Price $/ton 5.65 6.24 7.06 Waste Removal from Lillydale 42500 85000 85000

After examining the results from the base case scenario, it appears that WPF Bio-Gen is a

marginal investment due to the fact that the internal rate of return (IRR) is only 3.2% and the

external rate of return (ERR) is just 2.2%. WPF Bio-Gen does end up showing a positive net

income in the fifth year of operation. The large capital investment is the biggest downfall to the

venture because of the significant payments to service the debt that are required. At the end of

10 years the net present value (NPV) of the business is -$774,929. The critical factors for WPF

Bio-Gen are to maintain a constant level of production while capitalizing on the potential for


WPF Bio-Gen _________________________________________________________________

increases in the prices of the commodities that are produced. If the projections are extended to

15 yrs the returns do not perform any better. Even though the revenue generated increases, the

business in this scenario does not meet the required rate of return (RRR) of 10% which was set in

the financial model. At 15 years the IRR is a negative value (-.82%) the ERR is immeasurable,

and the NPV is now -$1,034,615.

7.3.2 WPF Bio-Gen Best Case

Table 11-Best Case Results

Net Present Value $439,411Internal Rate of Return 13.50%External Rate of Return 7.8%

2004 2006 2013Cash Flows $ (28,568) 541,792 406,140 Net Income $ (276,184) 75,550 585,505 Biogas 1,009,825 1,339,100 2,388,925 - Price $/m3 0.19 0.21 0.29 Fertilizer - Sold(pound) 372,008 744,017 744,017 Nitrogen $/pound 0.48 0.50 0.59 Phosphorous $/pound 0.26 0.27 0.33 Potassium $/pound 0.19 0.20 0.23 Electricity 1,283,00 2,658,000 2,658,000 - Price $/kWh 0.10 0.10 0.12 Carbon Credits 20,000 40,000 40,000 - Price $/CO2 ton 3.75 3.94 4.68 Waste Management 819 1,638 1,638 - Price $/ton 7.06 7.42 8.82 Waste Removal from Lillydale 42,500 85,000 85,000

In order to create results for a best case scenario the prices for commodities that WPF

Bio-Gen produces were increased by 25%. Production levels were maintained at the same level

as in the base case due to the fact that production is based on a fixed quantity of wastes entering

the digester and in order to increase this would require both additional waste streams and

additional capacity of the biodigester. A waste management fee was also charged to Lillydale to

eliminate the processing wastes that they have. All other variable such as rate of inflation and

interest rates were also held constant.


WPF Bio-Gen _________________________________________________________________

In the best case scenario the IRR is a respectable 13.5% which represents the RRR on the

equity investment that will make the NPV = 0. The ERR is 7.8%. At the end of 10 years the

NPV for the business is $439,411 with a RRR of 10%.

7.3.3 WPF Bio-Gen Worst Case

Table 12– Worst Case Results

Net Present Value ($2,221,310)Internal Rate of Return incalculableExternal Rate of Return incalculable 2004 2008 2013Cash Flows $ (217,022) 67,786 105,000 Net Income $ (483,255) (135,200) 283,110 Biogas 357,666 732,666 732,666 - Price $/m3 0.14 0.16 0.21 Fertilizer - Sold(pound) 279,006 558,012 558,012 Nitrogen $/pound 0.34 0.38 0.43 Phosphorous $/pound 0.19 0.21 0.23 Potassium $/pound 0.14 0.15 0.17 Electricity 939,250 1,970,500 1,970,500 - Price $/kWh 0.07 0.08 0.09 Carbon Credits 15,000 30,000 30,000 - Price $/CO2 ton 2.70 2.98 3.37 Waste Management 614 1,228 1,228 - Price $/ton 5.09 5.61 6.35 Waste Removal from Lillydale 42,500 85,000 85,000

In the worst case scenario both the production levels and pricing rates were altered to

indicate what would happen if those variables were decreased by 10% for selling prices and

quantities produced by 25%. The level of output from the biodigester was lowered to represent

an alteration in the biodigestion process due to interruption of the fermentation, inclement

weather having an affect, or variability in the substrates. Pricing was lowered to represent a

recession or surplus in the industry.

