Entrepreneurship and New Venture Creation

Business Plan for

Group 6 –
Arihant Jain

Alpana Tahlani

Komal

Mayuri Agarwal

Parv Verma

Priya P

Varun 1
Contents

Business Opportunity .............................................................................................................................. 3

Industry Analysis –................................................................................................................................... 4

Electricity Shortages – ............................................................................................................................. 5

Financial Planning – ................................................................................................................................. 7

Human Resource Plan – ......................................................................................................................... 11

Operation Plan – ................................................................................................................................... 11

Location –.............................................................................................................................................. 13

Legal – ................................................................................................................................................... 13

Conclusion – .......................................................................................................................................... 14

2
Business Opportunity

The business deals with generation of wind energy by setting up wind turbines and selling
power to the Electricity grids in order to contribute to India’s electricity power generation.

CRITERIA FOR EVALUATING BUSINESS OPPORTUNITY –

The basic criteria adopted for evaluating the business opportunity is the fact that this the power
generation is scarce and India faces a huge shortage of electricity.

Also, the business opportunity receives various financial benefits from the government in the
form of subsidies on tax and also lower interest rate loans.

The business is mainly a one time investment and yields huge returns over the period of time.

3
Industry Analysis –

The private windfarm owners in India as on 31.03.2008 accounted for over 155, including big
names such as Tata Power, Bajaj Auto, DLF and even BP Energy and Reliance.

In 2006, India had 144 gigawatts (GW) of installed electric capacity and generated 703 billion
kilowatt hours. Nearly all power in India is generated with conventional thermal sources, which
produced over 80 percent of electricity in 2006. Hydroelectricity has been a consistent source
of power in India, accounting for nearly 16 percent of power generated in 2006. Finally, nuclear
energy produced roughly 2 percent of electricity during the same year, while geothermal and
other renewable sources accounted for as little as 1 percent.

4
Electricity Shortages –

India suffers from a severe shortage of electric capacity. According to the World Bank, roughly
40 percent of residences in India are without electricity. In addition, blackouts are a common
occurrence throughout the country’s main cities. The World Bank also reports that one-third of
Indian businesses believe that unreliable electricity is one of their primary impediments to
doing business. Further compounding the situation is that total demand for electricity in the
country continues to rise and is outpacing increases in capacity. Adequate additional capacity
has failed to materialize in India in light of market regulations, insufficient investment in the
sector, and difficulty in obtaining environmental approval and funding for hydropower projects.
In addition, coal shortages are further straining power generation capabilities.

In order to address this shortfall, the Indian government has set the goal of adding 90,000 MW
of additional electric generation capacity by 2012. In light of these targets, the private sector is
beginning to step up investment in the sector. For example, Uk-based Hinduja Group, which
already operates several power plants in the country, has pledged $15 billion towards the
addition of 10,000 MW of capacity over the next several years. The country also grapples with
electricity efficiency issues. In order to improve efficiency standards, the Energy Conservation
Act was passed in 2002, which established the Bureau of Energy Efficiency and has sought to
promote efficient use of energy and labeling of energy-intensive products.

- eia.doe.gov

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 Estimated Wind Power Potential in India

Sl. No. State Gross Potential (MW)

1 Andhra Pradesh 8275

2 Gujarat 9675

3 Karnataka 6620

4 Kerala 875

5 Madhy Pradesh 5500

6 Maharashtra 3650

7 Orissa 1700

8 Rajasthan 5400

9 Tamil Nadu 3050

10 West Bengal 450

Total 45195

Note :Gross potential is based on assuming 1% of land availability for wind

power generation in potential areas.

(Source : MNRE (Erstwhile MNES))

6
Financial Planning –

The firm has 7 partners who contribute Rs. 1.4 crores in totality, contributing Rs. 20 lakh each.

The firm is also taking a subsidized loan from the bank of Rs. 2.6 crores at 4% p.a.

Two windturbines are purchased, whose total book value amounts to Rs. 3.8 crores. 80%
depreciation is provided in the first year itself.

