IncuBUZz

The Business Plan Contest

INSTITUTE NAME: XAVIER INSTITUTE OF

MANAGEMENT, BHUBANESWAR

DEGREE/COURSE:- POST GRADUATE DIPLOMA IN

BUSINESS MANAGEMENT (PGDBM)

EMAIL ADDRESS:- vijay.thirumalai@gmail.com

rashimamittal@gmail.com

PHONE NUMBERS:- 9337646343, 9338227216.

SECTOR: CLEAN ENERGY – Intermediation Services

Mission

To accelerate the promotion and use of ‘Renewable Energy & Energy Efficient
Technologies’ in India and other developing countries, to reduce global warming and pollution of
the environment by using Process and Financial innovations in the Green Energy Sector and
thereby creating model for sustainable and all round development in this part of the world .

About us

We view ourselves as a ‘green business financial organization’ focused on promoting a

variety of commercially viable New and Renewable Energy Systems initially in India and then in
the neighboring countries of South East Asia.

About the Business Opportunity

The Clean Development Mechanism:

The Clean Development Mechanism (CDM) is the only mechanism under the Kyoto Protocol
involving countries that are not subject to binding greenhouse gas emission caps by the protocol(
non-Annex I countries). Under the CDM, investors from Annex I ( countries which are polluting
above their stipulated limits) states receive Certified Emissions Reduction units (CERs) for the
actual amount of greenhouse gas emissions reduction achieved in projects financed by them in
non-Annex I countries.
The crux of the business opportunity which makes India an attractive place is the following

Cost of reducing in a host country < Cost of CER thru CDM < Cost of reduction under the
developed country

The non annex country / the host country benefits in the form of a) sustainable development b)
access to better technology, funding and cheaper source of power.
The Size of the Business opportunity:

According to World Power 2005 publication, the value of Global Emissions Market is expected
to reach Euros 54.0 billion in 2010 and Euros 100.0 billion by 2020. The major sources of supply
of Carbon Credits are expected to be from Brazil, China and India.

2005 actual 2012 estimated

Volume Value (million Volume Value (million
(Million Tons USD) (Million Tons USD)
CO2 Equivalent.) CO2 Equivalent.)
Total carbon credit 799 11961 5500 85000
market
CDM share 397 2525 2500 25000
India’s share in NA NA 500 5000
CDM
(Source: World Bank)

Our Product offering

We would be India’s first Private Sector Renewable Energy (RE) Intervention Services Company
operating in the following areas.
• Provide a standardized product solution for helping companies and corporations in
developing CDM technologies, generating green energy and obtaining CDM
certification by mobilizing Renewable Energy (RE) & Energy Efficiency (EE)’s latest
commercially viable Technologies, Capital Equipment & Plants and help the SME’s and
to generate Green Energy in a cost effective manner.
• Act as a Carbon based Asset Management Company by sourcing carbon credits from
various sources and helping buyers reduce their Carbon credit risk in a cost effective
manner using effective portfolio diversification and risk management techniques.
• Act as a Seller centric ‘Carbon credits broker’ to mobilize carbon credits, generated from
CDM projects hosted in India and sell it to Annex 1 countries.
 • Gradually move into a vertically integrated developing a vertically integrated Climate
Exchange in India , thereby giving us a presence in the entire carbon trading value chain
and also giving us ‘economy of scope’.

The Revenue streams for our company

• Carbon Credit Brokerage Services and CER Trading platforms:

At the onset, we would like to establish ourselves as a ‘seller centric Carbon broker’, targeting
the Corporates in Europe and other organizations. We also plan to establish a Carbon warehouse
to aggregate Carbon Credits from SME’s to achieve scale and subsequently sell to Developmental
Institutions around1 million CER’s. As a part of our brokerage services, we would also be
providing them with Trading Systems for CER trading for our clients, which would
consequently improve our bottom-line and help us in achieving convergence in our offerings.

• CDM project feasibility study for SME’s :

For a project to be CDM certified and to generate CER credits, there is a whole set of procedures
which needs to be completed, evaluation of project’s potential and approvals which needs to be
obtained. We are in the process of developing a product for the CDM project evaluation. It is
essentially software which would help the SME to evaluate the feasibility of a CDM project, the
implications on the bottom line, the IRR of the project etc. The uniqueness of this product it
encompasses a broad gamut of energy alternatives and helps in choosing the most appropriate
technology for the company.