The NPV for the worst case is ($2,221,310.00) with an IRR and ERR that is

immeasurable because the NPV is too far negative. There is a positive net income in the last

three years of projections but it is unable to offset the huge losses incurred. The financial

numbers from the worst case suggest that the business is not feasible under these conditions.


WPF Bio-Gen _________________________________________________________________

7.4 Economic Planning

The large capital costs that are necessary to construct the facility demand a high level of

revenue be generated by the facility in order for it to be profitable. The only ways to increase

revenues for this venture are to increase production or increase prices as the operating costs are

already minimal. Production levels at WPF Bio-Gen will be relatively constant because of the

supplies of digestible material and the fixed size of the biodigester. This leaves pricing as the

number one variable to control in order to increase revenue. One potential way to increase the

pricing of products is to value add. There is the possibility of adding further ventures that would

be able to use the water and fertilizer products to produce other products that are worth more.

These may include a greenhouse, tree nursery, or hydroponics growing operation. Another area

of opportunity is in the organic fertilizer market. The prices used in the financial models were

agriculture fertilizer prices but there is the potential for significantly higher prices for this

product. It is estimated that as much as a 300% premium could be realized for them (per. comm.

Clay Sparks). Additionally the sale of carbon credits could have a much greater value than what

has been placed on them in these models.

7.5 Critical Variables

Table 13 – Critical Variables

VariableLevel of

Importance (1,2,3)Supply of Inputs 1*Production of Outputs 1Unit labour costs 3Selling Price 1 Fertilizer 1 Biogas/Electricity 1 Carbon Credits 2Interest Rates 2Inflation Rates 3Amount of Equity Available 1Availability of Human Resources 3Government Regulations 3Actions of Competitors 3

* = any change in this variable will change production of all products1= critical for success2= important for success3= minor importance


WPF Bio-Gen _________________________________________________________________

7.6 Critical Financial Values

Electrical and heating revenues generated will be tied into current pricing set by Sask

Power and Sask Energy and little can be done to influence how these prices will move. It is

therefore necessary to make as much money on the sale of fertilizer components and carbon

credits in order to make this venture profitable. As seen in the best case scenario an increase of

25% from the base values would be influential on the financial results.

7.7 Net Income Break-even Analysis

The net income break-even analysis, since production levels remain constant, is a

examination of pricing changes where the business would still break even on a net income basis.

For this selling-price break even it is assumed that all other variables remain constant. The top

line (Increase (Decrease) in prices) is the % change in the pricing levels that would result in a

net-income of $0.00.

Table 14- Net Income Break-even

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013Increase (Decrease) in

prices 115.87% (21.74%) (31.74%) (41.67%) (45.48%) (52.08%) (57.56%) (62.16%) (66.09%) (69.49%_

Selling Prices in Dollars

Biogas (m3) Input 0.32 0.12 0.10 0.09 0.08 0.07 0.06 0.06 0.05 0.05


Nitrogen Input 0.82 0.66 0.57 0.49 0.46 0.40 0.36 0.32 0.28 0.26

Phosphorous Input 0.45 0.36 0.31 0.27 0.25 0.22 0.20 0.17 0.16 0.14

Potassium Input 0.32 0.26 0.23 0.19 0.18 0.16 0.14 0.12 0.11 0.10

Electricity (kWh) Input 0.17 0.14 0.12 0.11 0.10 0.09 0.08 0.07 0.06 0.05

Carbon Credits Input 6.48 5.20 4.53 3.87 3.62 3.18 2.82 2.51 2.25 2.03

Waste Management Input 12.20 9.78 8.53 7.29 6.82 5.99 5.30 4.73 4.24 3.81

Income Before Taxes 0 0 0 0 0 0 0 0 0 0

Income Taxes 0 0 0 0 0 0 0 0 0 0

Net Income(Loss) 0 0 0 0 0 0 0 0 0 0

These results indicate that after the first year, where production is low because of startup,

the prices of products produced could steadily decrease and still break-even. By year 10 the

average price for salable products could be decreased by 69.49%.

