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XIMB- BUSINESS PLAN CONTEST

INSINSTITUTE NAME : XAVIER INSTITUTE OF


MANAGEMENT,BHUBANESWAR

DEGREE/COURSE:- POST GRADUATE DIPLOMA IN


BUSINESS MANAGEMENT (PGDBM)

TEAM LEADER – VIJAY T.T

TEAM NAME - CLAIRVOYANT

TEAM MEMBERS: - VIJAY T.T


RASHIMA MITTAL

EMAIL ADDRESS:- vijay.thirumalai@gmail.com


rashimamittal@gmail.com

PHONE NUMBERS:- VIJAY – 9337646343


RASHIMA - 9338227216.
About the Business
The Clean Development Mechanism:
The Clean Development Mechanism (CDM) is the only mechanism under the Kyoto Protocol
involving countries that are not subject to binding greenhouse gas emission caps by the protocol(
non-Annex I countries). Under the CDM, investors from Annex I ( countries which are polluting
above their stipulated limits) states receive Certified Emissions Reduction units (CERs) for the
actual amount of greenhouse gas emissions reduction achieved in projects financed by them in
non-Annex I countries.
The crux of the business opportunity which makes India an attractive place is the following

Cost of reducing in a host country < Cost of CER thru CDM < Cost of reduction under the
developed country

The non annex country / the host country benefits in the form of a) sustainable development b)
access to better technology, funding and cheaper source of power.

The Business opportunity:


According to World Power 2005 publication, the value of Global Emissions Market is expected
to reach Euros 54.0 billion in 2010 and Euros 100.0 billion by 2020. The major sources of supply
of Carbon Credits are expected to be from Brazil, China and India.

2005 actual 2012 estimated


Volume Value (million Volume Value (million
(Million Tons CO2 USD) (Million Tons CO2 USD)
Equivalent.) Equivalent.)
Total carbon 799 11961 5500 85000
credit market
CDM share 397 2525 2500 25000

India’s share in NA NA 500 5000


CDM
(Source: World Bank)
 The Clean Development Mechanism (CDM) remains and would remain the largest market
segment in terms of volume of all the Carbon credits generation mechanism.
 India and Brazil are the countries with most projects at Project Design Document (PDD)
level or higher, 186 and 101 respectively.
 Indian market is viewed very favorably in the international Carbon Emissions Reduction
markets which is evident from the first rank given to India by Point Carbon ,( a renowned
Carbon Trading Consultant) in ratings of CDM project hosts:
These factors make India an ideal supplier of CER’s to Annexure-I countries. We plan to
harness this strength of India in CER generation for our business

India’s Energy Scenario and the business Potential


The facts

• India faces a peak electricity generation shortage of over 20% and an energy shortage of
about 12%.
• Public concern and Government regulations on the harmful effects of businesses due to
pollution on environment are increasing by the day and will continue to do so,
specifically in the face of globalization and demand for corporate governance and social
responsibility.
• In this context, a few large companies and a majority of medium-sized companies in
India are establishing either Renewable Energy and / or Energy Efficiency Projects in
India, to reduce their dependency on fossil fuels (such as coal, diesel, and furnace oil
and fuel additives) and to ensure the supply of cost-effective, reliable and sustainable
energy sources for their industrial & commercial operations.
• If we look at the energy growth in the world we notice that much of the growth has take
in the non OECD countries, and mainly due to the explosive growth of India and China
demand.
Also The per capita consumption of power in India is 356 kWh, as against 600 kWh in
China, 8,305 kWh in Singapore and 20,868 kWh in USA. India’s per capita power
consumption is bound to increase, as it embarks upon ambitious sustainable development
goals.
To mitigate these deficiencies due to non renewable sources , India is implementing one of the
world’s largest programs on renewable energy, covering the entire gamut of technologies, which
are quite relevant to the needs of other developing countries in Africa, South America, the
Caribbean, South East Asia, Bangladesh, Sri Lanka and the Pacific Islands.
Mission:-

We plan to develop a sustainable model for development in Green Energy Space using
Process and Financial innovations.

About us

We view ourselves as a ‘green business financial organization’ focused on promoting a variety of


commercially viable New and Renewable Energy Systems initially in India and then in the
neighboring countries of South East Asia.