The firm is also purchasing barren land from the government at a subsidized rate of Rs. 400000.

FINANCIAL BENEFITS

80% Depreciation in the first year.

Operation and maintenance costs are low.
Zero input fuel cost.
Pay back in shorter duration.
Cost of generation is almost zero after pay back period.
Zero import duty on certain parts.
Tax holidays for newer power projects for 5 years.
Wheeling to SEB is easy, so no marketing problems.

RENEWABLE SOURCES COST OF GENERATION

SOURCE CAPITAL COST GENERATION COST
(Rs. Crores / MW ) (Rs. / KWH )

WIND POWER 3.5 2.25

SMALL HYDRO 3.5 -6.0 1.50 -3.50
CO-GENERATION 2.0-2.5 2.00-2.50
SOLAR PHOTOVOLTAIC 30.0 15.00-20.00
SEA WAVE 9.0 5.80
BIOMASS GASIFIER 2.4 1.10

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Cash Flow Statement 2009 2010 2011 2012 2013
Amt in
Amt in Rs Rs Amt in Rs Amt in Rs Amt in Rs
Cash flows from operating activities
Cash received from customers 9360000 9828000 10319400 10835370 11377139
Cash paid for maintance and insurance 192000 216000 225000 240000 250000
Cash paid for Legal fees and Misc 30000 30000 30000 30000 30000
Cash paid for Co registration 50000 0 0 0 0
Cash paid for regestration 1000000 0 0 0 0
Net cash provided (used) by operating activities 8088000 9582000 10064400 10565370 11097139

Cash flows from investing activities

Cash paid for purchase of capital assets 38000000 0 0 0 0
Purchase of land 400000 0 0 0 0
Interest paid 1040000 884000 728000 572000 416000
Loan Paid 3900000 3900000 3900000 3900000 3900000
- -
Net cash provided (used) by investing activities 43340000 4784000 -4628000 -4472000 -4316000

Cash flows from financing activities

Cash received from partner 14000000 0 0 0 0
long term loan taken 26000000 0 0 0 0
Net cash provided (used) in financing activities 40000000 0 0 0 0

Increase (decrease) in cash during the period 4748000 4798000 5436400 6093370 6781139
Cash balance at the beginning of the period 0 4748000 9546000 14982400 21075770
Cash balance at the end of the period 4748000 9546000 14982400 21075770 27856909

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Profit & Loss Account Year 1 Year 2 Year 3 Year 4 Year 5
SALES 9360000 9828000 10319400 10835370 11377138.5
(2880000 (2880000 (2880000 (2880000 (2880000
units*3.25) units*3.4125) units*3.5831) units*3.76) units*3.95)
COST OF GOODS SOLD
Manufacturing Expenses 0 0 0 0 0
Gross Margin (A) 9360000 9828000 10319400 10835370 11377139

OPERATING EXPENSES
Cash paid for maintance and insurance 192000 216000 225000 240000 250000
Legal fees 30000 30000 30000 30000 30000
Registration for CCA 1000000
Co. Registration Expenses 50000
Depreciation 30400000 7600000 ₋ ₋ ₋
TOTAL OPERATING EXPENSES (B) 31672000 7846000 255000 270000 280000
Profit before Interest and Tax Expenses
(EBIT)(A-B) -22312000 1982000 10064400 10565370 11097139
Interest Expense 1040000 884000 728000 572000 416000
Taxes 0 0 0 0 0
-23352000 1098000 9336400 9993370 10681139
SURPLUS/DEFICIT FOR LAST YEAR 0 -23352000 -22254000 -12917600 -2924230
Net Profit -23352000 -22254000 -12917600 -2924230 7756909

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 Balance Sheet
ASSETS 2009 2010 2011 2012 2013
Long Term Asset
Machinery 38000000 7600000 0 0 0
Less: Depreciation 30400000 7600000 0 0 0
Net Block 7600000 0 0 0 0
Land 400000 400000 400000 400000 400000
Total Long Term Asset 8000000 400000 400000 400000 400000
Current Asset
Cash 4748000 9546000 14982400 21075770 27856909
Miscellaneous
Expenses
- - -
Profit & Loss Account 23352000 22254000 12917600 -2924230 0
Total Asset 36100000 32200000 28300000 24400000 28256909