7.8 Cash Flow Break-even Analysis


WPF Bio-Gen _________________________________________________________________

The following is a cash flow break-even analysis for the selling price of products

produced by WPF Bio-Gen. It is assumed that all variables, other than prices, will remain

constant. Similar to the net income break-even analysis, this is the pricing increases or decreases

that would result in as cash flow of $0.00 in that year, as seen in the top line (Increase (Decrease)

in prices).

Table 15- Cash Flow Break-even

This table shows the pricing when all cash flows are equal to zero. Table 13 shows that

in order for the cash flow to break-even, lower prices than those that are predicted could still be

used.

7.9 Economic Break-Even Analysis

This analysis indicates the minimum selling prices that WPF Bio-Gen could move to

before it would no longer be able to return a profit. This pricing change is equal to the one

required to have a NPV of $0.00 and an IRR equal to the RRR, or in this case 10%. An

economic profit is defined as returns above all direct and opportunity costs.

Table 16- Economic Break-even

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013Increase (Decrease) in prices 23.67%Selling PricesBiogas (m3) Input 0.19 0.19 0.20 0.21 0.23 0.24 0.25 0.26 0.27 0.29Organic Fertilizer (pounds)Nitrogen Input 0.47 0.48 0.49 0.51 0.52 0.53 0.54 0.56 0.57 0.59

Phosphorous Input 0.26 0.27 0.27 0.28 0.29 0.29 0.30 0.31 0.32 0.32Potassium Input 0.19 0.19 0.19 0.20 0.20 0.21 0.22 0.22 0.23 0.23Electricity

(kWh) Input 0.10 0.10 0.10 0.10 0.11 0.11 0.11 0.11 0.12 0.12Carbon Input 3.71 3.80 3.90 4.00 4.10 4.20 4.30 4.41 4.52 4.63


2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Increase (Decrease) in prices 45.56% (36.52%) (31.49%) (30.94%) (20.68%) (20.27%) (18.91%) (17.57%) (16.16%) (14.68%)

Selling Prices

Biogas (m3) Input 0.22 0.10 0.10 0.10 0.12 0.12 0.12 0.12 0.13 0.13


Nitrogen Input 0.55 0.24 0.26 0.26 0.30 0.30 0.31 0.31 0.32 0.32

Phosphorous Input 0.31 0.13 0.14 0.15 0.17 0.17 0.17 0.17 0.18 0.18

Potassium Input 0.22 0.10 0.10 0.10 0.12 0.12 0.12 0.12 0.13 0.13

Electricity (kWh) Input 0.12 0.05 0.05 0.06 0.06 0.06 0.06 0.07 0.07 0.07

Carbon Credits Input 4.37 1.90 2.06 2.07 2.38 2.39 2.43 2.47 2.52 2.56

Waste Management Input 8.22 3.59 3.87 3.90 4.48 4.50 4.58 4.66 4.74 4.82

Net Income(Loss) ($244,645) ($639,544) ($465,070) ($323,221) ($197,800) ($103,139) ($17,398) $56,020 $120,489 $178,199

Increase(decrease) in Cash 0 0 0 0 0 0 0 0 0 0

WPF Bio-Gen _________________________________________________________________

CreditsWaste

Management Input 6.99 7.16 7.34 7.52 7.71 7.91 8.10 8.31 8.51 8.73Net Present Value of Equity

Investment 0This analysis indicates that WPF Bio-Gen would need to increase the prices of goods sold

by 23.67% in order to break even economically or have a NPV of $0.00 at a RRR of 10%. This

is similar to the predicted best-case scenario, so WPF Bio-Gen would require a near best-case

scenario in order to meet the RRR.

7.10 Risk Analysis

WPF Bio-Gen relies on waste streams from both WPF and Lillydale in order to produce

its products. Any change to the volume and availability of these products will greatly alter the

output of the business. It is therefore necessary to have these supplies guaranteed. Production

levels should be fairly constant with a known amount of input material but the potential is

present that the process could be upset either by introduction by antimicrobials or inclimate

weather. The financial projections do not show that the business is overly profitable but if

premiums can be found in the fertilizer market and if the trend of rising energy costs continues

the potential is there to make money.