Facts about Global CDM markets and some apparent inefficiency

The disconnect in the CER markets


Carbon credits market is a disconnected market and is heavily skewed in the favor of buyers. This
situation is likely to improve in the next few years due to 2 primary factors a) Many governments
and Private institutions are given increasing importance to mitigate GHG emissions due to CSR
and other initiatives and hence the demand for credits would increase manifold in the coming
years b) with the dwindling number of high CER generation projects like killing HFC’s ,N2O on
the decline , supplies would now primarily come from RE & EE projects which are not as high
yielding as HFC type projects thereby causing a supply crunch. Due to these factors the global
CER market would be a more evenly balanced in the future. Hence our business model of
concentrating on the “seller’s side” would be a welcome relief to the CDM project developers. By
concentrating we mean that we would be a providing a host of Value Added Services to sellers,
primarily SME’s which currently not offered by those ‘big ticket carbon funds’.
The major Buyers The major Sellers
Note: Figure 1, Source: UNFCCC report of CDM trends Period January 2005- March 2006.
Total Volume traded in this period 453.5 million tons of CO2 emissions. India was a
world leader in 2004, China due to its HFC reduction projects (which has greater potential for
a CO2e reduction was able to capture the market share, however this situation is expected to
reverse in the future as these ‘low hanging fruits’ are almost depleted and such low investment,
high return projects are difficult to come by in the future)

The table below shows the break up of CER’s obtained through different methodologies like CDM, JI
etc. CDM continues and will continue to be a sustainable supplier of Carbon credits in the near future.
Therefore developing countries like India and China would continue to be the leading source of
Carbon Credits.
Another interesting trend to note is the exponential growth of Voluntary and Retail Markets for CER’s.
This market is primarily driven by USA and is spreading to countries like India and China too. We
believe that there is a tremendous scope for these markets and we are looking at this market space too
for future growth opportunities.
World Carbon Trading Break up
2004 2005 1st Quarter 2006
Value in Value Value
Volume Million Volume Million Volume Million
Mt CO2e USD Mt CO2e dollars Mt CO2e dollars

Compliance
markets 107.7 543.59 368.3 2665.31 79.12 906.14
CDM 97 485.01 346.15 2544.3 75.61 886.5
JI 9.1 54.19 17.78 82.41 3.29 19.29
Others 0.96 4.39 4.37 38.59 - -

Voluntary
and Retail
markets 2.92 5.57 6.05 43.03 3.52 20.23

(Source: Carbon finance Unit World Bank) Figure 2

Identified Buyers and Sellers and the flow of carbon credits


The Business opportunity:

The business plan on how we plan to tap the above idea would be organized into 2 sections
1. The business model for effectively exploiting the India’s CDM potential and creating
sustainable development which means viewing India primarily as a resource base for
Carbon Credits.
2. The business model for exploiting the potential for voluntary emissions reductions and
retail markets for CER’s in India and South East Asia including countries like China, Japan
etc (possibly in the near future) ie viewing it as a market base for CER’s too.

The potential `green business space' on the selling side comprises of two groups:
1. Conventional businesses who are adopting green business practices and
technologies to reduce their costs and risks and at the same time build their `brand
loyalty'.
2. New businesses that are developing new green products & services to take
advantage of the growing business opportunities in the `green business space'.

Indian Carbon trading value Chain and the need gap analysis

Case Study
As a part of our analysis to understand the practical difficulties faced by the CDM project
developers, we did a case study on a typical small CDM renewable energy power project in May
2006. This company Salem Paper and Board Mills is located in Salem, Tamil Nadu intended to
develop a 2.5 MW plant using Renewable Energy sources and this is a how a typical SME CDM
project looks like.

Name of the Unit : Salem Paper & Board Mills


Location :Tamilnadu, South India
Capacity of the unit :13,200 TPA (Tons per annum) at present , 16,500 TPA after last
phase of expansion.
Products manufacture :Writing & Printing Paper.
In house Power required :Around 2.5 MW.
Fuel proposed for co-generation
project :Paddy Husk/wood.
Annual turnover of the unit : Presently its US $ 4.40 million and after expansion it will be
around US $ 6.70 million

Financial Projections for 7 years of the project - Cash flows without CER Revenues

S.No Description First year For the 7th Year

1 Gross Units-Electricity generated (Million Units) 16.2 16.2


2 Net Units - Exportable (Million Units) 14.58 14.58
3 Selling Price / Unit - To the Paper Mill 0.10 0.12
4 Total Revenue by sale of Power 1,426,304 1,727,413
5 Total Variable Cost 695,326 830,256
6 Total Operating & Maintenance Cost 130,435 146,891
7 Miscellaneous Expenses 10,870 10,233
8 Total Cost of Production of Power 836,630 987,380
9 Profit before Interest, Tax & Depreciation 589,674 740,033
10 Interest on Term loan @ 10% p.a. 152,174 21,739
11 Depreciation - Straight Line 108,696 108,696
12 Profit after Interest and Depreciation 328,804 609,598
13 Cash Earnings 437,500 718,294