• Developing Detailed Project Report (DPR), Project Idea Note ( PIN),Project design
Document
(PDD) & Related Assignments
We have identified the 5 major phases, which any business has to go through for a project to be
CDM certified and the company to develop the ability to generate and sell carbon credits. To
determine the feasibility, measure and monitor requires a superior skill set which a company
would not possess unless they hire an In house CDM expert.
We plan to bundle these services as product offerings for SME’s which would enable them to
obtain the CDM certification at a greatly Reduced Cost. This process is relatively new in India
and not many have the sufficient expertise to obtain CDM certification. We are in touch with Ex-
World Bank officials who have agreed in principle to help us with this assignment in the initial
stages of our business.
• Revenues streams from commissioning of BOOT projects
We plan to develop projects for our clients on a build, own, operate and transfer basis for
captive power plants in their premises. The investment argument for BOOT projects by
companies and the potential cost savings for the companies are as follows.
 There is a perennial problem with regard to power supply for companies located in
small towns.
 After having conducted an in depth study and interviews with industrialists in
Class B and C towns, we have concluded that they have the following issues a)
they are comfortable to invest towards improving and / or increasing the existing
facilities in their core business in- order to derive the maximum benefits about
which they are sure & confident. Moreover, these investments can be planned and
deployed in a phased manner, b) they would be willing to invest in Renewable
energy projects if part of their burden is shared.
We have developed a new “share the savings” model, wherein we would not be charging
the clients, but would get a share a percentage of cost savings.
• Project and Equity Financing: Establishing a Carbon Based Fund
After establishing our credentials, we plan to mobilize funds for a Carbon Based Fund which
would identify and invest in Sustainable CDM projects. The investors would be primarily NRI’s
at an initial stage and then we would be targeting large MNC’s who are participating in VER
(Voluntary emissions reduction) /Emission Reductions. We would be charging a project
management fees for the above at around 2%. Our expertise would lie in Identifying promising
CDM projects and managing the fund effectively by diversifying (investing in various
technologies & processes) and superior risk management techniques.
.
Staging of our Business model

VERTICALLY INTEGRATED BUSINESS MODEL

CARBON ASSET
MANAGEMENT
CLIMATE
EXCHANGE
CARBON FINANCE&
PROJECT FINANCE
ASSET MANAGEMENT
SERVICES

ADVISORY SERVICES
CARBON ADVISORY

One Stop Shop To customers

 PROJECT DEVELOPER PROJECT DEVELOPER

INVESTORS OUR COMPANY

TECHNOLOGY
PROVIDERS

LEGAL
AUTHORITIES

GENERATING
COMPANY

REGULATORS

CARBON CREDIT
BROKERS

CONSULTANTS

Our vertically integrated business model gives us ‘economy of scope’ and helps us to provide
better value to customers
Our Business Model to Tap the Indian Market

Carbon Exchange in India

The culmination of this business model is to create India’s first Carbon Based
Exchange which would help in greater price discovery, risk management, greater liquidity and
more importantly in the creation of new asset classes
Need for Carbon Exchange in India

 This is the first affirmative step towards voluntary reduction of emissions,

which is probably the most effective option in the absence of a rule based
reduction.
 As already mentioned previously despite Asia being the greatest supplier of
CER’s there is still no centralized market for Carbon Exchanges. Most of the
trade takes place thru ETS and the Asian project developers are exposed to
currency risks and country risks.
 This would result in the creation of an entirely new asset class to investors and
would help in garnering the much needed funds for CDM projects in India and
also increase the liquidity of the “Securitized Instruments”.
 Even before the establishment of the SEBI, the BSE existed and they were the
unofficial regulators of the Indian Stock Exchange. In the same manner, this
exchange could well be unofficial regulator of the Indian CDM markets and
would help in efficient price discovery mechanisms.
 This also gives the SME’s and other producers who lack scale to effectively
hedge their price and currency risks by buying standardized derivative
contracts.
 Also last but not the least, this model has been tested in the form of Chicago
Climate Exchange in USA. India in certain ways is similar to USA, both have
not joined the protocol (in the sense, USA has not ratified and India need not)
but both of these countries are under international pressure to reduce their
emissions. VER has been the driving force of CCX. By use of innovative
marketing techniques we would be able to be the market marker for Carbon
Credits by generating the necessary liquidity and participants for the Carbon
Markets.
 Creation of this would aid in the seamless integration of Asian Carbon market
with the global Carbon markets.