8.0 Assumptions

The biodigestion industry as a whole is a new and transforming technological field. It

will be just this year that the first one built in Saskatchewan will begin production of biogas.

This emerging field has largely been linked with hog and beef manure as a waste stream and the

use of poultry manure as is done at WPF Bio-Gen is a step into the unknown. Because of this it

was necessary to make several assumptions in order to develop this business plan. These

assumptions include.

-the science for biogas production using chicken manure and processing waste is exact

and valid

-rate of growth in commodity prices will be fixed and accurate

-rate of inflation will be fixed and accurate

-interest rates will remain stable

-the technology will be valid in the Saskatchewan climate and produce as intended


WPF Bio-Gen _________________________________________________________________

-the Kyoto agreement will be implemented in the near future whether or not it is ratified

by the necessary participation needed

-the supply of manure and processing waste will be constant

9.0 Conclusions

WPF Bio-Gen has noticed some areas for concern when it comes to building a poultry

manure biodigester. Because the science is new and unproven it is impossible to theorize what

the exact outcome will be. In the case of WPF Bio-Gen there is a small margin of error for this

business to be profitable, even in the best case. The business entity will be integrating

technology together that is originally meant for hog waste, leaving the outcome impossible to

predict. With the integration of the technology there may be unforeseen problems with the use

of the poultry manure.

This is a risky investment for Ted Baas due to the large amount of equity he would have

to invest in order to retain ownership. There is also the chance that the biodigester may not make

a profit and be forced to shut down unless prices are increased as in the best case scenario.

If it can be assumed that the science and production levels are correct in the model then

the best way to make this venture profitable, on its own, would be through the increase in pricing

of both fertilizer and carbon credits. WPF Bio-Gen would be profitable if an increase in the

pricing of these commodities could be achieved.

Another option is to extend the time of investment to a longer period. In the base model

if projections are extended past 10 years to 15 years the business returns a healthy NPV and over

15% IRR.

There is also the possibility of integration with another business that could use the

fertilizer and water products but further analysis would need to be done to determine if the

capital costs of such an undertaking would be warranted.


WPF Bio-Gen _________________________________________________________________

References

1. El-Shinnawi, M.M., B.S. El-Tahawi, M. El-Houssieni, and S.S. Fahmy. 1989. Changes of

organic constituents of crop residues and poultry wastes during fermentation for biogas

production. MIRCEN J. 5:475-486.

2. Fontenot, J.P., L.W. Smith, and A.L. Sutton. 1983. Alternative utilization of animal wastes. J.

Amin. Sci. 57: 221-232.

3. Hill, Glen. Greenfeild Agro Supply. Nov. 2003.

4. Hills, D.J. and P. Ravishanker. 1984. Methane gas from high solids digestion of poultry

manure and wheat straw. Poultry Sci. 63:1338-1345.

5. King, A.J. 1996. Symposium: Water quality and poultry production . Poultry Sci. 75:852-853.

6. McNab, Carman. Cargill Ag Horizons. Nov. 2003.

7. Mohr, Brian. P. Eng., Sask Power. Oct 2003

8. Shih, J.C.H. 1993. Recent development in poultry waste digestion and feather utilization-A

review. Poultry Sci. 72:1617-1620.

9. Sparks, Clay. VP Sales and Marketing. Clear-green biotechnologies. Oct. 2003.

10. www.agr.gc.ca/misb/aisd/poultry/manure.pdf

11. www.agr.gov.sk.ca/docs/processing/poultry/poultry.asp

12. www.news.bbc.co.uk/1/hi/world/38690.stm

13. www.saskenergy.com/rates/sehistoricalrates.htm


http://www.saskenergy.com/rates/sehistoricalrates.htm

http://www.news.bbc.co.uk/1/hi/world/38690.stm

http://www.agr.gov.sk.ca/docs/processing/poultry/poultry.asp

WPF Bio-Gen _________________________________________________________________

Appendix A

Financial Projections


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