IRR WITHOUT CDM BENEFITS = 18%

( Cash flows calculated after taking into account earnings from CER revenues)
S. No Particulars Year 0 Year 1 For the 7th Year

1 CERs generated every year (in Units) 11,700 11,700


2 Expected selling price of CERs 9 9
3 Total CER Sales Revenue 105,300 105,300
5 Income Tax @ 33% 34,749 34,749
6 Net CER Sales Revenue 55,043 55,043
7 Project Cash Flows -2173913 437,500 718,294
8 Cash Flows including CDM Benefits -2173913 492,543 773,337

IRR WITH CDM BENEFITS = 27%

From inputs obtained from the case study, our interactions with some CDM project developers,
energy consultants in India, we were able to obtain meaningful insights about the problems faced
by SME CDM developers. Our business model is therefore designed by addresses these
inefficiencies and provides better value to our customers.
Carbon trading cycle in India and some apparent inefficiencies

A cursory look at the figure would indicate that the CER market is skewed heavily in favor of the
buyers with no great advantage to sellers apart from CER revenues. Our business model has been
structured in such a way as to mitigate these inefficiencies and promote a robust CDM market in
India. Before we could explain our business model we would like to give a brief indication of
our presence across the various stages of our CDM project..

Our Presence across various Stages of a typical CDM project


Project Financing, Technology import, Floating of SPV for Securitization.
We shall take care of this through our network of investors and
Financial innovations designed in due course of time.

Preparation of PIN, PDD.


There is a standard format available for these documents. We shall facilitate
project participants in furnishing these formalities for start of CDM project.

Approval from Designated National Authority (DNA)

Validation by Designated Operational Entity (DOE)

Registration by CDM Executive Board (EB)

Data Management, Regular checking and calculation of emission reduction.


We shall collect and archive all data necessary for calculating emission reductions by
CDM project activity, in accordance with the monitoring plan mentioned in PDD.

Verification and Certification is carried over by DOE.

CER equal to the verified amount are issued by DOE.

Distribution of CER’s to Project Participants


Being an intermediary, we shall distribute CER to the participants on pre-decided basis.

(Legend: Green our presence in the value chain)

Our Business Model and Services Offered


Carbon Advisory Services – Services provided under this are
a) CDM project Due Diligence: All projects do not qualify for CDM due to the stringent norms
laid out in the Kyoto Protocol standard. We would do an in depth analysis of all the projects and
through our model would try to quantify the CER’s to be obtained to help the Promoters before
making an investment for the CDM project and help the promoter come to an informed decision.

b) CDM project development – Preparation of PDD, PIN and obtaining Host country approval.
Helping the client in Quantifying Additionality, Emission Baselines and monitoring the
emissions.
We would initially establish ourselves in this business by providing advisory and project
development services. Quantifying Additionality which is establishing the fact that the project to
be developed would not have been implemented in the absence of it being eligible for
registration and for generating Carbon Credits is one of the key criteria in obtaining the
certification. Also establishing the Business As usual Scenario and calculating Baselines are too
sophisticated for the clients to do it by themselves and where intermediaries would play a
valuable role.
c) Arranging technology and Project financing for the projects.

Carbon Asset Management & Brokerage Services


The IRR improvement would not be achieved
unless the SME’s are able to sell the CE
initially calculated price or better -
The graph above shows that the CER prices
have varied from 28 Euros / Ton to around 10
Euros /Ton in a period of
1 year!!
SME’s neither has the expertise nor has
scale to handle these kind of price risks !!
We through our efficient risk management and
portfolio CER Prices in ETS
diversification will try to ensure stable cash from sale of CER’s to the SME’s.
These kinds of services are offered by high end consultants like PwC, E&Y at exorbitant projects
and are targeted to projects with a capacity of more than 50 MW, which the SME’s cannot afford.
Also we would help our clients to get in touch with potential buyers and facilitate in better price
discovery.
Bundling of our service offerings into a single end to end marketable product

1. Project Identification Preliminary assessment of Development of project design


possible delivery of document (PDD)
credits Preparation of Environmental
Preliminary assessment of Impact
possibility to monitor Assessment of Organization
emissions. for public consultation.
2. Feasibility
Assessment of market Development and validation of
value of credits. baseline.
Assessment whether the Development and validation of
project can qualify as monitoring plan.
CDM project. Approval of host country /
Confirmation sustainability.
Carbon Reduction Purchase
3. Project Structuring Agreement.
Registration of the project as
CDM activity.
4. Implementation 5. Operational Phase

Monitoring and Verification and/or


Install monitoring Certification of emission
reductions.

