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RESEARCH TOPIC

Research report to critically evaluate a new biomass


multi-fuel pellet business idea.

By:
Opportunity Analysis of New Student No.

Business Venture
MKTM033, Assignment 1 – PJ1

Tutor: Dr. Jack Lovell


Word Count: 2010 words
Contents
Introduction .............................................................................................. 2
Business Details ......................................................................................... 2
Industry & Market Analysis .......................................................................... 2
Products/Service ..................................................................................... 2
Market Segmentation............................................................................... 3
Target Market ......................................................................................... 4
Industry Attractiveness Analysis (Porter's Five Forces) ................................. 4
Market Potential ...................................................................................... 5
Location and Site .................................................................................... 6
Current and Projected Demand Analysis for Biomass Products: ..................... 6
Survey Based on Questionnaire ................................................................. 6
Technical Feasibility.................................................................................... 7
TECHNICAL SPECIFICATION WITH LIST OF EQUIPMENTS ............................. 7
Financial Model .......................................................................................... 9
Cost of the project: ............................................................................... 10
Means of Finance .................................................................................. 11
Estimation of Annual Profit ..................................................................... 11
References .............................................................................................. 12
Appendix ................................................................................................ 13
Questionnaire ....................................................................................... 13
Introduction
In a country like India, 540 million tons of crop and plantation residues
production are promised, a major part of which is wasted, or inefficiently
utilized. Moderate appraisals demonstrate that even with the present usage
example of these deposits and by utilizing just the surplus biomass materials,
assessed at around 150 million tons, around 17,000 MW of appropriated power
could be produced (IREDA, 2006). Wood and different biomass combustibles can
be burned for heat, used to produce power, or processed into liquid fuels.

Business Details
According to Thabane et al., (2010) a feasibility study is sometimes called a
„proof of concept study‟ .Hence, a great approach to begin a feasibility study is
to give a depiction of the business idea. This study aide is for a new biomass
multi-fuel pellet plant with a production capacity of 2 ton per/hour in Bikaner
(Rajasthan, India) which would be operated to create profits. The business of
the biomass multi-fuel pellet would be to: Procure agriculture waste/residues or
wood chips, by-items and other feedstock. Also to produce and bundle biomass
pellets and to market, offer and deliver pellets to the customers (Sultana, 2010).

This business seems to be interesting in light of two main considerations. The


main is the steady increase in the expense of fossil fuels and instability in price
of fuel, and the second is the expanded consideration given to the negative
impacts of utilizing fossil fuels, for example, oil and gas on the environment Rout
et al. (2008). Different variables that support the case for pellets is that they are
a fuel which can be produced locally, from nearby wood and biomass materials.
An affordable fuel can be produced & distributed locally which will create
employment opportunities & will also minimise the carbon footprint (McKendry,
2002).

The unique selling price of pellet can be considered as the viable part of biomass
use in developing countries like India, multi-fuel pellets are a source of cheap
fuel for cooking, heating & power generation (Bhattacharya et al., 2002). Also,
many customers can‟t afford price of substitutes of pellet fuel & presently the
producers producing pellets are limited or have a small capacity of pellet
production in India.

Industry & Market Analysis


Products/Service
The product of a multi-fuel pellet company would be an energy product which
will be used for burning or gasification purpose to create heat. It could be
utilized alone or mixed with different fuels available. The pellets have less than
10-11 % moisture content, low ash & dust, they are uniform in size. They are
perfect substitute for other fuels like coal, natural gas. The final product pellet
standard is premium or standard which can be determined with the help of
Figure 1 presented below:
Figure 1: North American Standard (Pellets Fuels Institute)

Source: CBCL (2008)

Market Segmentation
The three major markets which use biomass pellets are:

Individual
Use

Biomass
Pellet

Institutional
Industry &
Commercial

Figure: 2 Market Segmentation

Source: Self Developed

Individual users use biomass pellet heaters & stoves to meet their heating &
cooking requirements. Institutional & Commercial users can give space heating,
water heating, and process heat. The heat produced can be provided to
buildings, such as institutional (e.g. schools, hospitals, sports complex),
commercial (e.g. shops, warehouses, offices) & Industry users need ample
amount of heat for boilers & other machineries installed (Castillo et al., 2010).
Target Market
The target market will be also same as our market segmentation because there
is substantial demand of pellets in all the three segments of market. But
gradually if the demand increases in the individual market then the focus will be
to sell more pellets to individual markets because they have less bargaining
power as compared to other segments of the market which will be described in
detail underneath in the “buyer power” point.

Industry Attractiveness Analysis (Porter's Five Forces)


Porter's five forces is a model that examine five components which focus the
present and future appeal of an industry. Every component contributes negative
or positive to the overall engaging quality of a specific industry. These five forces
influence the flow of the business and also play a key part in forming of strategic
choices. Profitability factor fluctuates broadly between as well as inside
industries. Profitability of an organization entering the business is not necessarily
determined by the measure of attractiveness. In unattractive industries, there
are profitable companies & in attractive industries there are failure industries.
The ability to sustain competitive advantage is the key of success for an
organisation (Grundy, 2006).

The multi-fuel pellet industry is as of now reasonably appealing based on the


analysis of supplier power, buyer power, barriers to entry, substitutes, and
industry competition presented. The visual representation (Figure 3) of the fiver
forces underneath is trailed by a definite examination of every component and
its segments.
Suppliers

 Farmers
 Saw mills
 Waste suppliers

Rivalry
Barriers to Entry Substitutes
 Compete on cost
 Moderate capital  Raw material & Location  Natural Gas
Requirement advantages  Electricity
 Huge Sunk Cost  Markets is localized  Other Biomass Pellets
 Market is growing  Other Fuels

Buyer Power

 Individual
 Institutional &
Commercial
 Industry
Figure: 3 Michael Porter‟s Five Force

Source: Based on (Porter, 1985)

Rivalry

This is first & new industry in Bikaner (Rajasthan) and rivalry doesn‟t exist within
Bikaner. In domestic markets overall Rajasthan state, rivalry is localised as there
is ban on import as well as export of pellets in India. The plant have access to
low electricity rates, government rebates on renewable energy scheme in
Rajasthan (IREDA, 2006), availability of cheap raw material & low delivery rates
which will benefit the organisation by higher profits. The rivalry in pellet industry
is mainly based on cost, but the cost of transportation creates competitive
dynamics (Urbanowski, 2005).

Barriers to Entry

While interest and capital cost to enter the pellet business are normally just 10-
15% of the cost of goods sold, various components exist that may stop
competitors from entering this industry. These components that debilitate new
entries in pellet market make the business more alluring for the current market
players. Development and Start-up Costs in addition to the cost of capital
needed to start a pellet plant, High Exit Costs Once assembled, the operation is,
to a vast degree, a sunk expense. Since the feedstock can't be economically
transported to faraway places (Sultana et al., 2010).

Buyer Power

Individual buyers who buy in small quantities generally buy through pellet
resellers & they don‟t have much negotiation power. Commercial buyers who
buy vast amounts of mass pellets are better able to negotiate prices downward.
Industrial buyers buy in very large quantities of pellets & that too very often so
they are able to negotiate in the best manner (Castillo et al., 2010).

Suppliers

A significant part of the competitive advantage in the pellet business is increased


through the capacity of an organization to procure inputs at a lower expense
than competitors (Roos et al., 1999). All in all, suppliers are more in correlation
to pellet makers and have moderate to high control over the pellet business. The
main inputs are the feed stock, wood chips & other agriculture waste.

Threat of Substitutes

The pellet business has developed generally as a substitute of other fossil fuels
like natural gas, coal, electricity. The business has dislodged just a little part of
the current fossil fuel market, and is stand out of the option renewable energizes
being utilized and considered (McKendry, 2002).

