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Example Opportunity Analysis
Example Opportunity Analysis
By:
Opportunity Analysis of New Student No.
Business Venture
MKTM033, Assignment 1 – PJ1
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).
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.
Market Segmentation
The three major markets which use biomass pellets are:
Individual
Use
Biomass
Pellet
Institutional
Industry &
Commercial
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.
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
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
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.
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).
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.
Technical Feasibility
The figure 4 below describes about the process or operation of biomass
pelletizing:
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
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.
BZY
4 Belt conveyer B= 0.6 m , L = 13.0 m
1160/13
BZY
6 Belt conveyer B=0.6 m , L – 15 m
1160/15
Standard machine
12 Pellet mill HMG 1.5 A
from Europe
BLC B = 0.3 m , L = 6
13 Pellet conveyer
1130/6 meter
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
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):
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
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: _______________________________________________