PROJECT REFERENCE NO.: 39S _B_MBA_004

“FINANCIAL ANALYSIS OF BIO-DIESEL

MANFUFACTURING”

This project has been supported by Karnataka state council for science and technology, Indian institute of science, & Karnataka state bio energy development board, Government of Karnataka

SUBMITTED BY:

1. DIVYASHREE.R

2. GOWTHAMI.S

3. KIRAN CHOUDRY.R

4. HITESH.C

UNDER THE GUIDANCE OF :

Prof. Dr. Satish Y M

M.S.RAMAIAH INSTITUTE OF TECHNOLOGY-BENGALURU

(Autonomous Institute, Affiliated to VTU)

DEPARTMENT OF MANAGEMENT STUDIES

CONTENTS

1. INTRODUCTION 2. METHODOLOGY 3. OBJECTIVES 4. LITERATURE SURVEY 5. QUESTIONAIRES 6. DIFFERENCE BETWEEN DIESEL AND BIO DIESEL 7. STANDARDS FOR QUALITY 8. FEEDSTOCK CONSTRAINTS 9. ALTERNATIVE SOURCE FOR FEEDSTOCK 10. PROCUREMENT 11. VISITS TO PLANT 12. STANDARD OPERATING PROCEDURES 13. COST ESTIMATION 14. BREAK EVEN POINT 15. COMMERCIALIZATION 16. PROBLEMS AND SUGGESTIONS 17. CONCLUSION 18. FUTURE SCOPE 19. REFERENCES

INTRODUCTION

Day by day environmentally clean and less harmful sources of diesel fuel for conventional engines are becoming more and more popular because of global warming problems, high level of pollution of the atmosphere created by devices and increased expansion of human diseases. There are various sources of such non-harmful diesel fuels, like ethanol and biodiesel which can be obtained from diverse vegetable oils and animal fats. The cost effective production of biodiesel provides an alternative fuel to customers, the study focuses on determining the cost of production of biodiesel and there by identifying the areas for reducing the cost. In addition to this the study also aims at financial analysis of bio diesel plant. The project’s validity and profitability will be analyzed based on the Investment Appraisal. The increasing awareness of the depletion of fossil fuel resources and the environmental benefits of biodiesel fuel has made it more attractive in recent times. Its primary advantages deal with it being one of the most renewable fuels currently available and it is also non-toxic and biodegradable. It can also be used directly in most diesel engines without requiring extensive engine modifications. However, the cost of biodiesel is the major hurdle to its commercialization in comparison to petroleum-based diesel fuel. The high cost is primarily due to the raw material, mostly neat vegetable oil. Used cooking oil is one of the economical sources for biodiesel production. However, the products formed during frying, can affect the transesterification reaction and the biodiesel properties. The production of biodiesel from waste vegetable oil offers a triple-facet solution: economic, environmental and waste management. The new process technologies developed during the last years made it possible to produce biodiesel from recycled frying oils

comparable in quality to that of virgin vegetable oil biodiesel with an added attractive advantage of being lower in price. Thus, biodiesel produced from recycled frying oils has the same possibilities to be utilized. From an economic point of view; the production of biodiesel is very feedstock sensitive. Many previous reports estimated the cost of biodiesel production based on assumptions, made by their authors, regarding production volume, feedstock and chemical technology. From a waste management standpoint, producing biodiesel from used frying oil is environmentally beneficial, since it provides a cleaner way for disposing these products; meanwhile, it can yield valuable cuts in CO2 as well as significant tail-pipe pollution gains. Any fatty acid source may be used to prepare biodiesel. Thus, any animal or plant lipid should be a ready substrate for the production of biodiesel. The use of edible vegetable oils and animal fats for biodiesel production has recently been of great concern because they compete with food materials - the food versus fuel dispute. There are concerns that biodiesel feedstock may compete with food supply in the long-term. Hence, the recent focus is the use of non-edible plant oil source and waste products of edible oil industry as the feedstock for biodiesel production meeting the international standards. Quality standards are prerequisites for the commercial use of any fuel product.

METHODOLOGY

This project includes two methods they are as follows: 1. Primary method 2. Secondary method Primary method : This method includes collecting the data through survey by questionnaire method.