(We would be with the project developer right from project identification phase till the
operational phase thereby offering an end to end solution)

Carbon Aggregator /Carbon Credits bundling services

The role of carbon aggregator or the SME based Carbon fund becomes important due to the
following reasons.
 Projects which produces less than 10,000 CERS cannot be registered with the
Designated National Authority ( DNA). Typically SME project produce CER’s only in
that range. So the role of Carbon Aggregator becomes pronounced as the bundling of
CER’s is done by him who helps the companies to obtain the CER’s.
 Costs of completing the CDM project cycle have a strong fixed element
 Costs for PDD, methodology development, validation, verification are mostly fixed
 Only CDM Executive Board administration fee is completely variable
 Projects with less than 10,000 CERs per year have problems in recovering these costs
due to the high fixed cost component.
 Many RE & EE projects are small and can be replicated widely, these projects have a
positive impact on the local environment.
Other than bundling technique, we propose a methodology called programmatic CDM which is
not prevalent in India and if implemented has the potential to reduce the registration and project
development costs for SME’s. By bundling and programming these projects we can greatly
eliminate reduce the fixed costs and provide greater value to our customers.

One Business model of offering Stop Shop to Customers

PROJECT DEVELOPER PROJECT DEVELOPER

INVESTORS OUR COMPANY

TECHNOLOGY
PROVIDERS

LEGAL
AUTHORITIES

GENERATING
COMPANY

REGULATORS

CARBON CREDIT
BROKERS

CONSULTANTS

Risk Analysis of a typical CDM project


Apart from the usual risks associated with any project like technical, financial, environmental
and financial risks, a typical CDM project faces additional CDM risks as follows.
The table below details the various risks about the CDM project and our views about the same.
Source of Risk Risk Mitigation Strategies & Our analysis
of the Risk
Market/Price Risk for CER – Will a With all countries, trying to embrace Green
market exist in the future? Energy (Case in point ,California Governor
Arnold’s take on Green energy ) we feel
that the market would only expand
Policy /Compliance Risk – What is the We feel that even after 2012, Kyoto
future of Kyoto Protocol after 2012, What Protocol would continue to exist in some
if the host country fails to ratify? form or the other. With Oil prices expected
to touch $ 100/barrel and Global Warming,
Green Energy & Kyoto is the only way out
Baseline Risks – 1) Would the projects & We recognize that this is an inherent risk in
CER be Kyoto Compliant 2) Would the this business. Through effective portfolio
projects would be certified and be able to diversification (sourcing from different
register 3) Performance Risk - How industries and technologies) we would be
sustainable is the CER generation capacity able to deliver CER at economical prices
of the CDM project on a sustainable basis.
Relatively low size of the CDM projects We would act as a Carbon Warehouse fund
( and therefore lower CER) which makes accumulating CER from SME and
them unattractive for foreign players due to ultimately sell around 1 million CER to
higher transaction costs organizations like World Bank /Other
Institutions.
Weak Financial status of the Hosting Our objective is to identify promising
companies implementing CDM projects, projects and arrange Equity & Project
which leads to a higher cost of capital and Financing. However we need to establish
lesser IRR. our credentials in the Market place before
we could launch a Carbon fund.
Competitor Analysis
Financial Innovations we envisage to bring about in this Sector
Till now we have focused at a traditional carbon trading cycle and our business model to address
the inefficiencies in the cycle. From now we would focus on the innovations we plan to bring to

this industry. We believe that our USP in this Carbon Trading Industry is the financial
innovation we can bring in this sector and if successful , these innovations could bring about a
sea change in CDM project implementation, financing, creating new asset classes and also
create a long term sustainable development

1. Project Rating Services


We plan to identify all CDM projects in India and rate them. We understand that Rating and
Evaluation System for Prioritizing Investments in Reducing Emissions is very critical for an
investor.
CAPITAL COST
FIXED&VARIABLE RUNNING COSTS

