Proposal On Business Model Based on

Molten Carbonate Fuel Cell Technology

Presentation to the Board of Directors, Reliance Energy

An Educational Project as part of course on Business to Business Technology Marketing

By Prof. Saji K.B.Nair (IIM(L))

Submitted By:

Renjan Oommen

Basant Maheshwari

Sindhu Sivan

Nitish Pandey

Swaminath Adabala

Vikram Phatak

Contents

  1. Abstract
  1. Situational Analysis
  1. Introduction
  2. Marketing Objectives
  3. Technology product category threats and opportunities
  4. Company strengths and weaknesses
  5. Competitive Analysis
  1. Generic Marketing Strategies
  2. Segmenting
  3. Target Segment
  4. Differentiation
  5. Positioning
  1. Technology Marketing Plan

Situation Analysis

Introduction

Product

A fuel cell is an electrochemical energy conversion device which converts the chemicals hydrogen and oxygen into water, and in the process it produces electricity. The fuel cell essentially requires hydrogen and oxygen: while the oxygen is drawn from air, the hydrogen is either supplied directly or is reformed from hydrocarbon gases such as methane or other fuels like ethanol and methanol. Hydrogen and oxygen combine in the fuel cell to produce electricity, heat and water. There are several different types of fuel cell but they are all based around a central design.

Fuel Cells as Stationary Power Plants

According to the Central Electricity Authority (CEA), India needs an additional 1, 00,000 MW at an estimated investment of nearly US$100bn to meet its power requirements in the next 15 years. Combined with the rising interest in non-conventional energy sources, this translates into great potential for entry of fuel cell power plants as power generators. Given the strong agrarian economy, ethanol (from sugarcane molasses) and methane (from biogas) are readily available as primary choices as fuels for fuel cell plants.

While setting up of the fuel cell stack and fuel processor are significant investments, the operation costs are much lower than conventional power generation facilities. A typical fuel cell plant using methane as a fuel could have raw electricity generation costs at Rs. 4-5 per kWh, which will drop down to a competitive Rs. 2-3 per kWh after factoring reductions in price due to environmental credits, savings on maintenance, increased reliability and use of the heat generated in the fuel cell process.

The Most Promising Fuel Cell - Molten Carbonate Fuel Cell Technology (MCFC)

Molten carbonate fuel cells are designed to operate at higher temperatures than phosphoric acid or proton exchange membrane fuel cells and thus achieve higher fuel-to-electricity and overall energy use efficiencies (50%) than these low temperature cells (37-42%). When the waste heat is captured and used, overall thermal efficiencies can be as high as 85%. Conventional modes come no where near these figures.

Type / Operating Template / Electrolyte / Typical Unit Size / Application
Alkaline Fuel Cell (AFC) / 70-90 / KOH / 1-100 / Space and Military
Proton Exchange Membrane Fuel Cell (PEMFC) / 50-80 / Polymeric Membrane / 0.1-500 / Residential, Portable and Transportation
Phosphoric Acid Fuel Cell (PAFC) / 160-210 / Ortho- Phosphoric / 5-200 / Dispersed Power, Acid Combined Heat & Power (CHP)
Molten Carbonate Fuel Cell (MCFC) / 650 / Molten Carbonate / 100-2,000 / Central Utilities
Solid Oxide Fuel Cell (SOFC) / 800-1000 / Zirconia / 25-1,00,000 / Central Utilities

In a molten carbonate fuel cell, the electrolyte is made up of lithium-potassium carbonate salts heated to about 1,200 degrees Fahrenheit (650 degrees Celsius). At these temperatures, the salts melt into a molten state that can conduct charged particles, called ions, between two porous electrodes.