• During the in plant study of various biodiesel plants located across Bangalore city, the information was collected through various sources like professionals and employees of the biodiesel plants.

• In addition to this, information was collected from Government agencies and authority associated with biodiesel ministry.

Secondary method :

• The data was collected from the biodiesel development board. • The profitability analysis is done using techniques like

comparative analysis and BEP • The investment appraisal will be done using capital budgeting

techniques such as NPV, IRR and so on. • Cost analysis was performed using process costing method.

OBJECTIVES

To analyze the capital investment required for setting up a biodiesel plant.

To perform financial analysis for determining profitability and its sustainability of the biodiesel plant.

Cost incurred at each stages of the biodiesel production.

Identifying the areas for reducing the cost.

Evaluate the cost effectiveness of biodiesel production

Development of an innovative technology for the conversion of glycerin into a raw material for renewable transport fuel production

Optimal integration of this innovative technology with current and future medium-scale biodiesel production plants

Maximization of the renewable energy output from biodiesel production plants

Fundamental and experimental know-how on methanol synthesis, process- and quality related

LITERATURE SURVEY

• The information is been collected from a paper series called “south Asia working paper series” by Asian development bank.

• The ADB South Asia Working Paper Series is a forum for ongoing and recently completed research and policy studies undertaken in ADB or on its behalf.

• The series is a new knowledge product and replaces the South Asia Economic Report and South Asia Occasional Paper Series.

• The financial analysis and the economic assessment of Biodiesel production use.

This paper mainly focus on the financial analysis of a biodiesel plants in India

• Cost benefit analysis of using vegetable oil is found. • The paper also gives information about trend analysis,

comparative analysis, and ratio analysis and so on for the profitability appraisal.

• Biodiesel has been introduced as an economical renewable and sustainable fuel which is cited as an environment-friendly resource

• Many countries have invested in biodiesel as an acceptable source of energy not only in research area but also in production and export. It has been proven that the biodiesel combustion characteristics are similar as petroleum

• Biofuels have the potential benefit of reduced net life-cycle greenhouse gas production as compared to their petroleum alternatives. This is not to claim that biofuels are environmentally friendly or even carbon negative. In fact, no fuel can truly be considered beneficial to the environment; the only hopeful claim is that the particular fuel, over its full life cycle, is less harmful than the alternative.

QUESTIONNAIRE

Question 1: What is the status of the bio-fuel production in Bangalore?

Ans:…………………………………………………………………………………………………….

Question 2: How much cost is incurred for setting up a biodiesel plant?

Ans:…………………………………………………………………………………………………….

Question 3: Does government provide subsidy for equipment’s?

Ans:…………………………………………………………………………………………………..

Question 4: How much waste oil is produced every day in Bangalore?

Ans:…………………………………………………………………………………………………..

Question 5: How economical could bio fuel be for commercialization?

Ans:……………………………………………………………………………………………………

Question 6: What is the transportation cost of feedstock?

Ans:…………………………………………………………………………………………………….

Question 7: What is the annual capacity of the plant?

Ans:……………………………………………………………………………………………………...

Question 8: How many liters of water is used for producing 1ltr of Biodiesel

Ans:……………………………………………………………………………………………………….

Question9: How is biodiesel different from normal diesel?

Ans:……………………………………………………………………………………………………….

Question10: What is the standard procedure of biodiesel production?

Ans:……………………………………………………………………………………………………………

Question11:What is the variable and fixed overhead charges?

Ans:……………………………………………………………………………………………………………

Question12: What is the bi-product of biodiesel?

Ans:……………………………………………………………………………………………………………

Question13: Who are involved in the collection activities of the waste cooking oil in Bangalore?

Ans:………………………………………………………………………………………..

Question14:How much cost incurred in procurement of bio fuel seeds?

Ans:……………………………………………………………………………………….

Question15:What is the production cost of and marketing cost of bio fuel seeds? Ans:……………………………………………………………………………………….

LIMITATIONS OF THE STUDY

Time was the big constraint in carrying out of this research since the funding

agency has set the time bound.

Lack of information about the availability of waste cooking oil.

Study was limited to biodiesel plants located in Bangalore city only.

Many of the industrialists are not co-operating and not willing to share the

information.