IMPLEMENTATION RISKS

DELIEVERY RISKS

RATING MANAGEMENT TIME DEMANDS

VARIABLES AVOIDED FUEL & POWER COSTS


CARBON VALUE RELEASED
PROJECT LIFE CYCLE
PROJECT PHASING

REPUTATIONAL VALUE

We plan to develop a smart tool which can assist managers in prioritizing their energy and
carbon saving options. It shall help the investors in analyzing the variables that determine the
value and feasibility of an energy or carbon-saving project in the real-world commercial
environment. Following are the variables which we consider utmost important to rate a CDM
project.
2. Use of Securitisation in CDM projects

During our discussion with the Project Developers in India, one of the commonest problems
the Project Participants quoted was the issue with financing. Most financing deals to the project
developers from carbon funds occur after the carbon credits are fully validated, certified,
registered and transferred. It takes 1-2.5 years on an average for a typical small /and medium
size CDM project to be started and implemented and project developer is provided no
finance when he needs most. This causes many project developers not to take up
potentially lucrative CDM projects due to non availability of finances.

Our solutions to mitigate this problem


Securitization – An innovative financial solution of packaging illiquid assets into liquid
securities could well be the big trigger for CDM projects in India.
India Structured finance market is gradually picking steam and with the introduction of the
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest
(SARFAESI) Act, 2002 (SARFAESI), securitization deals are viewed as a viable source of
financing. We can repackage the future revenues from CER’s by pooling the asset from different
SME’s. This way we can greatly diversify the risks and also have access to a regular source of
CER credits. This will help bridge the divide between the sellers need for upfront capital and
buyers risk aversion.

Our Role in Securitization


Carbon Credits Emissions from projects with less than 10,000 credits cannot be registered and
be eligible for carbon credits. So the role of carbon aggregator is to bundle these projects and to
make them eligible for carbon credits. Through our Carbon fund, we plan to aggregate the CER
projects and issue securities against them. This way we can obtain our investments not only from
foreign companies who wants to offset their emissions but also from Investors in India who wants
to diversify their portfolio. The credits obtained could be traded in the Carbon exchanges and
differentials between the Investors equity portion and revenue obtained would be our profits.
This if successful would create a virtuous cycle and could potentially turn India into a Green
Energy Hub.

Role of Ratings in Securitization


One of the primary impediments to securitization contracts is the lack of adequate
knowledge about the CDM projects to investors and the inability to monitor the project for
variances on a regular basis. An independent third party analysis on the viability of the future
CER credits and the project would go a long way in attracting more investors. (Like how a debt
instrument is rated)
We could probably look at being an independent CDM project rating agency in association
with rating agencies like CRISIL, ICRA etc. ( we have not approached any of them and we are
not sure about the feasibility).
A potential conflict of interest is inherent in this model as we cannot rate the same project
which we are also investing /participating in. So in the future the choice to become a CDM
project rating agency would depend on the opportunities available. However if our goal to
establish the first Carbon Exchange in SE Asia crystallizes, we would be maintaining a registry
of projects against which we would be issuing securities. This paid registry could be used by
investors at their discretion to invest in project, however it should be understood that we are not
playing the role of a typical rating agency here.

VERTICALLY INTEGRATED BUSINESS MODEL

CARBON ASSET
MANAGEMENT
CLIMATE
EXCHANGE
CARBON FINANCE&
PROJECT FINANCE
ASSET MANAGEMENT
SERVICES

ADVISORY SERVICES
CARBON ADVISORY

Our vertically integrated business model gives us ‘economy of scope’ and helps us to provide
better value to customers.

Carbon Exchange in India


The culmination of this business model is to create India’s first Carbon Based
Exchange which would help in greater price discovery, risk management, greater liquidity and
more importantly in the creation of new asset classes.
Strategies to attract buyers and sellers can be :-

1. Promotion of Exchange

AGENDA
 Formalized national project approval procedures
 CDM promotional publications & brochures
 A national CDM website
2. Participating and Organizing of Investors forum:
Audience of such forums shall be Carbon investors, carbon brokers, national carbon funds
and VER brokers.

AGENDA
 Marketing of CDM project portfolio in participating countries and their
neighbors.
 Informed the sellers on Terms & Conditions of some of the existing Emission
Reductions purchase programs.
 Informed the buyers on CDM institutional preparedness of countries in the
region (DNA & KP ratification).
 Discussions between buyers and sellers regarding CDM project details.