Market Potential
Based on our analysis Urbanowski (2005), the pellet plant opportunity is
attractive because of the following:
Strength: Pellets can be made from practically any biomass material including
straws, grasses, and energy crops etc. which are available within 50 km of
radius, so it‟s cheaper to produce them, Reduction in fuel cost, Environment
friendly as it reduces carbon footprint.

Opportunities: Higher energy and resource security for a developing country


like India, Biomass potential is high in the Indian market, possibility of
expansion of market outside the state of Rajasthan.

Threats: Time duration is short for straw harvest, Low level of automation in
Indian agriculture industry is an issue for harvest, drying and densification of
pellet, Entry of new players in the pellet business sector of Rajasthan (India).

Location and Site


Around 10 acres of land in industrial area zone is a pre-requisite for a pellet
plant, raw material, dryer and pellet stock keeping warehouse. Suitable
feedstock accessibility is the most basic achievement element of a pellet plant.
An area close to sawmills, agriculture waste supplier would keep transportation
expenses to minimum. The area chose is Bikaner (Rajasthan) has gigantic
potential in manifestation of Juli-flora, mustard husk, rice husk and other
farming deposits for the biomass fuel from close-by areas & have surplus bushes
groundnut stalk of around 101573 tons. Likewise a ton of sawmills are set in
Bikaner (Rajasthan) & close-by zones. There is ample availability of land in
Bikaner Industrial Area for the plant setup.

Current and Projected Demand Analysis for Biomass Products:


Wang et al. (2009) have mentioned that there is a developing business sector
for biofuels in the generation of pellets for residential purposes, since biomass
pellets can be utilized as a part of fluidized bed combustion & great furnaces
while offering benefits , for example, simple stock keeping and transport, dust
pollution is low and higher heating qualities.

Rhen et al. (2007) mentioned that, the pellets offer the same benefits for
optimization and automation as the petroleum determined fuels, however with
higher burning productivity and a lower measure of ignition deposits. Also,
utilizing LPG for cooking is basic practice in the commercial segment in India. Till
now, there have been no other fuel option which is available easily in India and
there is a solid reliance on LPG.

There is immense potential of pellet stoves in India. As per Peksa-Blanchard et


al., (2007) the Asian region is evaluated to be the greatest worldwide energy
customers by 2030, in the meantime the Asian area has the largest biomass
availability all over the world. It is reasonable to expect that Asia will turn into a
significant player of the biomass market and hence the pellet market.

Results Based on Questionnaire


Questionnaire results show that the most common reason behind buyers to buy
supplemental heating appliances is looking to save money on heating expenses.
Probably, this inspiration would drive buyer's choices whether to utilize their
supplemental heating appliance or their conventional heater on any given day.
Especially if customers don‟t like operating or paying for maintenance of pellet
appliance, customers may decide to stop using their pellet appliance except
when the cost of using pellets are worth it & they are saving money by using it.

Customer's price sensitivity can be required to influence their choices in regards


to which fuel to use in their multi-fuel pellet stove or appliance. In the event that
agriculture biomass pellets are seen to be a superior worth than wood pellets,
then customers are more prone to buy agriculture biomass pellets and, all
different elements being equivalent, shoppers would incline toward the most
minimal value biomass pellets.

Producers of multi-fuel pellet may decide to utilize least expensive accessible


raw material for pellet production but keeping in mind the quality factor because
some of the customers prefer better grade of pellet as well. One reason may be
that buyers favour the low ash or powder blazing pellet. The above result
excludes the part of the retailer in creating interest or demand for a specific item
in a market, however the logical point is this: Because buyers are price
sensitive, having the capacity to compete in the market on the basis of price
factor may be vital to the reasonability of a multi-fuel biomass pellet
organization.

