Poultry Biodigester Project Proposal - Edwards … Painter/businessplans... · Web viewBusiness...
Transcript of Poultry Biodigester Project Proposal - Edwards … Painter/businessplans... · Web viewBusiness...
WPF Bio-Gen _________________________________________________________________
WPF Bio-Gen
Business Plan for Poultry Manure
And Poultry Processing Wastes to be
Used in a Biodigester
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WPF Bio-Gen _________________________________________________________________
1.0 Introduction
1.1 Mission Statement
WPF Bio-Gen is dedicated to providing an economically effective energy source while
improving environmental conditions. WPF Bio-Gen plans to capitalize on the use of poultry
byproducts to become self-sufficient in electricity and heat generation while improving the
quality of sewer water and efficiency of manure removal. WPF Bio-Gen will strive to profit
from the production of heat and electricity to decrease overhead within the operation, at the same
time increasing the value of materials, which were previously disposed of at a cost, and
increasing their contribution to the rural economy and economic development.
1.2 WPF
Wynyard Poultry Farms (WPF) is owned and operated by Ted Baas. The farm was
originally built in 1962 and currently produces 1.5 million broilers per year. Mr. Baas worked
for this operation for ten years before buying it in 1998. In addition to WPF, Mr. Baas also
manages a farmer owned co-op broiler operation adjacent to WPF property. This brings the
operation total production capacity of 2.3 million birds per year. Mr. Baas is continually looking
for ways to manage costs and increase the profitability of his operation.
Currently the broiler barns that are in use are heated by forced air furnaces that run on
natural gas. In addition, electricity is needed to run the ventilation fans in the barn and lighting
on the farm.
Manure, straw and other waste materials are disposed of, at a cost to the farm, on the
fields of neighboring farmers or through a rendering facility in conjunction with Lilydale Foods
of Wynyard. It is this waste material that has the potential to provide the energy needs of WPF.
1.3 Biodigestion
A biodigester is any containment facility that is capable of breaking down organic
material through fermentation to create new by-products of which one is methane (Hills and
Ravishanker, 1984). Methane gas created from the waste material can then be used as fuel for
heating or the generation of electricity. WPF hopes to make methane gas out of manure, straw,
town sewage, hatchery losses, and mortality losses from the broiler barns. The methane will be
used to create heat, through the use of a boiler, for the barns in the winter. The excess methane,
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in the summer, will be used to produce electricity. There is also the potential to contribute
processing wastes, from either a newly constructed facility by WPF or from the Lilydale plant,
into the biodigestion processes which could significantly increase the production of the
biodigester with minimal additional infrastructural changes to the system.
Biodigester technology is relatively untested in cold climates such as Saskatchewan (pers.
comm. Clay Sparks). It will therefore be necessary to work closely with technological and
engineering firms that are familiar with the environment.
1.4 Goals
1.4.1 Short Term
The purpose of this project is to cut down the costs of WPF. WPF hopes to cut down on
heating costs due to the price of natural gas and the ever increasing potential for prices to
continue to rise (www.saskenergy.com/rates/sehistoricalrates.htm). If enough net energy can be
captured in the system, electricity will be produced to supply WPF needs, then the surplus will
be sold. At the moment WPF is paying local farmers to spread the manure on their land. If this
expense can be converted into a cost saving venture with a reasonable return on investment it
would be a huge benefit to WPF.
1.4.2 Long Term
Long term plans at WPF include both vertical and horizontal integration through new
business ventures. These include a facility capable of processing the birds they are producing,
which would produce an additional waste stream capable of being used in the biodigester as well
as spin off enterprises that may incorporate some of the byproducts of the biodigester. One
possibility may include a greenhouse to use up byproduct manure and water. This creates the
opportunity for a fully integrated Holistic Farming operation (Shih, 1993) which is, to be able, to
be self sustaining and value added.
2.0 Overview
2.1 Industry
The poultry industry in Saskatchewan produced 34 million kilograms of chicken in 2001-
2002 and has the room to expand significantly if industry problems are corrected
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(www.agr.gov.sk.ca/docs/processing/poultry/poultry.asp). In Saskatchewan WPF makes up 12%
of the total poultry meat production making them the largest private producer in the province.
2.2 Environmental Impact
As the industry continues to expand, more focus and attention will be paid to it and other
intensive livestock operations and there effect on the environment. The intensive and large-scale
production of food animals and animal products has generated an enormous waste disposal
problem for the animal industry. These wastes, which include animal excreta, mortalities, hair,
feathers, and processing wastes, are largely organic materials and are convertible to useful
resources (Shih, 1993). Even though poultry litter has great potential as sources of fertilizer,
energy, and feed, it is most often viewed as an important source of pollutants in surface and
ground water (King, 1996). These large quantities of poultry manure production pose serious
socio-economic problems, the most prominent of which is the protection of our environment and
our environmental resources (www.agr.gc.ca/misb/aisd/poultry/manure.pdf).
2.3 Potential Benefits
“Animal wastes were regarded as valuable fertilizer wastes 95 years ago. With the
advent of intensive animal production systems, the wastes were regarded as pollutants and
nuisances. During the last decade or two the wastes have again been recognized as valuable if
they are managed properly” (Fontenot et al, 1983). Anaerobic fermentation has been shown to
not only generate combustible fuel but it also prevents pollution, provides a nutritionally rich
sludge usable as fertilizer (El-Shinnawi et al, 1989), provide solid residues that are usable as
feedstuffs, and has been shown to destroy pathogenic organisms thus protecting environmental
health (Shih, 1993).
The arrival of the Kyoto Protocol in 1997 has changed corporate thinking towards
greenhouse emissions. New emphasis will be placed on technology to reduce greenhouse gases
and create carbon sinks. Monetary penalties will be placed on companies who continue to
produce carbon while companies that decrease their greenhouse emissions will potentially be
rewarded. This reward will come in the form of carbon credits which the company will be able
to sell. As of now, a value is yet to be determined for these carbon credits but they could
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represent significant financial advantage to those companies which work to decrease greenhouse
emissions. (http://news.bbc.co.uk/1/hi/world/38690.stm)
3.0 Methodology
This project will discuss in detail the operations of the new facility, which will include
detailed plans for the yard and building at the proposed site. Also within the operations plan,
there will be research on different types of biodigesters. This biodigester will also follow in
accordance with the laws and regulations that the town and province has set. The human
resources plan will go into detail about who will be responsible for the new facility and the
people who will be employed within it, as well as the costs for hiring and training the new
employee(s). The marketing plan will include possible marketing options for the by-products of
the biodigester, as well as look at the current trends in prices for gas and manure. The marketing
plan will also discuss possible sources of revenue after the setup of the biodigester (greenhouses)
The financial plan will include start-up costs, financing options, analyzing financial
benefits/downfalls and a ten year projection of the finances.
4.0 Operations Plan
4.1 Location
4.1.1 Considerations
With the start up of any new business venture the location has to be considered. The
proximity to raw materials that the business will require to run as well as its distance to the buyer
of the end products can be vital to the success or failure of the entity. In the case of WPF Bio-
Gen, it is therefore necessary that the operation be located close to Wynyard Poultry Farms. This
is the only logical location as it will allow for minimal transportation costs of the raw manure
and a short distance for the resultant energy that is produced to be transferred.
Another consideration is the space required for development of the facility. A sufficient
site size will be necessary in order to provide manure storage, handling, and processing, as well
as the biodigester buildings, and any end product processing that will be needed.
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4.1.2 Building Layout and Site Plan
Figure 2 represents a layout of the entire site at Wynyard Poultry Farms (WPF) and the
location of the biodigester relative to it. This diagram shows the relative distances of the poultry
barns from the biodigester and the location of the town of Wynyard’s sewer line.