Need for Carbon Exchange in India

 This is the first affirmative step towards voluntary reduction of emissions, which is
probably the most effective option in the absence of a rule based reduction.
 As already mentioned previously despite Asia being the greatest supplier of CER’s
there is still no centralized market for Carbon Exchanges. Most of the trade takes place
thru ETS and the Asian project developers are exposed to currency risks and country
risks.
 This would result in the creation of an entirely new asset class to investors and would
help in garnering the much needed funds for CDM projects in India and also increase
the liquidity of the “Securitized Instruments”.
 Even before the establishment of the SEBI, the BSE existed and they were the
unofficial regulators of the Indian Stock Exchange. In the same manner, this exchange
could well be unofficial regulator of the Indian CDM markets and would help in
efficient price discovery mechanisms.
 This also gives the SME’s and other producers who lack scale to effectively hedge their
price and currency risks by buying standardized derivative contracts.
 Also last but not the least, this model has been tested in the form of Chicago Climate
Exchange in USA. India in certain ways is similar to USA, both have not joined the
protocol (in the sense, USA has not ratified and India need not) but both of these
countries are under international pressure to reduce their emissions. VER has been the
driving force of CCX. By use of innovative marketing techniques we would be able to
be the market marker for Carbon Credits by generating the necessary liquidity and
participants for the Carbon Markets.
 Creation of this would aid in the seamless integration of Asian Carbon market with the
global Carbon markets.

Why now?

 Chicago Climate Exchange is already in talks with MCX to introduce financial derivative
contracts using Carbon Credits as the underlying to familiarize the corporate houses with
trading platforms. In an interview their CEO said that they would like to eventually establish
the Carbon Exchange very soon.
 With Corporate houses like Tata’s, Reliance, Birla’s etc emphasizing on CSR and due to the
growing concern about Climate Change, there would a huge market which is virtually
untapped in India, if these corporate houses are targeted the right way. “The basic idea is this
, use Green energy as much as possible, Offset those amounts which you are polluting above
the stipulated value by buying Credits.”
 This has to be established before the beginning of the end of the commitment 1 period as
prices are expected to Sky rocket by then. Also there is a possibility that countries like Russia
and USA would join the Kyoto Protocol in the second commitment period, which could
potentially increase the markets manifold.
 Last but not the least, we would be the first Carbon Exchange in South East Asia and would
have the crucial early mover advantage even if other players come like CCX come in.

Impediments in the establishment of the Carbon exchange

 Like all exchanges, lack of liquidity would be the most important issue in the initial years.
However as market stabilizes and when the demand supply narrows ( ie when the Carbon
credits move from a buyers market to a more neutral market) there would be an exponential
surge in liquidity.
 Regulatory issues would be another major hurdle. Rules with regard to Securitizations,
“True- Sale” status of SPV etc are not very clear. Also it would be an onerous task to register
the CER’s as securities under the Securities Act to make it eligible for trading.
 If CCX moves in the market quite early, it might be a tough competitor as they already have
systems in place. However due to our vertically integrated business model, we would be able
to provide better services to investors, and the participants of our exchange.

India as a potential market for selling CER’s


Among developing countries India and China and India, the world's two most populous
nations and emerging economic powers, are not only the most attractive CDM investment
destinations but also has the potential to become a huge buyers market.
In a study conducted by EIA ( Energy Information Administration) conducted by the US
department of Energy, the Global GHG emission is expected to grow by 30 to 85% by 2025 and
by 70% to 210% , depending on the assumptions made. This poses an ominous signal for the
world’s environment and climate. India is the fifth-largest emitter of carbon dioxide after the US,
China, Russia and Japan and the emissions from Indian and China are going to grow manifold.

Projected GHG emissions (source US Department of Energy)


Although India & China are adamantly opposed to accepting legally binding greenhouse-gas
reduction targets, it is only a matter of time that these countries adopt some sort of Voluntary
capping mechanism.

Does Voluntary Emissions Reductions really work?


It is counter intuitive to believe that Corporates who concentrate on their bottom lines and
cutting flab in expenditure , would invest their clean energy projects at higher costs/ buy carbon
credits to ‘offset’ their emissions. To explain this, we would like to quote “The Investor Network
on Climate Change ( www.icnr.com )”, a network of North American Investors with assets worth
more than $ 3 trillion being managed between. They recognize that climate change is a no
longer just an environmental issue but has implications on several areas of the business. The 50
participating members like Goldman Sachs , JP Morgan , Morgan Stanley and like , of INCR
have identified climate change as a key fiduciary concern and as one of the greatest challenges of
the 21st century and have given premium in their valuations to companies which invests in
Emission reduction projects/ those who offset by buying Carbon credits.
Our Business Model to Tap India as a market base

Socially responsible Corporates in countries like India and China, taking a cue from the US
model start reducing their emissions at least on a voluntary basis. This would make India and
china as one of the key buyers in the market place.
We plan to tap this space by establishing India’s First Carbon Exchange, which could well be on
its way to become South East Asia’s Carbon exchange in the not so far future.