Moreover, MCFCs eliminate the external fuel processors that other lower temperature fuel cells need to extract hydrogen from the fuel. When natural gas is the fuel, methane (the main ingredient of natural gas) and steam are converted into a hydrogen-rich gas inside the fuel cell stack (a process called "internal reforming"). At the anode, hydrogen reacts with the carbonate ionsto produce water, carbon dioxide, and electrons. The electrons travel through an external circuitcreating electricityand return to the cathode. There, oxygen from the air and carbon dioxide recycled from the anode react with the electrons to form carbonate ions that replenish the electrolyte and provide ionic conduction through the electrolyte, completing the circuit. The electrolyte in this fuel cell is a salt melting of combined alkali carbonates (Li2CO3 / K2CO3).

Unique Selling Proposition

This report looks at Fuel Cells as Stationary Power Plants, the markets in detail and presents the unique selling propositions of this fuel cell technology. The USPs are:-

  • Environment benefits because of no combustion
  • Flexibility in the types of fuels that can be used with fuel cell technology
  • Relieves the reliance on existing natural resources used for energy consumption
  • Higher quality of power and energy efficient
  • Safe, quiet, and reliable
  • Fuel cells can run continuously for long periods of time before servicing is required
  • Fuel cells are also able to respond fast to load changes, because the electricity is generated by a chemical reaction.

Choice of Company

Reliance Energy Ltd is India's leading integrated power utility company in the private sector. It has a significant presence in generation, transmission and distribution of power in Maharashtra, Goa and Andhra Pradesh. It distributes over 5,000 MW of power - the largest in the country.

Reliance Energy is in the process of commissioning / execution of 2 x 250 MW Tau Devilal Thermal Power Station at Panipat, Haryana and 2 x 210 MW Parichha Thermal Power Station at Parichha, U.P. Also it will be setting the world’s largest 8000 MW gas based power project in Ghaziabad, district of UP by 2008 using gas from Krishna Godavari basin.

With large scale involvement in power sector Reliance Energy has the advantage/potential to enter renewable energy sector using Fuel Cell technology, as it is the most promising renewable source of energy. Moreover the company will have the “first mover “advantage as well as it can utilize the sops being provided by GOI.

Marketing Objectives

The business objective of the product launch is to test the installation and exploitation of this technology at a township scale so that in next 6 years this can be a preferred source of technology India and that Reliance energy is the giant in an oligopolistic setting of fuel cell providers. Other objective is that as a spin off Reliance Energy can look forward to export to SAARC and SAFTA countries.

In order to achieve the objectives within the Indian subcontinent by 2012 the marketing objective is to market Fuel Cell technology on a turnkey basis for increasing their market share in power generation area and to position this as a product of choice or a business opportunity in areas suffering from power shortage.

Technology Product Category Threats and Opportunities

Threats

Renewable i.e solar, wind and hydel as well non-renewable i.e thermal, and nuclear sources of power generation

Opportunities

(a) India is a power-starved country. According to the Central Electricity Authority (CEA), India needs an additional 1,00,000 MW at an estimated investment of nearly US$100bn to meet its power requirements in the next 15 years. The grid quality electricity generation through fuel cell technology on a decentralized manner can be of immense help to the country.

(b) Disadvantages of non - renewable sources of energy i.e pollution leading to climatic changes due to ozone layer depletion. It is estimated that the world-wide emissions of greenhouse gases will have doubled by 2030

.(c)Storage problem and non-availability of 24X7X365 hours of renewable sources of energy i.e solar, wind, tidal, geothermal and hydel.

(d)High risk and prohibitive cost in the usage of nuclear energy due to non- renewable nature of uranium, waste disposal issues.

Company’s Strength & Weakness

Strength

Reliance Energy has earned a net profit of Rs 367 crores due to increase in sales.It ranks third among the Indian private sector companies in terms of net worth.The company distributed nearly 16,000 million units of power to over 5 million consumers in Mumbai, Delhi, Orissa and Goa, across an area covering 1,24,300 sq. kms. It generates 941 MW of power, through its power plants located in Maharashtra, Andhra Pradesh, Kerala, Karnataka and Goa.It will be setting up the world largest gas based power 8,000 MW project at Ghaziabad district in UP by 2008.