Figure 1- Site Map of WPF and proposed location of WPF Bio-Gen
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Representation of the biodigester system is seen in Figure 2. This diagram shows the
entire system designed by ClearGreen Biotechnologies and the components that it entails. The
major system components will be constructed on site and will be built outside with no exterior
building to house them. This system has been designed to be operated in the Saskatchewan
climate and is the only technology that has been used here. The components necessary for
nutrient extraction of the digested slurry will be housed in a building of their own. The
individual components of the biodigester system will be explained in greater detail in section 4.2
under equipment.
Figure 2-Major Components of Biodigester
Figure 3 shows the site layout and the orientation of the Clear-Green system as adapted
for WPF Bio-Gen. The additional components that have been added are required because of the
change to poultry manure rather than hog manure, for which the system was designed. The
poultry manure requires additional handling and storage concerns in order to make the product
usable.
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Figure 3-WPF Bio-Gen site layout
4.2 Equipment
4.2.1 Storage
Storage is necessary in order to keep a supply of fermentable organic material to feed the
biodigester. Because the poultry barns are cleaned out once per growing cycle it is necessary to
have enough storage capacity for the total manure output from one cycle. In order to accomplish
this it will be necessary to construct a building to keep the manure out of the elements and free of
debris. Construction of a 40ft x 60ft building will be done to achieve this. The building will be
manufactured with a 6 inch concrete floor in order to carry the load that will be on it and 10ft
high 1ft thick concrete walls on three sides. In order to have a 16ft high ceiling a 6ft wall will be
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constructed of wood and tin sheeting on top of the concrete wall. When the barns are cleaned
out at the end of each cycle the entire manure production will be stockpiled in this storage shed
to be used over the 56 day period until it can be filled again. On the north-east end of the storage
shed will be a large gravity bin that will be able to be filled with one or two days worth of
product.
4.2.2 Processing
The materials to be used in the biodigester will be mostly manure that is removed from
the poultry barns. In addition to this there will be the bedding material from the barns, death
loss, hatchery waste, and the processing waste from Lillydale Foods in Wynyard. The waste
streams from Lillydale will be constantly produced and will be trucked in by Lillydale to WPF
Bio-Gen and added to the biodigester. Because of the inconsistent nature of all these products it
will be necessary to process them to a uniform particle size. This will also aid in the
biodigestion of the material by increasing the surface area to be fermented by bacteria. A large
hammer mill will be used to do this. Purchased from Wholberg Industries in Saskatoon, Sk the
hammer mill will be capable of processing 1.5-2.0 tonnes of product per hour.
4.2.3 Pre-mixing
In order for the material to be digested it is necessary for it to flow through the system
and for bacteria to act on the material. Water will be added in the pre-mixing stage to a level of
10% solids. The water for the biodigester will come from two sources. As much water as
possible, will be recycled from the nutrient separation process and added back to the pre-mixing
tank. This will recuperate the energy that has been put into heating the water up in order to start
the digestion process. Not all of the water can be recycled because some is needed in the
fertilizer products. Additional water will be taken from the town of Wynyard’s sewage system
and be drawn from the line adjacent to WPF Bio-Gen. This will allow for a free source of water
as well as the potential to capitalize on the availability of any human wastes that can be
fermented in the biodigestion process. The use of this water supply needs to be monitored
because users of this sewer line include Wynyard Union Hospital and Lilydale Foods which are
both users of antimicrobial agents that can upset the digestive bacteria and interrupt the process.
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Because of the dilution factor of any of these agents it is not anticipated that this will be a
problem.
At the pre-mixing stage the temperature of the material needs also to be heated up to
around 37oC in order to achieve optimal digestion. This will be done through heat produced by
biogas from the digester as well as the recycling of water back to the pre-mixing stage once the
digestion process has been completed.
4.2.4 Biodigester
The biodigester is the primary site for the majority of the fermentation of organic
material. In this system the tank is a 48ft tall structure that is 48ft in diameter. It is made from
an oxygen proof surface that is steel with a glass surface fused to the inside. The outside will be
covered with 6 inches of insulative material that will help to maintain fermentative temperatures
at a steady level. A large paddle agitator rotates inside the tank to keep the slurry mixing and
through fluid dynamics moves the digested material up to the top of the tank to flow off and
move into the next tank. Any biogas that is produced in this tank comes off the top and is piped
into the gas storage in the next tank.
4.2.5 Dual Purpose Tank
The dual purpose tank is named so because it serves two functions as both gas storage
and secondary digestion. The dual purpose tank is a concrete structure that is 28ft tall with the
bottom third in the ground the middle third with sloped dirt around it and the top third exposed.
The tank is filled with the material that comes out of the biodigester and further gas production is
compiled along with the gas that comes from the biodigester. The biogas is stored in a large
neoprene bladder that sits on top of the dual purpose tank. Between the bladder and the concrete
is a layer of tamarak wood that is a host for sulfanogenic bacteria that cleave the free sulfur out
of the atmosphere to prevent sulfur being present in the biogas. From the biogas storage bladder
it then can be used in both the power generator and/or the boiler unit.
4.2.6 Energy Capture Units
The biogas can be used in place of natural gas in either a turbine generator or a pressure
boiler in order to produce energy. In the case of WPF Bio-Gen the gas production will be used
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to fire a boiler in order to produce electricity. Heat from this process will be recovered and piped
to the poultry barns for heating. Electricity that is generated will be sold to WPF to be used in
the barns, sold to the town of Wynyard, or sold to Sask Power for the Green Power program.
4.2.7 Technical Building
The majority of the system will be automated and will require a building to house the
computer equipment. This will be a simple 20ft x 20ft building with sufficient room for an
office and meeting room as well.
4.2.8 Membrane Separation
Once the digestion process is complete the digested slurry will be separated in to
elemental components that will allow for the sale of value added products. The addition of
membrane separation, filtration, and reverse osmosis equipment will be used to separate the
products into elemental fertilizer components. A 10% nitrogen solution and a 4% phosphorous
and 4% potassium solution will be produced and stored to be sold for liquid fertilizer application.
The two products could also be blended into a fertilizer product containing all three elements of
whatever proportion the customer may want. This could be done easily at the plant at time of
delivery. Once the water was been filtered through this system it is once again potable and could
be returned back into the town drinking system, used for irrigation, or a variety of other uses.
4.3 Physical Product Flow
Figure 4-Physical product flow sewage from town
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Storage
Processing
Mixing Digester
Biogas
CHP Boiler
WPFPower
WynyardPower
ChickenBarns
Slurry
Water
Town Lagoon
Nutrient Separation
Elemental Storage
Waste
Disposal
Storage
Processing
Mixing Digester
Biogas
CHP Boiler
WPFPower
WynyardPower
ChickenBarns
Membrane Separation
Water
Town Lagoon
Nutrient Separation
Elemental Storage
Waste
Disposal
WPF Bio-Gen _________________________________________________________________
The previous diagram (Fig 4) shows the flow of materials through the system and the
potential for recovery and production of products.
4.4 Production Levels
There are five main products that will be produced by WPF Bio-Gen. These will include
biogas for heating and electricity production, fertilizer, water, and carbon credits. The volume of
heat and electricity has been determined using equations for energy production from
fermentation of organic material, fertilizer by total product outflow multiplied by their nutrient
content, water levels were not determined because a certain level of this product will need to
remain as part of the fertilizer and the remainder will be recycled into the biodigester, and carbon
credits were calculated based on the business’s ability to remove CO2 from the atmosphere. The
levels of these products are expressed in Table 1.