Revenue Details and Cash Flows


We have tried to estimate the business potential in India with the following assumptions
 The average price of CER would around $ 17-$20 on an average which is a very
conservative estimate.
 The CER generated from Renewable Energy (ER) project is around 2 and that by Energy
Efficiency project is around 1.
 Data on RE projects have been obtained from IREDA website.
 Data on EE potential have been obtained from CII Website.

INDIA'S CDM BUSINESS POTENTIAL 2007-08 2008-09 2009-10 20010-11 20011-12


For Renewable Energy Projects
India's Annual Energy Generation Requirement (MW) 15,000 20,000 20,000 25,000 25,000
Share of Renewable Energy (%) 15 15 18 18 18
Renewable Energy Generation (MW) 2,250 3,000 3,600 4,500 4,500
Contribution of Wind Energy (%) 25 30 30 36 36
Wind Energy Generation (MW) 563 900 1,080 1,620 1,620
RE Generation excluding Wind(MW) 1,688 2,100 2,520 2,880 2,880
Unit Generation of CER per MW from RE Project (Nos.) 3,500 3,500 3,500 3,500 3,500
Indian CER Generation Potential (excluding Wind) 5,906,250 7,350,000 8,820,000 10,080,000 10,080,000

For Energy Efficiency Projects


Indian Industry's Energy Efficiency Potential (MW) 4,000 4,000 5,000 5,000 5,000
CER generation per MW from EE Projects (units) 4,500 4,500 4,500 4,500 4,500
CER generation from EE Projects In India(units) 18,000,000 18,000,000 22,500,000 22,500,000 22,500,000

For Bio-Diesel Projects-Jatropha


Bio-diesel generation capacity in India (kilo tonnes) 10,000 20,000 20,000 30,000 30,000
CER Generation per kilo tonneof Bio-diesel (units) 3,000 3,000 3,000 3,000 3,000
CER Generation-Bio diesel prodn in India (units) 30,000,000 60,000,000 60,000,000 90,000,000 90,000,000

Syndication of Equity and Project Finance for India


RE Projects Generation excluding wind(MW) 1,688 2,100 2,520 2,880 2,880
Indian Industry's Energy Efficiency Potential (MW) 4,000 4,000 5,000 5,000 5,000
Total RE &EE project addition p.a.in India (MW) 5,688 6,100 7,520 7,880 7,880
Average investment required per MW (US $Mil) 1 1 1 1 1
Investment Capital/p.a for RE&EE Proj in India (US $Mil) 4,266 4,575 5,640 5,910 5,910
Equity required (70:30 D/E Ratio) for RE/EE Projs(US$ Mil) 1,280 1,373 1,692 1,773 1,773
Proj. Fin reqd(70:30 D/E Ratio) for RE/EE projs (US $Mil) 2,986 3,203 3,948 4,137 4,137

For Preparation of PIN, PDD, Validation & HCA and


Registration of CDM Proejcts.
Quantum of RE Proejcts excluding Wind (MW) 1,688 2,100 2,520 2,880 2,880
Quantum of Indian EE Projects Potential (MW) 4,000 4,000 5,000 5,000 5,000
Total Indian CDM potential RE&EE in India (MW) 5,600 6,100 7,520 7,880 7,880
Average Size of CDM Project in India (MW) 7.5 7.5 7.5 7.5 7.5
Potential Number of CDM Projects in India (Nos) 758 813 1,003 1,051 1,051

Indian Potential for Carbon Trading/Broking


CER Generation from RE Projects in India (Units) 5,906,250 7,350,000 8,820,000 10,080,000 10,080,000
CER Generation from EE projects in India (Units) 18,000,000 18,000,000 22,500,000 22,500,000 22,500,000
CER Generation - Bio diesel Production in India (units) 30,000,000 60,000,000 60,000,000 90,000,000 90,000,000
Total CER Generation from all CDM Projects (units) 53,906,250 85,350,000 91,320,000 122,580,000 122,580,000
Expected average selling price per CER (US$) 17 20 20 20 20
Total revenue generation by sale of CERs (US$) 916,406,250 1,707,000,000 1,826,400,000 2,451,600,000 2,451,600,000
OUR COMPANY MARKET SHARE
(WITH ASSUMPTIONS) 2007-08 2008-09 2009-10 20010-11 20011-12
Assignments for Preparation of PIN, PDD, Validation,
HCA and Registration as CDM Project.
Expected Number of CDM projects in India (Nos.) 813 1,003 1,051 1,051
Our Market share projected (%) 1 2 2 2
No. of assignments (projected) 8 20 21 21
Average Revenue per assignment (US$) 30,000 30,000 30,000 30,000
Service charges from prepn of PIN, PDD, HCA, etc (US$) 243,900 601,800 630,600 630,600