Weakness

Reliance Energy is yet to venture into renewable energy sector and therefore the company will require to go in for transfer of technology from indigenous or foreign sources.

Company’s Threats and Opportunities

Threats

(a) The new liberal energy policy of GOI and State Governements is leading

to more and more companies jumping into generation of power. For example:

(i) In UP, the Birla Group and GVK industries, Hyderabad are setting up

power plants at Shahjahanpur and Srinagar respectively.

(ii) The sugar factories are entering into cogeneration leading to sale of

excess power to local grid i.e UP, MP & AP.

(b)Even MNC have evinced interest in entering Indian power sector.

Opportunities

(a)Large deficit in power in the country ,around 1,00,000 MW provides Reliance Energy to enter into power generation all over the country,

(b)GOI resolve to enhance installed capacity of renewable energy in India from 2,000 to 12,000 MW by the year 2012 with offer of benefits / incentives to Indian industry,

(c)First mover advantage and

(d) Possibility of technology being available at home from Bharat Heavy Electrical Limited (Hyderabad), Central Electrochemical Research Institute, Karaikudi, Chennai,Central glass and Ceramic Research Institute, Kolkatta, Indian institute of Chemical technology, Hyderabad and Indian Institute of Science, Bangalore., IIT , Delhi, Kharagpur and Chennai., National Chemical Laboratory, Pune, SPIC Science Foundation, Chennai and Tata Energy Research Institute, Pune/New Delhi and University of Rajasthan, Jaipur.

Competitive Analysis

Barriers to Entry

The large deficit in power provides opportunity to new players to enter Indian power generation market. The only barrier is the huge capital investment required in the power sector. Players maybe willing but not many have access to the knowhow - a barrier to some extent.

Bargaining Power of Customers

The costumers do not have bargaining power due to huge deficit in power availability and due to the monopoly setting at least for next 3 years.

Bargaining Power of Suppliers

Since fuel cell technology is the heart of power generation therefore, both Indian and foreign technology suppliers can leverage this advantage for getting the best return for technology transfer.

Threat of Competitors

There is no threat from competitors because there is enough space for all players and also Reliance Energy has the “First Movers” advantage.

Threat of Substitutes

Though there are substitutes of both renewable and non-renewable sources of energy, however, they pose no threat mainly due to huge deficit in power availability. The limited availability of non-renewable resources i.e fossil fuels, Uranium etc and storage as well as round the clock non-availability problems of renewable sources energy i.e Wind, Solar, Tidal and Hydel work in favour of this Technology.

Segmentation, Target Segment Selection, Differentiation & Positioning

Customer Benefit Enumeration

There are 3 important dimensions of benefits identified namely cogeneration (heat & power simultaneous production and use), use of such installations as a business model for power generation and distribution and last as captive power plant units for value adding to commercial complexes or townships development by realtors. These are briefly explained next.

Cogeneration

Many commercial and industrial activities have a simultaneous need for power and for heating or cooling to operate their processes, store their products and maintain comfortable working conditions for employees. To achieve this they would conventionally source electricity from a distribution company from remote, large power stations through an extensive and expensive, high voltage transmission and low voltage distribution network.Heating could also be supplied by electricity or by on-site fuel combustion in a boiler, raising steam.

Alternatively, a local COGENERATION scheme could be used whereby useful heat and power is produced sequentially from the same energy source.Cogeneration schemes need to be tailored to the particular user demands and considerable professional expertise is needed to understand and meet all requirements in a satisfactory way.

Over recent years, there has been resurgence in interest in cogeneration, driven by:

  • significant advances in the efficiency, reliability and cost of gas turbines
  • the widespread availability of natural gas fuel at decreasing prices in real terms;
  • privatisation and liberalisation of electricity generation and distribution activities, leading to tariff structures more closely reflecting costs;
  • the relentless search in industry for improved efficiencies as a means to improved competitiveness;

OPPORTUNITIES FOR COGENERATION

There is an opportunity for Cogeneration when there is a simultaneous requirement for power and heat.Modern schemes can have considerable flexibility in the ratio of power to heat provided and may be configured to meet the usual electrical load requirement - with supplementary and standby power from the grid, and with supplementary heat from additional boilers.