Table 1- Production Levels
Product Quantity
Biogas (m3) 1,500,000
Organic Fertilizer (lbs)
Nitrogen 413,343
Phosphorous 165,337
Potassium 165,337
Electricity (kWh) 2,750,000
Carbon Credits (tonnes CO2) 40,000
4.5 Work Plan4.5.1 The Average Business Day
The average day for the employee at the site will consist of many tasks. The first thing
the employee will be responsible for is the loading of the daily 5 tonnes of manure from the
storage building into the gravity tank that is also housed within the storage facility. This task
will be done with a small tractor that is rented from the poultry farm operation. Once this
operation is completed, the rest of the system is automated, but will require periodic observation
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of the pressure levels, gas production, and fluid levels in the tanks. The employee will also be
responsible for the daily inspection of the equipment for any leaks in the delivery systems
between tanks and temperature levels. These observations should be performed three times a
day, once in the morning, afternoon and before the employee leaves for the day. Since most of
the system is automated, the employee does not have to be there all the time, this frees the
employee to do other duties at the poultry operation. Alarms are built into the system in case
anything goes wrong and the system will page the employee/manager alerting them of a potential
problem. During the winter, more care and attention may be required due to the cold and the
potential of the liquids freezing in the pipes or tanks.
4.5.2 The Average Business Week
The average business week will be similar to the daily routine, in the sense that there will
be continuous monitoring of the system. Since the process for the gas production takes so long,
there is little to be done outside the daily routine. The employee will also be responsible for the
proper storage of the by-products until they can be sold or disposed of.
4.5.3 The Average Business Month
The average business month will require an inventory of the amount of manure that is left
on hand to ensure that the process can continue. The amount of power and heat that the boiler
and generator is producing will also have to be inventoried to see if the system is producing at
it’s optimum level. If there is excess power that is being generated from this system the owner
will have to decide whether to sell the energy back to Sask Power, or to store the energy in a
series of batteries. Every year the biodigester will have to be shut down so that it can be cleaned
out by removing all the materials from the system, this will result in a lag period of two weeks
before the system will be producing at optimum.
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4.6 Cost of Goods Manufactured
Table 2-Cost of Goods Manufactured
Cost of Goods Manufactured in first year (2004)
Direct Materials 0 no charge for raw material - manure and processing waste
Direct Labor 33,342one technician hired to maintain and operate facility
Variable Mfg Overhead:
Maintenance 44,730 affected by the capital cost of equipment
44,730Fixed Mfg Overhead:
Property Taxes 0 tax exemption for first five yearsCapital Cost Allowance 452,300Electrical and Natural Gas 9,000
$461,300
Cost of Goods Manufactured $539,372
4.7 Cost of Goods Sold
Table 3-Cost of Goods Sold
2004 2009 2013
Beg Finished Goods Inv $0 $61,152 $61,152
Cost of Goods Manufactured $539,372 $546,382 $386,769
Goods Available for Sale $539,372 $607,535 $447,921
End Finished Goods Inv $30,576 $61,152 $61,152
Cost of Goods Sold $508,796 $546,382 $386,769
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4.8 Operating Expenses
Table 4-Operating Expenses
2004 2009 2013
Telephone 600 678 749Salaries (SG &A) 0 0 0Benefits (SG &A) 0 0 0Marketing Expenses 0 0 0Admin Expenses 3,500 3,500 3,500Training Expenses 2,000 0 0Start-up Costs 10,000 0 0Interest - LT Debt 183,520 109,200 25,323Total Expenses 199,620 113,379 29,573
4.9 Capital Expenses
Capital costs (given in table 5) include all capital purchases that need to be made in order
to construct a working biodigester and the necessary infrastructure to support it. The largest
expense is the biodigester itself at $2,800,000.00. However, this price includes the pre-mixing
tank, biodigester tank, dual-purpose tank, electrical generation equipment, boilers for heat
production, and all technical equipment and plumbing necessary for the digester to function. The
nutrient separation components of the capital expenses includes membrane filtration, and reverse
osmosis equipment that is capable of separating the nitrogen, phosphorous, and potassium
components out of the digested material. This cost also includes the fertilizer product storage.
Table 5-Capital Expenses
Capital Expenses
Land Cost 5 acres $5,000Building Cost Storage Facility 40x60 $80,000 Technical Facility 20x20 $20,000Land and Building Cost $105,000
Equipment Cost Biodigester $2,800,000 Nutrient Separation $1,400,000 Hammer mill $8,000 2 Conveyors $7,000 Water hook-up $8,000 Piping/Boiler $250,000
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Total Equipment Cost $4,578,0004.10 Organizational Structure
WPF Bio-Gen is to be set up as a limited company with the owners to be Ted and
Shannon Bass, who are the current owners of WPF. The project is to be equity funded for 50%
of the total capital cost with the remainder of the money coming in the form of a loan from a
financial institution. The owners will give management duties to Ted Bass who will also be
provided with technical expertise from ClearGreen Biotechnologies, in return for the purchase of
the technology. The single employee of WPF Bio-Gen will be responsible for undertaking duties
of running and maintaining the biodigester and additional duties handed down by the manager.
Figure 5- Organizational Structure
5.0 Human Resources Plan5.1 Job Description
The design system that will be built utilizes a lot of automated technology and is not
labor intensive. However it does require the addition of one full time employee that will be
responsible for the management of the facility and coordinating work efforts.
Because the work load will be variable, due to maintenance and manure movement, it is
suggested the hiring of one full time employee by WPF Bio-Gen who will do part time work for
WPF and one full time employee who will do part-time work for WPF Bio-Gen. This will allow
for the convenience of being able to put two workers on a single job when it is required but not
require the expenditure of two salaries.
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OwnersTed and Shannon Baas
ManagerTed Baas
Technical ExpertiseFrom Clear GreenBiotechnologies
General Laborer
WPF Bio-Gen _________________________________________________________________
5.2 Duties
The majority of the labour required will be in organic material handling and processing.
The nature of the material to be digested in this project requires the physical handling,
processing, and mixing of the materials. This will take up the majority of the employee’s time
and any additional time that is left in a work day will be spent working for WPF. At times of
emergencies or routine maintenance the shared employee of WPF will be used to help out at
WPF Bio-Gen.
5.3 Training
Technical expertise will be provided by ClearGreen Biotechnologies Inc. so a great deal
of training will not be needed. A small amount of training will be required to become familiar
with the operation of the biodigester, maintenance of the system, and trouble shooting problems.
An amount of $2,000.00 has been budgeted in the financial plan for introductory training and
any certificates the employee may require (i.e. boiler papers). Every two years after, an amount
of $1,000.00 will be allotted for refresher courses and upgrades in expertise.
5.4 Personality
The type of person to be sought after for this job will be someone who is good with their
hands and mechanically inclined but higher education is not a necessity.
5.5 Management
Management of day to day operations in the biodigester will be the responsibility of the
WPF BioGen employee but any major decision to be made will be directed back to the owner
and manager of WPF and its board of directors.
Book keeping will be handled under the current staffing of WPF.
5.6 Salaries and Benefits
Salary for this position will be paid out in a similar manner to that currently being used
by WPF. Because of the responsibility that this employee will have they will receive a slightly
higher salary than the laborers on the poultry farm but not that of the manager there. The
position will be in the form of a salary rather than an hourly wage which is how the staff of WPF
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is currently being paid. The job will pay an annual salary of $30,000.00 before taxes and
deductions (CPP and EI) plus benefits. EI contributions were calculated using the employers
portion of 1.4 x 2.1% of salary and C.P.P. contributions are 4.95% of the employees salary.
Benefits will be the same for the employee of WPF Bio-Gen as they are at WPF.