Carbon Credit Broking


Indian revenue potential on sale of CERs (US$) 53,906,250 85,350,000 91,320,000 122,580,000 122,580,000
Our Expected Market Share (%) 1 1 2 2 2
Our Expected CER Sales Revenue (US$) 539,063 853,500 1,826,400 2,451,600 2,451,600
Our fee for arranging sale of CERs (%) 5 3 3 3 3
Fee on arranging sale of Carbon credit (in US$) 26,953 25,605 54,792 73,548 73,548

Fee on arranging Equity finance and Syndication of


Project Finance
Equity reqd (70:30 D/E ratio) for RE/EE Projs (US $Mil) - - - 1,773 1,773
Proj Fin reqd (70:30 D/E ratio) for RE/EE projs (US $Mil) - - - 4,137 4,137
Fee for arranging Equity and Project Finance (%) - - - 2 2
Our Market share projected (%) - - - 2 2
Our fees for arranging equity and proj finance (US$) - - - 1773000 1773000

Total Revenues (US$) 26,953 269,505 656,592 2,477,148 2,477,148


Profit & Loss Statement (US$)
Revenue Stream 2007-08 2008-09 2009-10 2010-11 2011-12
Carbon Credit Broking @1.5% per
CER 26,953 25,605 54,792 73,548 73,548
Assignments for Preparation of PIN,
PDD, Validation, HCA and
Registration as CDM Project. 80,000 160,000 300,000 400,000 600,000
Fee on arranging Equity finance &
Syndication of Project Finance 0 0 0 1,773,000 1,773,000
Total Revenue 106,953 185,605 354,792 2,246,548 2,446,548

Payroll 30,000 50,000 80,000 100,000 125,000


Rental 8,000 8,000 8,000 8,000 8,000
Communication 6,000 6,000 7,500 8,000 10,000
Interest & Finance Charges 7,500 5,000 2,500 2,000 2,000
Travelling & Conveyance 5,000 8,000 12,000 12,000 12,000
Office Maintenance 3,000 5,000 6,000 7,500 7,500
Business Promotion Expense 5,000 6,000 12,000 15,000 15,000
Technology 10,000 20,000 25,000 30,000 30,000
Total Expenses 74,500 108,000 153,000 182,500 209,500

Profit before Depreciation and Tax 32,453 77,605 201,792 2,064,048 2,237,048
Less : Depreciation 0 0 0 0 0
Profit Before Tax 32,453 77,605 201,792 2,064,048 2,237,048
Less : Taxes 9,736 23,282 60,538 619,214 671,114
Profit After Tax 22,717 54,324 141,254 1,444,834 1,565,934

Projected Balance Sheet (US$)


Sources of Fund 2007-08 2008-09 2009-10 2010-11 2011-12
Share Capital 10,000 10,000 10,000 10,000 10,000
Reserves & Surplus 6,815 16,297 58,673 708,848 1,413,519
Bank Borrowings 75,000 60,000 30,000 30,000 0
Secured Loan 0 0 0 0 0
Total 91,815 86,297 98,673 748,848 1,423,519
Application of Funds
Current Assets 16,815 26,297 68,673 718,848 1,423,519
Investments 75,000 60,000 30,000 30,000 0
Total 91,815 86,297 98,673 748,848 1,423,519

Note: 1) The numbers for the above statement is derived from the Revenue Statement we presented
in the executive summary. 2) We have used a very conservative estimate for estimating revenues
and have not included revenues from Carbon Exchange, Sale of Credits in India, Rating &
Registry services.
About us – The management team
One of the team members hails from South India and has deep business lineages in that part of
the country. We would be initially leveraging his contacts to obtain projects from SME’s. He has
an in-depth knowledge of portfolio and risk management, which would help us manage the
Carbon fund better – thanks to his International CFA Charter and his MBA specialization in
Finance.

The other member hails from a Business Family from North India. Her family has been into
manufacturing of energy devices for the last 2 decades. She brings with her a rich business
experience and a considerable knowledge of Marketing and Brand management, thanks to her
stints in senior positions in leading Retail organizations in India.