Competitor Analysis
Revenue Details and Cash Flows
We have tried to estimate the business potential in India with the following assumptions
 The average price of CER would around $ 17-$20 on an average which is a very
conservative estimate.
 The CER generated from Renewable Energy (ER) project is around 2 and that by Energy
Efficiency project is around 1.
 Data on RE projects have been obtained from IREDA website.
 Data on EE potential have been obtained from CII Website
INDIA'S CDM BUSINESS POTENTIAL 2007-08 2008-09 2009-10 2010-11
For Renewable Energy Projects
India's Annual Energy Generation Requirement (MW) 15,000 20,000 20,000 25,000
Share of Renewable Energy (%) 15 15 18 18
Renewable Energy Generation (MW) 2,250 3,000 3,600 4,500
Contribution of Wind Energy (%) 25 30 30 36
Wind Energy Generation (MW) 563 900 1,080 1,620
RE Generation excluding Wind(MW) 1,688 2,100 2,520 2,880
Unit Generation of CER per MW from RE Project (Nos.) 3,500 3,500 3,500 3,500
Indian CER Generation Potential (excluding Wind) 5,906,250 7,350,000 8,820,000 10,080,000

For Energy Efficiency Projects

Indian Industry's Energy Efficiency Potential (MW) 4,000 4,000 5,000 5,000
CER generation per MW from EE Projects (units) 4,500 4,500 4,500 4,500
CER generation from EE Projects In India(units) 18,000,000 18,000,000 22,500,000 22,500,000

For Bio-Diesel Projects-Jatropha

Bio-diesel generation capacity in India (kilo tonnes) 10,000 20,000 20,000 30,000
CER Generation per kilo tonneof Bio-diesel (units) 3,000 3,000 3,000 3,000
CER Generation-Bio diesel prodn in India (units) 30,000,000 60,000,000 60,000,000 90,000,000

Syndication of Equity and Project Finance for India

RE Projects Generation excluding wind(MW) 1,688 2,100 2,520 2,880
Indian Industry's Energy Efficiency Potential (MW) 4,000 4,000 5,000 5,000
Total RE &EE project addition p.a.in India (MW) 5,688 6,100 7,520 7,880
Average investment required per MW (US $Mil) 1 1 1 1
Investment Capital/p.a for RE&EE Proj in India (US $Mil) 4,266 4,575 5,640 5,910
Equity required (70:30 D/E Ratio) for RE/EE Projs(US$ Mil) 1,280 1,373 1,692 1,773
Proj. Fin reqd(70:30 D/E Ratio) for RE/EE projs (US $Mil) 2,986 3,203 3,948 4,137

For Preparation of PIN, PDD, Validation & HCA and

Registration of CDM Proejcts.
Quantum of RE Proejcts excluding Wind (MW) 1,688 2,100 2,520 2,880
Quantum of Indian EE Projects Potential (MW) 4,000 4,000 5,000 5,000
Total Indian CDM potential RE&EE in India (MW) 5,600 6,100 7,520 7,880
Average Size of CDM Project in India (MW) 7.5 7.5 7.5 7.5
Potential Number of CDM Projects in India (Nos) 758 813 1,003 1,051

Indian Potential for Carbon Trading/Broking

CER Generation from RE Projects in India (Units) 5,906,250 7,350,000 8,820,000 10,080,000
CER Generation from EE projects in India (Units) 18,000,000 18,000,000 22,500,000 22,500,000
CER Generation - Bio diesel Production in India (units) 30,000,000 60,000,000 60,000,000 90,000,000
Total CER Generation from all CDM Projects (units) 53,906,250 85,350,000 91,320,000 122,580,000
Expected average selling price per CER (US$) 17 20 20 20
Total revenue generation by sale of CERs (US$) 916,406,250 1,707,000,000 1,826,400,000 2,451,600,000
The table below shows the cash flows for our company based on the total market size of India.
( appendix 2)
OUR COMPANY MARKET SHARE
(WITH ASSUMPTIONS) 2007-08 2008-09 2009-10 2010-11
Assignments for Preparation of PIN, PDD, Validation,
HCA and Registration as CDM Project.
Expected Number of CDM projects in India (Nos.) 813 1,003 1,051
Our Market share projected (%) 1 2 2
No. of assignments (projected) 8 20 21
Average Revenue per assignment (US$) 30,000 30,000 30,000
Service charges from prepn of PIN, PDD, HCA, etc (US$) 243,900 601,800 630,600

Carbon Credit Broking

Indian revenue potential on sale of CERs (US$) 53,906,250 85,350,000 91,320,000 122,580,000
Our Expected Market Share (%) 1 1 2 2
Our Expected CER Sales Revenue (US$) 539,063 853,500 1,826,400 2,451,600
Our fee for arranging sale of CERs (%) 5 3 3 3
Fee on arranging sale of Carbon credit (in US$) 26,953 25,605 54,792 73,548

Fee on arranging Equity finance and Syndication of

Project Finance
Equity reqd (70:30 D/E ratio) for RE/EE Projs (US $Mil) - - - 1,773
Proj Fin reqd (70:30 D/E ratio) for RE/EE projs (US $Mil) - - - 4,137
Fee for arranging Equity and Project Finance (%) - - - 2
Our Market share projected (%) - - - 2
Our fees for arranging equity and proj finance (US$) - - - 1773000

Total Revenues (US$) 26,953 269,505 656,592 2,477,148