Because of the relatively small number of employees a benefits package is supplied through a
private financial company. Medical coverage is provided for 80% of drugs purchased, dental is
covered up to $1,500.00 per year, and both long and short term disabilities are covered. This is
provided for a premium paid by the employer of $300.00 per year per employee. Additional
contributions are made into a pension fund every month for every employee in the amount of
2.5% of their monthly salary.
Table 6-Salary and Benefits
Employee Salary
2004 2005 2006 2007 2008Full Time Employee Wage $30,000 $30,750 $31,519 $32,307 $33,114 E.I. (2.9%)* $882 $904 $927 $950 $974 C.P.P. (4.7%)* $1,410 $1,445 $1,481 $1,518 $1,556Pension Contribution (2.5%)* $750 $769 $788 $808 $828Benefits premium (1%)* $300 $308 $315 $323 $331Total Wage Cost $33,342 $34,176 $35,030 $35,906 $36,803
* - % = percentage of gross salary
6.0 Marketing Plan
6.1 Products, Pricing, Promotion, and Placing of Products
WPF Bio-Gen plans to sell five main products from the operation. These products are in
the form of heat produced by a boiler, generated electricity, water, carbon credits, and fertilizer
components that are to be extracted from the digested material. There is also the potential to
market the water for irrigation use. Pricing of products from the biodigester will be done in such
a way to remain competitive in the marketplace, but to also capture any premium value added to
these products due to their environmentally friendly nature. Promotion for the products
produced will be minimal because the majority of the products are to be sold internally. The
ability to market the products internally will also help with the placement of the facility since
most materials will be used at the site.
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6.1.1 Heat
Biogas that is produced in the digester will be captured in the dual purpose tank to be
used as fuel for energy production. In order to heat the poultry barns at WPF, the biogas will be
used to fire a boiler that will heat water which will be piped into the poultry barns in order to
maintain them at a stable temperature through the cold months. This will be done at a cost that is
on par with what the current energy costs which are paid by WPF. Sask Energy is currently
charging $0.25 / m3 of natural gas. Biogas is only 60% as efficient as natural gas so its price will
be reduced to 60% of that of natural gas or $0.15 / m3. WPF is willing to look at this technology
and whether it is profitable to do so, but they are not willing to subsidize the biodigester at a cost
greater than what they are currently paying for energy.
6.1.2 Electricity
The process of heating water to produce heat for the poultry barns will also allow for
electrical generation. This will decrease the efficiency of heat production but produce an
additional product that can be marketed. Electrical generation will be done by capturing the
steam in a microturbine generator. Electricity that is produced in excess of WPF demands will
be sold to Sask Power for their Green Power Program. The Sask Power Green Power Program is
a voluntary program where a power user can sign up to pay an additional 20% on their power bill
to offset some of the additional costs of producing “green power” (pers comm. Brian Mohr).
Power sold back to the utility company is bought by them a premium to the purchase price of
conventional power. Electricity sold to WPF will be priced similarly to the heating costs, in that;
it will be at the same rate that Sask Power would be charging WPF. Currently Sask Power is
charging $0.08 / kWh. This will be done because the rate that Sask Power charges, even for
conventional power, is greater than that which they will pay for power under the green power
program.
6.1.3 Fertilizer
There will be fertilizer products produced from the digested material through membrane
separation which will be available for sale. This product can be either a N,P,K blend that can be
marketed as such or individual elemental products. This will depend on the consumer demand
for the different products. This product can be marketed as an organic fertilizer which should
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command a premium price in the marketplace due to its environmentally friendly nature and
improved public perception of the product. Total production of fertilizer from the facility will be
413,343 lbs of nitrogen, 165,337 lbs of phosphorous, and 165,337 lbs of potassium of actual
elemental product. This product will be produced in a liquid form in a 10% nitrogen product and
a 4% phosphorous and 4% potassium product. The targeted market for these goods is either
urban municipalities or golf courses. The organic nature of the products lends itself to current
thinking in safety management of public play areas as well as the ability to administer the
product through existing water lines makes the product desirable. Another alternative market is
the use of the products in agriculture. Many farmers are already set up to transport and apply
liquid fertilizer. The location of WPF Bio-Gen is ideal for the targeted markets as it is located
centrally between the cities of Saskatoon and Regina. There is also a golf course in Wynyard
and another 20 when Saskatoon, Regina and the area between are included.
6.1.4 Water
The digested slurry is made up of the fertilizer components and water. Most of the water
from this slurry will be extracted through the membrane separation process and either be
marketed as the medium for the fertilizer product or redirected back into the pre-mixing chamber
prior to biodigestion. Some of the water will remain with the fertilizer components in order to
provide a medium to keep them stable and allow for application methods. Water which is
directed back into the pre-mixing tank of the biodigester will be done so because there is more
benefit from recuperating the spent energy to heat the water up prior to digestion than from using
cold sewage water. It is also possible for the water to be used in an additional enterprise if it
could be cost productive. The water, because of the treatment it has gone through, is a potable
water source and could be directed back to the town for human consumption. This is unlikely
due to the perception of the product but it would be ideally suited to an aquaculture, hydroponics,
greenhouse, or nursery business. This would require a holding facility to store it during the non-
growing season or else a year round customer for the water. This product will contain some trace
mineral elements that are not removed during the membrane separation which will have some
value. It is possible that a market can be generated for the waste water that is produced and if
this is realized a price could be put on the water. Pricing of the water treatment is also possible
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as the water that would be discharged to the town lagoon system would already be treated and
not need further treatment by the town.
6.1.5 Carbon Credits
An intangible benefit being produced by the biodigester is the “concept” of a carbon
credit. A carbon credit is a valued decrease in greenhouse emissions to the environment that can
be purchased by a polluting entity in order to offset their greenhouse gas production. Because
the biodigester produces energy from a renewable resource in an environmentally friendly way it
is a carbon sink under these carbon credits and therefore is available for sale. WPF Bio-Gen is in
a position to be considered a carbon sink and be able to market a decrease in CO2 emissions of
40,000 tons per year. As of now there is no central “trading desk” for the purchase and sale of
these credits or a set value has not been set for them but activity has taken place where these
credits have been exchanged already. Pricing for these carbon credits will be according to
market value. Because this is a paper transaction there is no need for a proximity to the market
so markets could be world wide.
6.2 SWOT Analysis
Table 7- SWOT Analysis
Strengths Weaknesses Opportunities Threats• Self-sufficient • Labor • Green Power • Sask Power/Energy• Waste Management • Financial
Resources• Carbon Credits • Weather
• Labor • Energy Prices • Foreign Materials• Financial Resources • Technology Leader
• Public Perception• Future Business Development
6.2.1 Strengths
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Physical Resources
Self-sufficient
The biodigester is a self-sufficient unit which alleviates many input costs. The
biodigester also alleviates utility costs to WPF.
Waste Management
The biodigester turns waste that is currently being spread at a cost to WPF, into products
that can be sold for profit. The process is also environmentally friendly.
Labour
- Simplified Labour Force
WPF Bio-Gen will require very minimal labour for operation. A single employee will be
able to operate the biodigester and will require very minimal training.
Financial Resources
- Possible Source of Income
One of the by-products from the biodigester will be organic fertilizer, which can be sold
at a premium. This will add to the profitability of the biodigester.
- Savings for WPF
The biodigester will provide WPF with a cheaper source of energy, making the
operations of WPF more profitable as well.
6.2.2 Weaknesses
Labour
- Minimal Labour
The operation of the biodigester will only need 1 person. This person will not have
enough work to be busy full time.
- Increased Managerial Labour
The biodigester will mean more managerial work for Ted and Shannon Baas.