LIABILITIES
Long Term Liabilities
Capital 14000000 14000000 14000000 14000000 14000000
Long Term Loan 26000000 22100000 18200000 14300000 10400000
Less: Loan Paid 3900000 3900000 3900000 3900000 3900000
Balance 22100000 18200000 14300000 10400000 6500000
Add: Net Profit 0 0 0 0 7756909
Total Liabilities 36100000 32200000 28300000 24400000 28256909

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Human Resource Plan –

The amount of Human resource required is negligible thus there is no HR Plan. The personnel
required for repairs and maintenance are provided by Suzlon so there is no remunerative plan.

Operation Plan –

There are four components in this operation: purchase two wind turbines 600kw each;
installation; generate electricity and sell it; and generate carbon credits.
Wind Turbines –

The wind turbines are S52-600kW, a product of Suzlon. This wind turbine is already located in
very harsh and remote areas in India and is designed to withstand the most extreme conditions
and operate efficiently.

Service and maintenance –

Suzlon provides its clients wind farm technicians for repairing and maintenance and also
monitoring of wind turbines and also for maximising the energy production from wind.

Installation –

As mentioned above according the required environmental conditions the Wind turbines will be
installed in the coastal region of Karnataka or Gujarat. The land required that is approximately
about 5 acres.

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Generation and sale of electricity –

Once the wind turbines are installed they will be connected to the electricity grid and thus the
sale will take place accordingly.

The prices which can be received are as follows –

Gujarat - Rs.3.25/unit and escalation at the rate of 5% every year.

Generate Carbon Credits –

Under a basic cap-and-trade scheme, if a company’s carbon emissions fall below a set
allowance, that company can sell the difference — in the form of credits — to other companies
that exceed their limits. Another fast-growing voluntary model is carbon offsets. In this global
market, a set of middlemen companies, called offset firms, estimate a company’s emissions and
then act as brokers by offering opportunities to invest in carbon-reducing projects around the
world. Unlike carbon trading, offsetting isn’t yet government regulated in most countries; it’s
up to buyers to verify a project’s environmental worth. In theory, for every ton of C02 emitted,
a company can buy certificates attesting that the same amount of greenhouse gas was removed
from the atmosphere through renewable energy projects such as tree planting.

The firm will register itself with the Chicago Climate Exchange (CCX) as it can offset carbon in
large amounts. On an average 600kW of electricity generated from wind energy offsets 1000
tons of CO2e.

Thus Carbon credits generated can also be traded in later stage of the project.

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Location –

The location which is selected is that of Kachchh District in Gujarat, the reason being that
Gujarat is having a high potential for wind power generation. The specific location can be
Mundra in Dist. Kachchh or Poladiya in Dist. Kachchh.

Station District Mean Annual Wind Mean Annual Wind

At Mast At 30 m At Mast At 50 m
Mundra Kachchh 19.5 21.3 167.5 303.00

Legal –

P.P.A. (Power Purchase Agreement) from the State Grid Authorities

Register the project as a C.D.M. Project with C.D.M.-Executive Board of United Nations
Framework Convention on Climate Change

Register as a Partnership firm under the Companies Act 1956

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Conclusion –

The business plan is economically viable and the business and market potential defined is in the
favour of the business. The firm plans to plant more wind turbines after the ten year tax
holiday. The main source of the expansion programme will be the reserves and surplus
accumulated over the years, i.e the internal funds and some amount of bank loan can also be
taken.

The main aim of this project is to harness the immense amount of wind potential available in
India from the huge coastline available and thus providing a cheap and unending source of
energy.

Major expansion plans will be after having a strong foothold in the business.

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Sources –

- www.tradeboss.com

- www.eia.doe.gov

- www.windpowerindia.com

- www.mnes.nic.in

- www.bnet.com

- www.cwet.tn.nic.in

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