DIFFERENCE BETWEEN DIESEL AND BIO DIESEL

Diesel and biodiesel are two products that can perform the same function, but come from very different sources. Both diesel and biodiesel can be used to fuel diesel vehicles, such as cars, trucks, tractors, and powered lawn mowers. The major difference between these two fuel sources is that diesel comes from petroleum, a non-renewable fossil fuel byproducts, whereas biodiesel is extracted from plant, seed, and animal oils.

Diesel and biodiesel also vary in availability; while diesel is usually a standard product at most gas stations, biodiesel suppliers are often few and far between.

Diesel engines were originally created to be a more-efficient product than gasoline engines. Diesel, which is more oily and thick than gasoline, requires less refining than gasoline and is also generally less expensive. Popularized by the trucking industry, diesel is often favored over gasoline for large vehicles that carry heavy loads.

Though somewhat more efficient than gasoline, the primary downside to traditional diesel is its effect on the environment. In the burning process, diesel emits high levels of soot and nitrogen, which translate into increased air pollution, smog, and high concentrations of acid in rainwater.

In addition, like gasoline, diesel also releases greenhouse gasses, such as carbon monoxide, which may contribute to global warming and ozone damage. One other issue with traditional diesel is that it comes from a non-renewable source, petroleum, which means that overuse can lead to depletion or even total annihilation of natural resources.

Though the greenhouse emissions are lower than those given off by gasoline, many environmental experts consider diesel a serious threat to air quality and the environment.

Biodiesel is a renewable from of diesel made out of biodegradable oils, such as soybean or peanut oil. When combined with certain alcohols, the fat in these oils create long chains of a chemical substance known as esters, which make the oil usable as a fuel. Biodiesel can be used in nearly any diesel engine with few modifications and no damage to the engine. In addition to coming from a renewable source, biodiesel releases extremely marginal levels of pollutants into the air.

In comparing diesel and biodiesel, it is easy to assume that diesel is evil and biodiesel a miraculous, safe-for-the-environment product. In fact, diesel was originally created to improve engine efficiency, thus cutting down on wasted fuel.

Biodiesel, while having many advantages in terms of reducing pollution, requires the diversion of food crops into oil production. In developing nations, some worry that the crop diversion needed to make biodiesel and other biofuels could lead to decreased food supply and increased levels of starvation.

While neither diesel nor biodiesel do not seem to hold perfect answers for the future of fuel, both are important steps on the long path toward clean, renewable, efficient sources of energy for transportation.

Flash point of biodiesel is greater than 130 degree Celsius and greater than 266 degree Fahrenheit. It is higher than that of petroleum diesel greater than 64 degree Celsius and greater than 147 degree Fahrenheit

Density of 0.88g/cm3 and it is higher than diesel that is 0.85g/cm3

Indian standards for biodiesel

Standards for Biodiesel ASTM D-6751 IS 15607 : 2005

Density Not Mentioned 860 - 900 Kg / m3

Ester Content Not Mentioned 96.5 %

Flash point (closed cup) 130°C min. (150°C

average) 120°C

Water and sediment 0.050% by vol., max. 500 mg / Kg, max.

Kinematic viscosity at

40°C 1.9-6.0 mm

2/s 2.5-6.0 mm

2/s

Oxidation Stability Not Mentioned 6 hours min, at

110°C

Ramsbottom carbon

residue, % mass 0.10

Sulfated ash 0.020% by mass, max.

Sulfur 0.05% by mass, max. 50 mg / Kg max

Copper strip corrosion 3

hrs. 50°C No. 3 max Class 1

Cetane Number 47 min. 51 min.

Carbon residue 0.050% by mass, max.

Acid number, mg KOH/g 0.80 max. 0.50 max.

Methanol or Ethanol Not Mentioned 0.2 % m/m, max

Free glycerin 0.020 % mass 0.020 % mass

Total glycerine (free

glycerine and unconverted

glycerides combined)

0.24% by mass, max. 0.25% by mass,

max.