Financial Resources
- High Capital Cost
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The initial investment is large for a sole proprietor. Debt will have to be incurred from a
financial source.
- Failure Consequences
In the event that the biodigester is a failure, resale value will be extremely low. As well,
WPF could be severely damaged financially as a result of the bad investment.
- Maintenance Costs
Maintenance costs are unknown and will not be realized until operation. If many things
require adaptation, redesign, or fixing, additional costs will be involved.
6.2.3 Opportunities
Green Power
With the growing trend towards green power in the province, WPF Bio-Gen could then
sell the excess energy that is produced back to Sask Power. By selling the excess green power to
Sask Power, WPF Bio-Gen would receive a premium price.
Carbon Credits
At the moment, the concept of having a value on Carbon Credits is still unknown, but
with the government’s concern over greenhouse emissions, the carbon credits could be sold to
industries that produce too much pollution.
Organic Market
The by-products that come from the biodigester could be considered organic in nature,
and these by-products could then be sold to local organic producers. Local golf courses and
community parks could also be considered to buy the fertilizer.
Energy Prices
With the prices of gas and electricity increasing, an alternate source of energy production
would be usable for WPF and profitable to the corporate structure through WPF Bio-Gen.
Technological Leadership
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WPF would be a pioneer in the biodigester industry. This project would be the first
poultry biodigester in Saskatchewan which will put WPF Bio-Gen at the forefront of a
developing industry. In a business where ideas and technology have value, this leadership role
may lead to future investment opportunities and sales of biodigester information and expertise.
Public Perception
The residents of Wynyard will be more appreciative of the farm if odor is reduced by the
biodigester. The project may also give the residents a sense of pride over the new and innovative
project.
Future Business Development
There may be opportunities for future business options in conjunction with the
biodigester. For example, a greenhouse may be set up to use the excess water, fertilizer, or
energy. Irrigation could also be set up to use excess water.
6.2.4 Threats
Sask Power and Sask Energy
The government utility companies will be the main competitors to the energy sales of
WPF Bio-Gen and as such will be the major threat. Natural gas prices, which are controlled by
Sask Energy, will affect the profitability of WPF Bio-Gen because the cost of energy that is sold
to WPF will be relative. Sask Power also will have the ability to affect profitability through both
the rates that they charge and what they are willing to pay for power that they purchase. With
energy being the primary product that is produced by WPF Bio-Gen, these two corporations pose
the biggest threat.
Weather
WPF is located in a very cold climate during the winter months and keeping the digester
running and at a proper temperature level may be difficult.
Foreign Materials
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WPF will be using the town sewage as the supply of water. If a harmful chemical is
carried into the digester through the water supply, it could destroy the digestive process and
interrupt energy production.
6.3 Market Analysis
6.3.1 The Market
The products that will be produced at WPF Bio-Gen will be, for the most part, marketed
to WPF to be used in the poultry barns. This simplified the market analysis greatly because there
is a guaranteed customer for the products to be produced which does not need to be competed for
and will buy up the energy that is produced in the biodigester. Fertilizer products will need to be
marketed which will take up the majority of marketing needs.
-Heat
The burning of biogas will produce heat energy in a boiler, which will be piped into the
poultry barns in order to keep the barns at an elevated temperature. This heat energy will be
marketed to WPF or used internally by WPF Bio-Gen in order to preheat the digesta before it
goes into the biodigester tank.
-Electricity
Biogas production in excess of heat needs will be used for electricity production which
will be marketed to WPF or sold to Sask Power. These sales will be time sensitive as the heat
needs will be decreased in the warmer months for both heating the poultry barns and for
preheating the digesta material.
-Fertilizer
The organic fertilizer will be marketed to urban municipalities, golf courses, or to the
agriculture sector to be used for their fertilizer requirements. This will be in a liquid product
which will be sold at a price at the WPF Bio-Gen site. Trucking to market will have to be done
on a custom basis by current infrastructure that is already in place for the liquid fertilizer
industry. The physical volume of the fertilizer that will be produced will not be a huge quantity
so a small number of customers would easily be able to handle the volume that would be salable.
This product would fit into a niche market for these customers as it is an organic product made
with out industrial processes. This would fit into urban park management practices which are
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moving away from industrial fertilizers on parks and golf courses because of the possibility and
perception of human health concerns.
-Water
Marketability for the water produced by WPF Bio-Gen would need to depend on location
to a business that would be able to use it. It does have potential for irrigation but it is also a
much purer source of water, which could be used in other businesses that require high quality
water. This could lead to spin-off businesses that could be under taken by WPF or outside
investment. Types of markets that could be set up to use this water would be aquaculture,
hydroponics, greenhouses, or tree nurseries, to name a few. This would require the building of
further enterprises to capitalize on the marketability of the water but there could also be a market
for the treatment of the water to the town of Wynyard. The membrane separation done by WPF
Bio-Gen is a tertiary treatment of water that results in a potable water product. Currently water
that goes out to the town lagoons is just primarily treated before it is emptied into Quill lake.
-Carbon Credits
The market for carbon credits lies within the polluting industrial companies that are
producing greenhouse gases. These companies will be required to purchase credits from the
entities that are deemed to be carbon sinks or greenhouse gas reducing businesses. Even though
there is not a set marketplace for these credits they are currently being traded and purchased by
many large industrial manufacturers and oil and gas companies. (pers. comm. Clay Sparks)
These companies are being proactive in there management as final laws are not yet in place or
enforced with respect to greenhouse gas production.
6.3.2 Competition
Primary competition for the products that WPF Bio-Gen will produce will come from
other utility companies as heat and electricity will be the most important products. In
Saskatchewan currently both natural gas and electricity are only available through the
government owned corporations of Sask Energy and Sask Power. As a result these two
companies will be the primary competition but as governments change there may be deregulation
in the industry that will allow further competition. Sask Power and Sask Energy may have some
advantage in the marketplace over WPF Bio-Gen because they are large companies and a better
able to guarantee a constant supply of energy. The main disadvantage of these two companies is
Comm 492.3 College of Commerce and Agriculture, University of Saskatchewan 26
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price competitiveness within the energy sector as they are corporate monopolies. WPF Bio-Gen
would be able to return profits to WPF as they would be jointly owned where as money that is
sent to Sask Power and Sask Energy can not be recaptured.
There is to be little competition in the marketplace for fertilizer as it will be a niche
market for an organic product. In the event that the product is sold into the agriculture market
than pricing will have to be relative to other fertilizer retailers as they will be the competition,
In the area of carbon credits there will also be little competition as there is a very large
sector of greenhouse gas producers who will be in need of these credits once the final
governmental laws are in place and enforced.
6.3.3 Customers
The primary customer for WPF Bio-Gen will once again be WPF as they will consume
the majority of the products produced by WPF Bio-Gen. All heat produced, as outlined in the
production levels, will be sold to WPF as well as most of the electricity. The remaining
electricity that is produced will have to be sold to Sask Power as they own the entire
infrastructure for electricity distribution in the province. A few urban municipalities, golf
courses, or agriculture producers will be the customers for the fertilizer sales. Water will be sold
to a business in the vicinity or channeled into the town lagoon. Carbon credits will be sold to the
greenhouse gas producing companies that will require them.
6.3.4 Future Market Opportunity
A business venture such as WPF Bio-Gen lends itself to the development of further
ventures that would work in symbiosis with the biodigester. As previously mentioned the water
that is produced as an end product from the nutrient separation is usable for many different
options. It would be possible to use this water in one of these ways and create further value in
that way. The addition of a greenhouse, hydroponics farm, or nursery would also allow for the
fertilizer to be used by the company in order to add additional worth to the products.