Meeting the cyclic demands of large batch processes is awkward - cogeneration sits most comfortably with continuous processes or activities with relatively steady demands.

Captive Cheaper, Reliable, Noise Free & Environment Friendly Power Packs

The economic growth and that of the population are putting huge pressure on the already tottering electricity grid. Townships and towers of concrete are being built but utilities like electricity and water are becoming critical evaluation parameters. Fuel cells provide an alternate efficient, nonpolluting power source that produces no noise and has no moving parts. With falling prices and new technologies suggest that the fuel cell's day may finally have arrived. Fuel cells are capable of converting 40% of the available fuel to electricity. This can be raised to 80% with heat recovery. The fuel cell itself has no moving parts, offering a quiet and reliable source of power.

Fuel cell system efficiency is independent of the rated power above 100 kW, unlike oil, gas or coal burning power plants, where the efficiency is constant only at the megawatt power level. Even at the 40% of the rated load, a fuel cell has almost the same efficiency as that of the full load. Fuel cells are also able to respond fast to load changes, because the electricity is generated by a chemical reaction.

Generation & Distribution

It is a well known that India is amongst the fastest growing economies in the world. This coupled with corruption seen in last 58 years of independence have accentuated the gap between the required and supplied power. This thus provides opportunity to huge capital entities to rush into power generation and distribution. However, conventionally, electricity is supplied by a distribution company from remote, large power stations through an extensive and expensive, high voltage transmission and low voltage distribution network. This has kept this field a precinct of a few. This is now set to change with the ease and speed of implementation of MCFC based power generation plants. Consider the following facets:-

  • the huge size of new coal-fired base load generating plant and long project lead times, coupled with uncertain future demand, creating space for mid-sized generators with relatively short project times;
  • BHEL (Hyderabad) is working on developing PAFC and MCFC for distributed power generation and also focuses on preparing catalyst and fuel reformer to be used in fuel cell power plants. They have demonstrated some distributed power systems.
  • TERI is working on MCFC stack development for power generation and procedure for making electrodes, electrolyte tapes and electrolyte carriers
  • In India Fuel Cell Program is largely supported by Government.

------Need/Benefit Significance Plot------

Based on the Need Plot we were able to estimate the most significant needs. The larger segment is looking for Generation and Distribution and for providing Captive Power units. Now we analysed the potential users looking for these benefits for following characteristics:

  • Region
  • UP
  • North
  • South
  • East
  • Central
  • Western
  • Type
  • Factory
  • Realtor
  • Power Business Venture
  • Consumption Size (Continuous Value)

Target Segment (Size Calculation):

To select the target segment there were 2 important considerations, one that our product cum service would meet that benefit and second that the segment would allow us to move towards our stated business objective.

As far as being able to fulfilling the need is concerned the potential product line from Ballard Inc. USA is capable of setting of large generation and distribution plants as well as medium to small captive power units for townships.

Hence the criteria for segment selection now depends only on the segments’ ability to support our stated business objective of cash return in 12 years period. Considering the following parameters:

  • Investment ceiling of Rs 1000 Crores
  • Captive Production Investment requirement: 836 Crores
  • Generation & Distribution Investment requirement: 846 Crores
  • Estimated IRR from Captive would be in the order of 11.34%
  • Estimated IRR from the Generation & Distribution entities it would be 17.23%.
  • Number of customers in each segment in year 1 thru 5.

To arrive at our segment we need to evaluate each of our segment data (for either of the 2 populous benefits viz. generation and distribution and captive power) on visible characteristics. The graphical plot of same is shown below.

------Population Plot for Captive Plant Users------