Group I Metal (Na+K) 5 mg/Kg, max 5 mg/Kg, max

Group II Metal (Ca+Mg) Not Mentioned 5 mg/Kg, max

Phosphorus content 0.001 max. % mass 10 mg/Kg, max

Distillation 90% @ 360°C Not Mentioned

FEEDSTOCK CONSTRAINTS

1. Lack of market facilities.

2. Water availability for growing the seeds

3. Storage problem

4. Transportation cost is more

5. Maintaining crops quality

6. Quality issues(Eg: including contaminants and uniformity)

Increase the efficiency of thermal conversion technologies.

7. Risk management

8. Conversion procedure is complex

9. Time consuming

10. More Expensive

ALTERNATIVES TO FEEDSTOCK

1. Waste cooking oil

2. Algae

3. Animal fat

4. Bacteria

5. Sugarcane

6. Soybean

7. Tobacco

PROCUREMENT

HOTELS

Waste cooking oil can be collected directly from hotels .we get used oil

from hotels no need of transestrification process that we reduce the

total cost of the oil.

VENDORS

Waste cooking oil can be collected from vendors. This reduces the total

cost of the oil .

COMMERCIALIZATION

Bio diesel can be commercialized

Cost of bio diesel is less

Won’t affect environment

Avoids Air pollution

Renewable fuel that reduces life cycle carbon Emissions.

Reduces harmful Emission & Pollutants.

VISITS TO PLANT

• The project was started by doing the survey as mentioned in the

Methodology. • Survey was made in the biodiesel demonstration centers located

at department of forest and environmental sciences , university of Agricultural sciences , GKVK , Bangalore.

• We have collected information about the biodiesel production process

• In biodiesel process there are two different types : 1. using vegetable oil

2. using seeds (pongamia and neem seeds )

• We have estimated the cost incurred of each stage in both the process under the guidance of professionals and employees of biodiesel plant.

• Second survey was made in Karnataka state biofuel development board In Bangalore .

• We have collected information about the process and cost Incurred for biodiesel Production from marketing manager of KSBDB.

• information about how feasible it is to be commercialized in Bangalore

Pongamia seeds in the biodiesel plant

(GKVK)

Seed crushing machine in biodiesel

plant (GKVK)

COST INCURRED AT EACH STAGE

Waste cooking oil: Norms adopted : 1 literof used waste oil yields 1ltr of bio diesel

and 100 gms of glycerin is from the processing matured.

a) feed stock cost : 100 ltrs/day for 25 days of working, hence

2500/ month @ Rs20 , 50000/month and 600000/year.

b) power cost : 100ltrs requires 20 units of electricity ,

5Rs per unit therefore 20 * 5 = 100Rs/day, for 25 days it is

2500/month and 30000/ year.

c) man power cost : 250/day therefore for 25 days it is

Rs6250/month and 75000/year.

Annual cost a+b+c = 705000 lakhs

d)Production :

SOV : @ 1 lts per day is 2000 liters/month (24000 liters/year)

DOC :@1 kg per day is 25kgs/month (300kg/year)

f) Annual revenues :

SVO : @Rs.48 per ltr Rs.1152000

DOC : @Rs.10 per kg Rs.3000

Rs.1155000

Annual EBDITA : Rs.450000 lakhs

seed

Norms adopted : 5kg seeds yield 1ltr (0.875kg) of biodiesel and

3.75kg of DOC from processing matured & dried seeds ( moisture

level 10%), with 26% of oil recovery.

a) feed stock cost : 400 kg/day for 25 working days : 10MT/month

at Rs.22000 = Rs.220000/ month (Rs.26.4 lakhs/year)

b) power cost : total 3KWh for 8hrs /day and 25 working days at

Rs5.00/KWh = Rs.3000 per month ( Rs.0.36lakhs/year)

c) man power cost : (operated by entrepreneur & family, 1 no

helpers for loading and unloading etc) RS.5000/month (Rs0.6

lakhs/year)

d) Annual cost a+b+c = 27.36 lakhs

d)Production :

SOV : @ 80 lts per day is 2000 liters/month (24000 liters/year)

DOC :@300 kg per day is 7500kgs/month (90000kg/year)

f) Annual revenues :

SVO : @Rs.50 per ltr Rs.1200000

DOC : @Rs.20 per kg Rs.1800000

Rs.3000000

Annual EBDITA : Rs.264000

COMPARITIVE ANALYSIS

WASTE COOKIN OILSEEDS

MATERIAL COST:

Raw material cost - Rs.20 Rs.137.5

Additional material cost

Labour charge - Rs.3 Rs.8.25

Cake - nil (Rs.96.5)

Chemical charges - Rs.14 Rs.14.85

Variable over heads

Electricity - Rs.10 Rs.1

Water - Rs.0.45 Rs.0.40

Fixed over heads - Rs.1.6 Rs.1.4

Glycerine - (Rs.2) (Rs.2)

Rs.47 Rs.64.5

BREAK EVEN ANALYSIS

1. Waste cooking oil

Break even analysis for 100 lts

FIXED COST : 600000

SALES : 4700

VARIABLE COST : 1045

BEP = FIXED COST

SALES – VARIABLE

BEP = 600000

4700– 1045

BEP = 164 lts

If company manufactures more than 164 lts then company can earn the

revenue . If company manufactures less than 164 lts then company

incurres the losses. If the company manufactures exacts 95.ltrs then

there is no loss or no gain.

monthly operating expenses Fixed variable

Bio Diesel producation unit 300000 -

Oil Extraction Machine 200000 -

Bio Diesel Filter Machine 100000 -

Electricity Charges - 1000

Water Charges - 45

TOTAL FIXED COST 600000

TOTAL VARIABLE COST 1045

SALES REVENUE /UNIT 4700

BREAK EVEN POINT 164

FIXED COST

Bio Diesel Production unit = Rs 300000

Oil Extraction Machine = Rs 200000

Bio Diesel Filter Machine = Rs 100000

Rs 600000

VARIABLE COST

Electricity =Rs 1000

Water = Rs 45

SALES

Sales price = 47*100

= Rs 4700

2.seeds

Break even analysis for 100 lts

FIXED COST : 600000

SALES : 6450

VARIABLE COST : 145

BEP = FIXED COST

SALES – VARIABLE

BEP = 600000

6450– 145

BEP = 95.lts

If company manufactures more than 95.ltrs then company can earn the

revenue. if company manufactures less than 95.ltrs then company will

incurre the losses. If the company manufactures exacts 95.ltrs then

there is no loss or no gain.

monthly operating expenses Fixed variable

Bio Diesel producation unit 300000 -

Oil Extraction Machine 200000 -

Bio Diesel Filter Machine 100000 -

Electricity Charges - 100

Water Charges - 40

TOTAL FIXED COST 600000

TOTAL VARIABLE COST 140

SALES REVENUE /UNIT 6450

BREAK EVEN POINT 94

FIXED COST

Bio Diesel Production unit =Rs 300000

Oil Extraction Machine =Rs 200000

Bio Diesel Filter Machine = Rs 100000

600000

VARIABLE COST

Electricity = Rs 100

Water = Rs40

SALES

Sales price = 64.5*100

=Rs 6450

NPV assumptions

There is no investment on the land because the waste land may

be procured from the government.

Plant and machinery : it is estimated to be 6 lakhs.

Fixed overheads is calculated as follows :

Cost of the machine : 6lakhs

Life of the machine :10 years

Total production for 10 years : 100x360x10 = 360000

Therefore overheads/ltrs = 600000 = RS 1.6

360000

This estimation is based on the estimates obtained from biodiesel

Development board.

Variable cost of production/year

Raw material cost : 20x36000 =720000.Rs

Chemical charges : 14x36000 =504000.Rs

Labor charges : 3x36000 =108000.Rs

Electricity : 10x36000 =360000.Rs

Water charges : 0.45x36000 = 16200.Rs

Annual Depreciation : 59000.Rs

NPV interpretation

NPV will be positive with a discount rate of 1% , growth rate

of 10% and subsidy of 10% on plant and machinery from

government.

If there is increase in any of these factors the NPV value will

become negative. This leads to loss of the company.

Suggestion for making NPV positive :

We need to get subsidy from government on plant and machinery , it should be more than 10%.

There should be a growth rate of 10 % and above.