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6.4 Marketing Strategy
6.4.1 Objectives and Pricing
The marketing strategy for WPF Bio-Gen is to supply a consistent source of energy to
WPF at a cost that is competitive to both Sask Power and Sask Energy. These products will be
sold at a price that is the same as the two utilities in order to realize the profits through WPF Bio-
Gen rather than decreasing expenses at WPF. Biogas will be sold to WPF at a cost of 60% of
that of natural gas. This is because biogas is only 60% as efficient (pers. comm. Clay Sparks).
Current pricing of natural gas is $0.25 / m3 (www.saskenergy.com/rates/
sehistoricalrates.htm) so the biogas price is $0.15 / m3. Electricity will be sold to WPF at a rate
of $0.08 / kWh (pers. comm. Brian Mohr).
Secondary to the selling of the energy produced by WPF Bio-Gen to WPF will be able to
sell the fertilizer and carbon credits. These products will be sold into the marketplace at a value
determined by the market and in the case of the organic fertilizer at a premium price relative to
that of industrial fertilizer. For price projections current agriculture prices were used. Nitrogen
was priced at $0.38 / lb, phosphorous at $0.21 / lb, and potassium at $0.15 / lb (pers. comm.
Carman McNab)(pers. comm. Glen Hill). Carbon credits were priced at $3.00 / ton CO2 (pers.
comm. Clay Sparks). Trading in carbon credits has been moderate but a market for all of WPF
Bio-Gen’s carbon credit production has been found. ClearGreen Biotechnologies of Saskatoon,
Saskatchewan is in need to purchase additional credits as they have oversold there own
production. All pricing was increased for the 10 year financial projections by and inflation rate
over the 10 years.
6.4.2 Projected Sales
Projected sales for the WPF Bio-Gen were determined using projected production and
multiplying by expected pricing of the commodities. Sales revenue increases over the 10 year
projection due to the increase in pricing caused by inflation.
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Table 8- Projected Sales
Sales Revenue 2004 2005 2006 2007 2008Biogas (m3) 72,400 154,770 162,509 170,634 179,166Organic Fertilizer (lbs) Nitrogen 78,535 160,997 165,022 169,148 173,376 Phosphorous 17,360 35,415 36,301 37,208 38,138 Potassium 12,400 25,421 26,056 26,707 27,375Electricity (kWh) 102,640 216,893 221,231 225,655 230,168 Carbon Credits 60,000 123,000 126,075 129,227 132,458Waste Management 2,314 9,488 9,726 9,969 10,218Total Revenue 345,650 725,984 746,918 768,548 790,899
6.4.3 Channels of Distribution
Figure 6- Channels of Distribution
a. Distribution Channel for Heat and Electricity
b. Distribution Channel for Fertilizer
Comm 492.3 College of Commerce and Agriculture, University of Saskatchewan 29
Sales Revenue 2009 2010 2011 2012 2013Biogas (m3) 188,124 197,530 207,407 217,777 228,666Organic Fertilizer (lbs) Nitrogen 177,711 182,153 186,707 191,375 196,159 Phosphorous 39,092 40,069 41,071 42,098 43,150 Potassium 28,060 28,761 29,480 30,217 30,972Electricity (kWh) 234,772 239,467 244,257 249,142 254,124Carbon Credits 135,769 139,163 142,642 146,208 149,864Waste Management 10,473 10,735 11,004 11,279 11,561Total Revenue 814,000 837,879 862,567 888,095 914,496
WPF Bio-Gen _________________________________________________________________
c. Distribution Channel for Water
The distribution channels for the end products produced will follow the above flow
charts. In the case of carbon credits it is a paper transaction so it does not require physical
transport but can be a wire transaction.
6.4.4 Selling and Advertising
The nature of the WPF Bio-Gen business eliminates the need for advertising of the
products because the products will be sold to WPF or to just a couple of contracted customers.
This will require a minimal amount of time and energy by the staff and therefore there will be no
additional budget allowed for the marketing of WPF Bio-Gen products.
7.0 Financial Plan
7.1 Sources of Funding
There will be two sources of financing for WPF Bio-Gen. 50% of the total capital cost
will be funded by equity put into the business by Ted and Shannon Bass and the other 50% of the
funds will be obtained through debt financing. Farm Credit Corporation (FCC) will be the
lending institution that will be used due to their willingness to work together in funding new
ventures such as WPF Bio-Gen. Because the debt to equity ratio is to be on a 1:1 basis the two
portions will be equal and in the amount of $2,344,250 is required from both sources.
An additional alternative is available if the required equity financing is unobtainable.
ClearGreen Biotechnologies would be willing to become an equity partner in the operation if it
can be shown to be profitable.
Due to the fact that ownership will be maintained by either of the two equity partners it is
not necessary to conduct a share offering in order to raise capital.
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7.2 Opening Balance Sheet
Table 9- Opening Balances
WPF Bio-GenOpening Balance Sheet
December 31, 2004
Assets LiabilitiesCurrent Assets: Current Liabilities:
Cash $110.500 Long Term Debt $2,344,250 Total Current Assets $110,500 Total Liabilities $2,344,250
Fixed Assets: Shareholders' EquityLand $ 5,000 Buildings $100,000 Share Capital $2,344,250 Equipment $4,473,000 Total Shareholder's Equity $2,344,250
Total Assets $4,688,500 Total Liabilities and Shareholder's Equity $4,688,500
7.3 Summary Tables
The financial model that is used for the base case is for a poultry manure biodigester,
using all wastes produced by WPF as well as the poultry processing waste stream from Lillydale
Foods, with the ability to generate electricity, produce heat, and separate digested materials into
organic fertilizer. Other models were also produced which can be found in Appendix A or on
Microsoft Excel under WPFBIOGEN.xls. These models include one for a digester using just
WPF wastes without electrical generation (due to insufficient energy production) and a model
using WPF wastes and Lillydale wastes without electrical generation (to see if the decrease in
capital costs would offset the increased revenues from electrical generation). The option of
eliminating the nutrient separation component of the biodigester was also explored to determine
if any financial benefit could be realized. This was discarded due to the unprofitable results in
the financial statements.
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7.3.1 WPF Bio-Gen Base Case
All of the following results and analysis are based on the financial models for WPF Bio-
Gen Lilly w Generation, including a base, best, and worst case scenario, which are available in
Appendix A or on Microsoft Excel entitled WPFBIOGEN.xls.
Table 10 – Base Case Results
Net Present Value $(774,929)Internal Rate of Return 3.2%External Rate of Return 2.2% 2004 2008 2013Cash Flows to equity $ (102,300) 240,984 192,189 Net Income $ (360,766) 39,069 371,701 Biogas 482,667 982,667 982,667 - Price $/m3 0.15 0.18 0.23 Fertilizer - Sold(pound) 372,008 744,017 744,017 Nitrogen $/pound 0.38 0.42 0.47 Phosphorous $/pound 0.21 0.23 0.26 Potassium $/pound 0.15 0.17 0.19 Electricity 1,283,000 2,658,000 2,658,000 - Price $/kWh 0.08 0.09 0.10 Carbon Credits 20,000 40,000 40,000 - Price $/CO2 ton 3.00 3.31 3.75 Waste Management 819 1,638 1,638 - Price $/ton 5.65 6.24 7.06 Waste Removal from Lillydale 42500 85000 85000
After examining the results from the base case scenario, it appears that WPF Bio-Gen is a
marginal investment due to the fact that the internal rate of return (IRR) is only 3.2% and the
external rate of return (ERR) is just 2.2%. WPF Bio-Gen does end up showing a positive net
income in the fifth year of operation. The large capital investment is the biggest downfall to the
venture because of the significant payments to service the debt that are required. At the end of
10 years the net present value (NPV) of the business is -$774,929. The critical factors for WPF
Bio-Gen are to maintain a constant level of production while capitalizing on the potential for
Comm 492.3 College of Commerce and Agriculture, University of Saskatchewan 32
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increases in the prices of the commodities that are produced. If the projections are extended to
15 yrs the returns do not perform any better. Even though the revenue generated increases, the
business in this scenario does not meet the required rate of return (RRR) of 10% which was set in
the financial model. At 15 years the IRR is a negative value (-.82%) the ERR is immeasurable,
and the NPV is now -$1,034,615.
