Assignment Overview

Assignment 2: BUSINESS MODELS

Assignment Overview

In this assignment, you will define the business model for your chosen energy project in the agriculture sector and apply three important methods of capital budgeting. The main goal is to develop a specific business model for a realistic project in a location of your choice, considering the parameters suitable to the local requirements.

Please follow the subsequent steps:

1.  Carry out this assignment in a group of about ten people. If you are not in a team yet or if you have problems to find a team, our tutors will help you.

2.  (new) The group leaders will be sent the submission link, and only they have to submit the final document. Please make sure to mention all contributing team member in the documents.

3.  In addition to submitting your team-assignment, reading of and commenting on two of your peer’s submissions is obligatory in order to earn the ‘Assignment 2 Badges’.

After you submitted and the peer review is ongoing, work is to be done on our end:

4.  Afterwards, the course instructor will review your report and evaluate it for its eligibility to obtain the badge.

5.  Also, the instructor will upload a summarized common feedback to this assignment, addressing the relevant issues observed in different group reports.

6.  The Assignment 2 Badges will be awarded to the participants who passed the course instructor’s check and have reviewed at least 2 fellow groups’ assignments.

In order to simplify the review process, you need to follow the below given structure for your report (chapter 1 to chapter 6). You can use this template simply by writing your input in the required fields.

Please note that the deadline for uploading this assignment is the 20th of March. Please note that the last day to complete the peer review is the 25th of March.

Additional information

In the assignment of week 2 you were asked to calculate the required PV panel size for a solar powered irrigation system (SPIS). This week’s task is to develop an appropriated business model either for the SPIS project that you already planned last time or for another agro-energy project of your choice in the context of this week’s contents.

In the next paragraph some information about possible revenue and cost items of a SPIS is given. For a small-scale gasifier, a biogas plant or a solar dryer you can find similar information in this week’s reader. Please take into account that these lists are not complete and are meant only as guidelines. Making a similar list of revenue and cost points can help you to answer the questions of this assignment.

In general SPIS have relatively high initial costs, but no fuel costs and low maintenance costs (due to few moving parts, only cleaning of panels and regular check of pump and controller). By distributing the costs over the life time of such a system and by taking into account the possible revenue, you can calculate the financial viability. The possibilities for gaining revenue with the SPIS are:

-  If you are currently using no or an inadequate irrigation system, implementing a SPIS could increase your harvest and this raises your profit.

-  If you are currently using a fuel-driven irrigation system, you have the avoided payment for the fuel as indirect revenue.

-  Depending on your business model, you can generate additional revenue by supplying water to the fields of your neighbours if you agree upon a monthly fee beforehand.

In the long run, SPIS can be a cost-efficient alternative to fuel-driven systems. For a better comparison of the costs for such scheme with your currently operating irrigation scheme, calculate the costs per cubic meter of water for both schemes for a longer time period, for instance 5 or 10 years. Sum up the costs (initial cost, fuel cost, cost for fuel deliveries/refilling, maintenance and repair costs, etc. taking price increases and subsidies into consideration) for the chosen time period. You may then divide it by the square meters of irrigated field. Now you can compare these two specific numbers (cubic meter water or square meter of irrigated land).

Group’s name / Names of all contributing group members

Chapter 1: Project description

The proposed project will be located in the following area:

Continent / On which continent is your case study located?
Country / In which country is your case study located?
Region / Please describe the site of your case study.
Coordinates / Please provide the coordinates of your site:
nn°nn'nn"N/S nn°nn'nn"E/W (e.g. take it from google map)
Project Type / SPIS or solar dryer or Gasifier or biogas plant or any other of your choice
Short description about the socio economy of the region (max. 300 words) / Please explain shortly the relevant information for the type of your energy project. Relevant points could be for example: Population size, main agricultural activity, main irrigation mechanisms, electricity supply (grid connected or off grid), source of electricity supply, used fuel for cooking and lighting, main economic activities, market access and demand for the end-products, climate conditions.

Chapter 2: Defining of business model

Your project (maximum 500 words) / 1.  Describe your project a bit closer. Why do you want to start this kind of project? Is there a market potential for the end product in your area? Who are your potential customers? How is the access to the market of the respective end-product and are there competitors?
2.  Do you have the required resources available? Do you have access to the necessary plant, technical components, etc.?
3.  What is the expected life time of your project? Do you want to finance your project by loan or your own saving or both?

Chapter 3: Calculation of cost

Cost of the project (maximum 400 words) / 1.  List and calculate your CAPEX (initial investment and required reinvestment). Don’t forget to include permits, land purchase, construction of buildings, machinery, equipment, etc. if relevant.
2.  List and calculate your OPEX. Also think about required resources, labour for operation and maintenance, and rent for buildings. In case that you want to take the loan, consider the interest.
3.  Calculate the total annual costs

Chapter 4: Calculation of revenue

Revenue of the project (maximum 400 words) / 1.  Will you have avoided payments for former used diesel, kerosene, cooking gas, grid power, etc.? If so, calculate this avoided payment on an annual basis as indirect revenue.
2.  Will you have revenue from selling the end-products to neighbours or on the market? If so, at what price can you sell these products and which quantity per year is probable according to your available resources and the market demand? Calculate the possible annual revenue from sales.
3.  Calculate the probable total annual revenue.

Chapter 5: Applying important methods of capital budgeting

Calculation of payback period, NPV and IRR (maximum 500 words) / 1.  Please calculate the payback period of your project
2.  Please calculate the NPV of your project for its defined life time. For the discount rate consider your opportunity cost of the capital, meaning the rate of return that you could earn with an investment of comparable risk and size. You can also take the rate of return that you would get for depositing your money to a bank account with a given interest rate.
3.  Please calculate the IRR of your project for its defined life time.
4.  Make a short statement on the profitability of your project, based on the calculation results of the payback period, NPV and IRR.

Chapter 6: Summary

Project and business model summary (maximum 200 words) / 1.  Please write down the summary based on the contents of your report