PROBLEMS AND SUGGESTIONS

PROBLEMS

1. We have limited information about the waste cooking oil produced every day in Bangalore city

2. High cost of equipment required for production process or setting up of the plant

3. Land value is high in Bangalore city 4. Difficulties in processing waste oil from different

sources 5. It will be limited only for metropolitan cities

SUGGESTIONS

1.There are few limited plants in Bangalore cities using waste cooking oil for biodiesel production. So with support of government we need to make survey about the waste cooking oil produced and also by making survey about the waste oil produced in restaurants across Bangalore city we can find the approximate amount of waste oil produces

2. in setting up the biodiesel plant the cost of equipment will be more to reduce the cost we should try getting subsidy on the equipment from government. 3.since the land value or cost is high in Bangalore city. The government can provide waste lands for setting up of the biodiesel plant. 4. In Malaysia there are local factories which collect waste cooking oil from which the biodiesel was produced. So government can locate such factories in cities and collect waste oil from restaurants.

5.As per said in above suggestion waste oil can be

Sent from the local factories to different parts of the state for

Biodiesel production

RESULTS AND CONCLUSION

Results

From the study we have analyzed the capital investment required for setting up the biodiesel plant.

We have made comparative analysis of both seed and waste cooking oil in biodiesel production and as per the results we understand that biodiesel from waste cooking oil is more economical and can be commercialized

We have calculated the cost incurred at each stage of the biodiesel production

In production using seeds consist of more stages when compared to production using waste cooking oil. It consist seed crushing process because of which the total cost of producing biodiesel from seeds increases

Where as in producing biodiesel from waste cooking oil directly goes into transesterification unit. Hence there is reduction in the total cost of biodiesel

We have studied about the areas of cost reduction they are :

Feedstock can be replaced by waste cooking oil. Getting subsidy for the equipment’s used in

production process. Procurement of waste cooking oil directly from

hotels

Using capital budgeting techniques such as NPV and also breakeven point analysis, we have found the cost effectiveness of biodiesel production

Conclusion

The results of the cost–benefit analysis are first presented separately, The cost–benefit stream for the vegetable oil .The base case provides a 13.61% economic internal rate of return (EIRR), which is higher than the Indian government’s cutoff rate of 12%. At a 12% social discount rate, vegetable oil provides a positive net present value (NPV). This project discusses the financial and economic aspects of biodiesel production in Bangalore. The project may clearly demonstrate that biodiesel is economically viable, and can generate sizable employment opportunities despite its financial non-viability under the present administered pricing scheme. If production is limited to wasteland, the food sector will not be adversely affected. However, the biodiesel sector will not take off, even with all these advantages, unless the government intervenes to correct market and nonmarket failures that prevent the biodiesel markets from developing. Government interventions may include research on the agronomy of oilseed plants, the allocation of wasteland, the establishment of a dedicated Agency for biodiesel, and the provision of an incentive package for private investors and small-scale producers

FUTURE SCOPE OF THE STUDY

Study is confined to biodiesel plants located in Bangalore city. This project can be implemented in the biodiesel plants and it can be extended to other cities also. Current energy systems need a vast transformation to meet the key demands of the 21st century: reduced environmental impact, economic viability and efficiency. An essential part of this energy revolution is bioenergy.

Biofuels provides a forum for all stakeholders in the bioenergy sector, featuring review articles, original research, commentaries, news, research and development spotlights, interviews with key opinion leaders and much more, with a view to establishing an international community of bioenergy communication. As biofuel research continues at an unprecedented rate, the development of new feedstocks and improvements in bioenergy production processes provide the key to the transformation of biomass into a global energy resource. With the twin threats of climate change and depleted fossil fuel reserves looming, it is vitally important that research communities are mobilized to fully realize the potential of bioenergy.

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Jatropha Bio-diesel Production and Use. Biomass and Bioenergy 32 (12): 1063–1084.

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Use in India. A report prepared under TA 7250, submitted to the Government of India,

available at www.adb.org/Documents/Reports/Consultant/IND/42545-01-ind-tacr-01.pdf

2011b. Food Security, Energy Security, and Inclusive Growth in India: The Role of

Biofuels. A report submitted to the Department of Economic Affairs, Ministry of Finance,

Government of India, summarizing the findings of the technical assistance project

Cross-Sectoral Implications of Biofuel Production and Use in India (TA-7250).

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Agriculture Development (IFAD). 2010. Jatropha: A Smallholder Bioenergy Crop. The

Potential for Pro-Poor Development. Integrated Crop Management 8-2010. Rome