Technical Feasibility
The figure 4 below describes about the process or operation of biomass
pelletizing:

Figure 4: Biomass pelletizing operation

Source: Sudhagar (2005)

TECHNICAL SPECIFICATION WITH LIST OF EQUIPMENTS


A brief technical specification of 2 ton/ per hour pellet plant with the required list
of equipment is provided in the table underneath which is available from a pellet
machine supplier in Ahmedabad (India).
SR. MODEL
NO. Particulars TECHNICALS
NO.
MATERIAL
PREPERATION
SECTION
BZY
1 In feed Belt conveyer B = 0.6 m , L = 6.0 m
1160/6

Chipper suitable for


2 HM- 20 Diamter : 550 mm,
wood

BZY
3 Belt conveyer B = 0.6 m , L = 12.0 m
1160/12

BZY
4 Belt conveyer B = 0.6 m , L = 12.0 m
1160/12

5 chip Silo BLC 2735 Volume = 35 cbm

BZY
6 Belt conveyer B=0.6 m , L = 8 m
1160/8

Diameter: 800 mm
7 Hammer mill BHJ 90
2.5 tons / hour.

SR. MODEL
NO. Particulars TECHNICALS
NO.
MATERIAL DRYING
SECTION
Cyclone done by
1 Flakes air Conveying MQS5- 54
supplier.

2 Dust recovery system

3 Wet Flake bin BLC 2620 Volume = 20 cbm

BZY
4 Belt conveyer B= 0.6 m , L = 13.0 m
1160/13

Flash tube dryer with FT 200 -


5 1.5 tons / hour
hot air. H

BZY
6 Belt conveyer B=0.6 m , L – 15 m
1160/15

With three discharge


7 Feeding silo BLC 2620
screw

Material feeding D = 300 mm, L =4.0


8 HY - 300
screw m

9 Vertical bunker Feeding design for two


mill

Equal quantity supply


10 Quantity mixer
to mill

11 Quantity batcher For mixing water

Standard machine
12 Pellet mill HMG 1.5 A
from Europe

BLC B = 0.3 m , L = 6
13 Pellet conveyer
1130/6 meter

14 Bucket elevator BYC 200 B = 200 mm

15 Pellet cooling tower HMG 300 For cooling pellet

16 Pellet screen HMG 301 For removing impurity

Dust collection Stationary dust


17
system collector

Belt conveyer for BLC


17 B = 0.45 m, L = 12m
packing 1145/12

Packing system with


18 As per design 10 CBM
silo

Financial Model
Financing is the most significant factor in the setup of a pellet plant and its
returns or profits. Usually, the investment in the plant and pellet plant size are in
direct ratio. See the figure underneath for a detailed & better understanding.
Figure: 3 Pelleting Cost versus Plant Size

Source: Sudhagar (2005)

The above graph represents the impact of these economies of scale. Maybe the
values indicated are not exact for multi-fuel pellet plants in Bikaner (Rajasthan),
however the curve shape the sensation of declining expenses every ton as the
capacity of production increases is unquestionably genuine. Also, it is significant,
as well (Sudhagar, 2005).

As keeping in mind the current demand of pellet in India a 2 ton per hour plant
is recommended. So we can draw a 2 ton/ h pellet plant cost sheet here (based
in India):

Cost of the project:


Factors Amount (INR)
Land for the plant (10 acres) 50,00,000
Site Development 10,00,000
Plant & Machinery (5 machines) 1,50,00,000
Building 84,00,000
Electrification 8,50,000
Misc. Fixed Assets 1,50,000
Preliminary Expenses 15,20,000
Freight Cost (approx.) 0
Working Capital 43,00,000
Provision for Contingencies 2,80,000
Total Cost 3,55,00,000
Means of Finance
Particulars INR (Crore)
Promoters Contribution 1.55
Term Loan From Bank / Financial 2.00
Institutions
Total 3.55