7.3.2 WPF Bio-Gen Best Case
Table 11-Best Case Results
Net Present Value $439,411Internal Rate of Return 13.50%External Rate of Return 7.8%
2004 2006 2013Cash Flows $ (28,568) 541,792 406,140 Net Income $ (276,184) 75,550 585,505 Biogas 1,009,825 1,339,100 2,388,925 - Price $/m3 0.19 0.21 0.29 Fertilizer - Sold(pound) 372,008 744,017 744,017 Nitrogen $/pound 0.48 0.50 0.59 Phosphorous $/pound 0.26 0.27 0.33 Potassium $/pound 0.19 0.20 0.23 Electricity 1,283,00 2,658,000 2,658,000 - Price $/kWh 0.10 0.10 0.12 Carbon Credits 20,000 40,000 40,000 - Price $/CO2 ton 3.75 3.94 4.68 Waste Management 819 1,638 1,638 - Price $/ton 7.06 7.42 8.82 Waste Removal from Lillydale 42,500 85,000 85,000
In order to create results for a best case scenario the prices for commodities that WPF
Bio-Gen produces were increased by 25%. Production levels were maintained at the same level
as in the base case due to the fact that production is based on a fixed quantity of wastes entering
the digester and in order to increase this would require both additional waste streams and
additional capacity of the biodigester. A waste management fee was also charged to Lillydale to
eliminate the processing wastes that they have. All other variable such as rate of inflation and
interest rates were also held constant.
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In the best case scenario the IRR is a respectable 13.5% which represents the RRR on the
equity investment that will make the NPV = 0. The ERR is 7.8%. At the end of 10 years the
NPV for the business is $439,411 with a RRR of 10%.
7.3.3 WPF Bio-Gen Worst Case
Table 12– Worst Case Results
Net Present Value ($2,221,310)Internal Rate of Return incalculableExternal Rate of Return incalculable 2004 2008 2013Cash Flows $ (217,022) 67,786 105,000 Net Income $ (483,255) (135,200) 283,110 Biogas 357,666 732,666 732,666 - Price $/m3 0.14 0.16 0.21 Fertilizer - Sold(pound) 279,006 558,012 558,012 Nitrogen $/pound 0.34 0.38 0.43 Phosphorous $/pound 0.19 0.21 0.23 Potassium $/pound 0.14 0.15 0.17 Electricity 939,250 1,970,500 1,970,500 - Price $/kWh 0.07 0.08 0.09 Carbon Credits 15,000 30,000 30,000 - Price $/CO2 ton 2.70 2.98 3.37 Waste Management 614 1,228 1,228 - Price $/ton 5.09 5.61 6.35 Waste Removal from Lillydale 42,500 85,000 85,000
In the worst case scenario both the production levels and pricing rates were altered to
indicate what would happen if those variables were decreased by 10% for selling prices and
quantities produced by 25%. The level of output from the biodigester was lowered to represent
an alteration in the biodigestion process due to interruption of the fermentation, inclement
weather having an affect, or variability in the substrates. Pricing was lowered to represent a
recession or surplus in the industry.
The NPV for the worst case is ($2,221,310.00) with an IRR and ERR that is
immeasurable because the NPV is too far negative. There is a positive net income in the last
three years of projections but it is unable to offset the huge losses incurred. The financial
numbers from the worst case suggest that the business is not feasible under these conditions.
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7.4 Economic Planning
The large capital costs that are necessary to construct the facility demand a high level of
revenue be generated by the facility in order for it to be profitable. The only ways to increase
revenues for this venture are to increase production or increase prices as the operating costs are
already minimal. Production levels at WPF Bio-Gen will be relatively constant because of the
supplies of digestible material and the fixed size of the biodigester. This leaves pricing as the
number one variable to control in order to increase revenue. One potential way to increase the
pricing of products is to value add. There is the possibility of adding further ventures that would
be able to use the water and fertilizer products to produce other products that are worth more.
These may include a greenhouse, tree nursery, or hydroponics growing operation. Another area
of opportunity is in the organic fertilizer market. The prices used in the financial models were
agriculture fertilizer prices but there is the potential for significantly higher prices for this
product. It is estimated that as much as a 300% premium could be realized for them (per. comm.
Clay Sparks). Additionally the sale of carbon credits could have a much greater value than what
has been placed on them in these models.
7.5 Critical Variables
Table 13 – Critical Variables
VariableLevel of
Importance (1,2,3)Supply of Inputs 1*Production of Outputs 1Unit labour costs 3Selling Price 1 Fertilizer 1 Biogas/Electricity 1 Carbon Credits 2Interest Rates 2Inflation Rates 3Amount of Equity Available 1Availability of Human Resources 3Government Regulations 3Actions of Competitors 3
* = any change in this variable will change production of all products1= critical for success2= important for success3= minor importance
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7.6 Critical Financial Values
Electrical and heating revenues generated will be tied into current pricing set by Sask
Power and Sask Energy and little can be done to influence how these prices will move. It is
therefore necessary to make as much money on the sale of fertilizer components and carbon
credits in order to make this venture profitable. As seen in the best case scenario an increase of
25% from the base values would be influential on the financial results.
7.7 Net Income Break-even Analysis
The net income break-even analysis, since production levels remain constant, is a
examination of pricing changes where the business would still break even on a net income basis.
For this selling-price break even it is assumed that all other variables remain constant. The top
line (Increase (Decrease) in prices) is the % change in the pricing levels that would result in a
net-income of $0.00.
Table 14- Net Income Break-even
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013Increase (Decrease) in
prices 115.87% (21.74%) (31.74%) (41.67%) (45.48%) (52.08%) (57.56%) (62.16%) (66.09%) (69.49%_
Selling Prices in Dollars
Biogas (m3) Input 0.32 0.12 0.10 0.09 0.08 0.07 0.06 0.06 0.05 0.05
Organic Fertilizer (lbs)
Nitrogen Input 0.82 0.66 0.57 0.49 0.46 0.40 0.36 0.32 0.28 0.26
Phosphorous Input 0.45 0.36 0.31 0.27 0.25 0.22 0.20 0.17 0.16 0.14
Potassium Input 0.32 0.26 0.23 0.19 0.18 0.16 0.14 0.12 0.11 0.10
Electricity (kWh) Input 0.17 0.14 0.12 0.11 0.10 0.09 0.08 0.07 0.06 0.05
Carbon Credits Input 6.48 5.20 4.53 3.87 3.62 3.18 2.82 2.51 2.25 2.03
Waste Management Input 12.20 9.78 8.53 7.29 6.82 5.99 5.30 4.73 4.24 3.81
Income Before Taxes 0 0 0 0 0 0 0 0 0 0
Income Taxes 0 0 0 0 0 0 0 0 0 0
Net Income(Loss) 0 0 0 0 0 0 0 0 0 0
These results indicate that after the first year, where production is low because of startup,
the prices of products produced could steadily decrease and still break-even. By year 10 the
average price for salable products could be decreased by 69.49%.
7.8 Cash Flow Break-even Analysis
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The following is a cash flow break-even analysis for the selling price of products
produced by WPF Bio-Gen. It is assumed that all variables, other than prices, will remain
constant. Similar to the net income break-even analysis, this is the pricing increases or decreases
that would result in as cash flow of $0.00 in that year, as seen in the top line (Increase (Decrease)
in prices).
Table 15- Cash Flow Break-even
This table shows the pricing when all cash flows are equal to zero. Table 13 shows that
in order for the cash flow to break-even, lower prices than those that are predicted could still be
used.
7.9 Economic Break-Even Analysis
This analysis indicates the minimum selling prices that WPF Bio-Gen could move to
before it would no longer be able to return a profit. This pricing change is equal to the one
required to have a NPV of $0.00 and an IRR equal to the RRR, or in this case 10%. An
economic profit is defined as returns above all direct and opportunity costs.
Table 16- Economic Break-even
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013Increase (Decrease) in prices 23.67%Selling PricesBiogas (m3) Input 0.19 0.19 0.20 0.21 0.23 0.24 0.25 0.26 0.27 0.29Organic Fertilizer (pounds)Nitrogen Input 0.47 0.48 0.49 0.51 0.52 0.53 0.54 0.56 0.57 0.59
Phosphorous Input 0.26 0.27 0.27 0.28 0.29 0.29 0.30 0.31 0.32 0.32Potassium Input 0.19 0.19 0.19 0.20 0.20 0.21 0.22 0.22 0.23 0.23Electricity
(kWh) Input 0.10 0.10 0.10 0.10 0.11 0.11 0.11 0.11 0.12 0.12Carbon Input 3.71 3.80 3.90 4.00 4.10 4.20 4.30 4.41 4.52 4.63
Comm 492.3 College of Commerce and Agriculture, University of Saskatchewan 37
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Increase (Decrease) in prices 45.56% (36.52%) (31.49%) (30.94%) (20.68%) (20.27%) (18.91%) (17.57%) (16.16%) (14.68%)
Selling Prices
Biogas (m3) Input 0.22 0.10 0.10 0.10 0.12 0.12 0.12 0.12 0.13 0.13
Organic Fertilizer (lbs)
Nitrogen Input 0.55 0.24 0.26 0.26 0.30 0.30 0.31 0.31 0.32 0.32
Phosphorous Input 0.31 0.13 0.14 0.15 0.17 0.17 0.17 0.17 0.18 0.18
Potassium Input 0.22 0.10 0.10 0.10 0.12 0.12 0.12 0.12 0.13 0.13
Electricity (kWh) Input 0.12 0.05 0.05 0.06 0.06 0.06 0.06 0.07 0.07 0.07
Carbon Credits Input 4.37 1.90 2.06 2.07 2.38 2.39 2.43 2.47 2.52 2.56
Waste Management Input 8.22 3.59 3.87 3.90 4.48 4.50 4.58 4.66 4.74 4.82
Net Income(Loss) ($244,645) ($639,544) ($465,070) ($323,221) ($197,800) ($103,139) ($17,398) $56,020 $120,489 $178,199
Increase(decrease) in Cash 0 0 0 0 0 0 0 0 0 0
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CreditsWaste
Management Input 6.99 7.16 7.34 7.52 7.71 7.91 8.10 8.31 8.51 8.73Net Present Value of Equity
Investment 0This analysis indicates that WPF Bio-Gen would need to increase the prices of goods sold
by 23.67% in order to break even economically or have a NPV of $0.00 at a RRR of 10%. This
is similar to the predicted best-case scenario, so WPF Bio-Gen would require a near best-case
scenario in order to meet the RRR.
7.10 Risk Analysis
WPF Bio-Gen relies on waste streams from both WPF and Lillydale in order to produce
its products. Any change to the volume and availability of these products will greatly alter the
output of the business. It is therefore necessary to have these supplies guaranteed. Production
levels should be fairly constant with a known amount of input material but the potential is
present that the process could be upset either by introduction by antimicrobials or inclimate
weather. The financial projections do not show that the business is overly profitable but if
premiums can be found in the fertilizer market and if the trend of rising energy costs continues
the potential is there to make money.
8.0 Assumptions
The biodigestion industry as a whole is a new and transforming technological field. It
will be just this year that the first one built in Saskatchewan will begin production of biogas.
This emerging field has largely been linked with hog and beef manure as a waste stream and the
use of poultry manure as is done at WPF Bio-Gen is a step into the unknown. Because of this it
was necessary to make several assumptions in order to develop this business plan. These
assumptions include.
-the science for biogas production using chicken manure and processing waste is exact
and valid
-rate of growth in commodity prices will be fixed and accurate
-rate of inflation will be fixed and accurate
-interest rates will remain stable
-the technology will be valid in the Saskatchewan climate and produce as intended
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-the Kyoto agreement will be implemented in the near future whether or not it is ratified
by the necessary participation needed
-the supply of manure and processing waste will be constant
9.0 Conclusions
WPF Bio-Gen has noticed some areas for concern when it comes to building a poultry
manure biodigester. Because the science is new and unproven it is impossible to theorize what
the exact outcome will be. In the case of WPF Bio-Gen there is a small margin of error for this
business to be profitable, even in the best case. The business entity will be integrating
technology together that is originally meant for hog waste, leaving the outcome impossible to
predict. With the integration of the technology there may be unforeseen problems with the use
of the poultry manure.
This is a risky investment for Ted Baas due to the large amount of equity he would have
to invest in order to retain ownership. There is also the chance that the biodigester may not make
a profit and be forced to shut down unless prices are increased as in the best case scenario.
If it can be assumed that the science and production levels are correct in the model then
the best way to make this venture profitable, on its own, would be through the increase in pricing
of both fertilizer and carbon credits. WPF Bio-Gen would be profitable if an increase in the
pricing of these commodities could be achieved.
Another option is to extend the time of investment to a longer period. In the base model
if projections are extended past 10 years to 15 years the business returns a healthy NPV and over
15% IRR.
There is also the possibility of integration with another business that could use the
fertilizer and water products but further analysis would need to be done to determine if the
capital costs of such an undertaking would be warranted.
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References
1. El-Shinnawi, M.M., B.S. El-Tahawi, M. El-Houssieni, and S.S. Fahmy. 1989. Changes of
organic constituents of crop residues and poultry wastes during fermentation for biogas
production. MIRCEN J. 5:475-486.
2. Fontenot, J.P., L.W. Smith, and A.L. Sutton. 1983. Alternative utilization of animal wastes. J.
Amin. Sci. 57: 221-232.
3. Hill, Glen. Greenfeild Agro Supply. Nov. 2003.
4. Hills, D.J. and P. Ravishanker. 1984. Methane gas from high solids digestion of poultry
manure and wheat straw. Poultry Sci. 63:1338-1345.
5. King, A.J. 1996. Symposium: Water quality and poultry production . Poultry Sci. 75:852-853.
6. McNab, Carman. Cargill Ag Horizons. Nov. 2003.
7. Mohr, Brian. P. Eng., Sask Power. Oct 2003
8. Shih, J.C.H. 1993. Recent development in poultry waste digestion and feather utilization-A
review. Poultry Sci. 72:1617-1620.
9. Sparks, Clay. VP Sales and Marketing. Clear-green biotechnologies. Oct. 2003.
10. www.agr.gc.ca/misb/aisd/poultry/manure.pdf
11. www.agr.gov.sk.ca/docs/processing/poultry/poultry.asp
12. www.news.bbc.co.uk/1/hi/world/38690.stm
13. www.saskenergy.com/rates/sehistoricalrates.htm
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Appendix A
Financial Projections
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