Estimation of Annual Profit


Particulars Estimation (INR)
Sales 34 crore ($ 150)
( 5 machines * 2 ton/hr * 14
hours/day * 300 days/year = 42000
tons/year)
Raw Material 17 crore (Rs 4/kg)
Labour expenses (15 labour – 2 20 lakhs
shifts)
Packaging Cost of pellet 1.6 crore
Warehouse cost 80 lakhs
Electricity 1.75 crore
Depreciation (span of 5 years) 30 lakhs
Repair & Maintenance 15 lakhs
Administration Expenses 50 lakhs
Financial charges (15 %) 50 lakhs
Selling & Distribution 7 crore
Insurance 1 crore
Gross Profit 3.2 crore
Corporate Tax (25 %) 80 lakhs
Net Profit 2.40 crore
References
 Bhattacharya, S.C. and Salam, P.A. 2002. Low greenhouse gas biomass
options for cooking in the developing countries. Biomass and Bioenergy.
Vol. 22, pp 305-317.
 Castillo, A., Panoutsou, C., & Bauen, A. (2010). D2. 1 Report on biomass
market segments within the transport, heat & electricity-CHP sectors for
EU27 & Member States.
 CBCL. (2008). Wood Chip and Woodpellet plant feasibility report.
 Grundy, T. (2006). Rethinking and reinventing Michael Porter's five forces
model. Strategic Change, 15(5), 213-229.
 Indian Renewable Energy Development Agency (IREDA) (2006). IREDA
News Vol. 3, No. 4, October-December 2006, Vol. 4, No. 1, January-March
2007.
 Mani, Sudhagar, A Systems Analysis of Biomass Densification Process.
University of British Columbia, September 2005.
 McKendry, P. (2002). Energy production from biomass (part 3):
gasification technologies. Bioresource technology, 83(1), 55-63.
 Porter, M. E., & Millar, V. E. (1985). How information gives you
competitive advantage.
 Rhen, C., Ohman, M., Gref, R., Wasterlund, I., 2007. Effect of raw
material composition in woody biomass pellets on combustion
characteristics. Biomass Bioenerg. 31, 66–72
 Roos, A., et al (1999). Critical factors to bioenergy
implementation. Biomass and Bioenergy, 17(2), 113-126.
 Rout, U. K., Akimoto, K., Sano, F., Oda, J., Homma, T., & Tomoda, T.
(2008). Impact assessment of the increase in fossil fuel prices on the
global energy system, with and without CO 2 concentration
stabilization. Energy Policy, 36(9), 3477-3484.
 Sultana, A. et al (2010). Development of agri-pellet production cost and
optimum size. Bioresource Technology, 101(14), 5609-5621.
 Thabane et al. (2010). A tutorial on pilot studies: the what, why and how.
BMC medical research methodology, 10(1), 1.
 Urbanowski, E. (2005). Strategic analysis of a pellet fuel opportunity in
Northwest British Columbia (Doctoral dissertation, Faculty of Business
Administration-Simon Fraser University).
 Wang, C., Wang, F., Yang, Q., Liang, R., 2009. Thermo-gravimetric
studies of the behavior of wheat straw with added coal during combustion.
Biomass Bioenerg. 33, 50–56.
Appendix
Questionnaire

1. What is the best description of your use of biomass pellets now or in the
near future?
 Individual or residential purpose
 Commercial or Institutional purpose
 Industrial purpose
 Other

2. How much quantity of pellet you require every month for your heating
requirement?
 1-5 ton
 5-10 ton
 More than 10 ton
 Don‟t Know

3. What‟s your annual fuel bill per annum? (if known)


_____________

4. What type of pellets will you prefer to use?


 Wood Pellets
 Agriculture Pellets
 Multi-Fuel Pellets

5. What is the main reason for considering biomass fuel?


 Saving Money
 Reducing Co2 emission
 Other
Please Specify: ____________________________

6. What is main preference standard when you buy pellets?


 Minimum Cost
 Quality Standard
 Both of them
 Other
Please Specify: ____________________________

7. Do you prefer to have low ash content pellet even if it cost you more?
 Yes
 No
Reason: ___________________________________
8. Do you encounter any problems while using pellets?
 Yes
 No

Reason: _______________________________________________