Click to edit Master title style Rice Husk to Electricity

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1 Click to edit Master title style Rice Husk to Electricity Click to edit Master title style Power Generation from 100% Biomass in Cambodia A proposal for SOMA Group prepared through the ORIX Global Leaders Programme, July 2013

2 ORIX Global Leaders Programme 2013 Cambodia s leading industrial conglomerate with a focus on the country s development Hong Kong based leading provider of experiential executive learning programmes Japanese financial services group with a presence in 34 countries New entity set up under SOMA Group focusing on renewable energy development in Cambodia 2

3 Background: Rice Industry in Cambodia Government aims to export 1 million tons of rice by 2015 (400% increase in 3 years) Massive increase in rice milling out put is expected in the coming years 3

4 Biomass Energy in Cambodia Cambodia has significant biomass energy resources including rice husks. Exports of milled rice is expected to increase from 0.2 million tons in 2012 to 1 million tons by 2015 (A 400% increase in 3 years). At the same time, electricity tariffs are high and only 50% of Cambodians have access to power. Rural electrification is even lower, at less than 30%. Rice husk biomass energy will exploit Cambodia s skyrocketing rice production to electrify rural areas. 4

5 Biomass Energy 5

6 Biomass Power Generation Technology Existing solutions Gasifier + Hybrid Diesel Engine SOMA Energy s solution: 100% loose rice husk gasifier & genset Advantages of the new solution loose rice husk: eliminates the need for extra energy inputs through pelletising and gasification 100% diesel free: further reducing power generation costs required by users Byproduct: ash and bio-char, can be used as soil enhancer, potential to generate additional income for users and provide value to Cambodian agriculture Lower carbon emission: generally more environmentally friendly and provides potential opportunities in carbon offsets and credits 6

7 Biomass Power Generation Technology Ankur Scientific Energy Technologies Pvt. Ltd. GE-Waukesha VHP 5904 The gasification process converts the feedstock, such as rice husks, into Producer Gas, ready to feed into the power generator The retooled GE Waukesha gas engine is compatible with 100% synthetic gas produced from biomass gasification for power generation If fully developed, the biomass gasification technology in Cambodia using rice husks has great potential to address the country s energy security. 7

8 Vision of SOMA Energy SOMA Energy strives to be a leader in renewable energy development in Cambodia and to be the catalyst for promoting biomass energy solutions SOMA Energy aims to be the pioneer in biomass power generation, therefore contributing to rural economic development and prosperity throughout Cambodia SOMA Energy is a renewable energy company 8

9 SOMA Energy Value Proposition SOMA Energy is committed to providing the rural Cambodian population with clean and low-cost electricity (compare to HFO) generated from renewable biomass gasification, to fulfill the growing demand for electricity SOMA power generation uses 100% loose rice husk an agri-byproduct, turning agri-waste into electricity and reducing the overall consumption of diesel and HFO in power generation By providing access to affordable electricity, SOMA Energy is also playing a key role in promoting rural economic development SOMA energy projects supports the rice industry in Cambodia by providing affordable and stable source of electricity, stablising paddy supply for mills, reducing post-harvest wastage and leveling the seasonal rice price fluctuations By providing better drying and storage facilities (both energy dependent) and management services, SOMA intends to reduce wastage, prevent paddy from flowing to neighbouring countries through unregulated channels and increase the income of the rice farmers in Cambodia 9

10 Key Stakeholder Analysis The key stakeholders that SOMA Energy needs to consider engaging include: Technical partners: Provider of gasifier (Ankur, SME Renewables), provider of power generator (GE) Financial Partners: corporate investors, PE firms, development agencies, banks, mutual funds Clients: rice mills, local grid operators and power distributors, local factories, local households, national grid Suppliers: rice mills (husk), rice traders (paddy) Supplier management with the mills to secure the supply of rice husks is key to SOMA s stakeholder management 10

11 Biomass Energy in Cambodia Biomass Energy Generation Challenges : Supply chain management Secure supply and transportation of rice husks Price volatility of feedstock Lack of renewable energy policy and incentives for producers Limited access to financing Expanding national electricity grid High transportation cost relative to the value of commodity Policy environment and feedstock management are the main challenges facing Cambodia s biomass energy industry 11

12 Option #1: Rice Mill Installation (Schematic) Farmers Local Electricity Distributor Grid Paddy Rice Mills Husk + Reduced electricity Tariff Industrial Electricity Users 12

13 Option #2: Remote Electrification (Schematic) Farmers Local Electricity Distributor Grid Paddy Rice Mill Husk Power Generation Industrial Electricity Users 13

14 Option #3: Rice Storage & Electricity (Schematic) Farmers Local Electricity Distributor Grid Paddy Paddy <SILO> <Power Generation> Rice Mill Husk + Reduced electricity Tariff Industrial Electricity Users 14

15 Comparison of 3 Options Option #3 of building and operating silos presents the best rate of return among the three business models, but also requires the largest initial capital investment. Options #2 can be considered in areas rich in paddy but lacking in power, as well as alongside Option #3. Option #1 is suitable for regions with relatively higher concentration of existing mills. Options 1. Generation Unit at Rice Mill Cluster 2. New Mill + Generation Unit IRR (10 years) Net investment US$ mil. Cumulative net income US$ mil. 13.9% % Silo + Generation Unit 20.0% All three options provide a favorable IRR 15

16 Comparison of 3 Options Least Capital Request Fincial Performance Feedstock Stability Three options have been compared against criteria including financial and social benefits, as well as investment and key operational considerations Option 1 Option 2 Ease of Operation Social Benefit Option 3 Option 3 is recommended as it provides greatest overall benefit, in spite of requiring higher investment and technical expertise 16

17 Million USD Option #3: Financial Projection Capital Investment Requirement: US$ 7.90 million IRR: 20.0% in 10 years Payback Period: 5 years Expected annual revenue: US$ million Expected annual net profit: US$ million Accumulated Profit Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 17

18 Risk Analysis and Mitigation: External Risks Risk Type Description Likelihood Impact Risk Mitigation Expansion of National Grid High Medium Be aware of the future expansion plan of the national grid carefully select project sites to prevent clashing with grid in the next 5-10 years Market Risk Establishment of Secondary Market for Biomass High High Signing of long term captive contract with rice mills to secure supply of feed stock Targeting major rice producing provinces Locating the power plant close to source of feedstock (within km radius) Investing in drying and storage facilities Competition Medium Low Diversification of business scope 18

19 Risk Analysis and Mitigation: External Risks Risk Type Description Likelihood Impact Risk Mitigation Policy Risk Current lack of regulation on renewable energy Unfavorable policy change on biomass energy solutions High Low Low Low Influence the government to make renewable-related policies Better cost-management to compete with traditional sources of power generation Expand business into other renewable solutions and services Move from direct energy provider to energy services 19

20 Risk Analysis and Mitigation: Internal Risks Risk Type Description Likelihood Impact Risk Mitigation Management Risk SOMA lacking experiences in power business Lack of financial independence and transparency Medium Medium Low Medium Employ experienced staff to run and operate the energy business Acquire technical know-how from the technical partners i.e. GE, Ankur, SME to equip SOMA staff SOMA energy should be an independent entity from SOMA Group SOMA Energy should be responsible in keeping its own financial statements 20

21 Risk Analysis and Mitigation: Internal Risks Risk Type Description Likelihood Impact Risk Mitigation Delay in recovery of investment Medium High Strengthening cash flow to be in better position to deal with unexpected situations Secure some of the financial liabilities and obligation through insurance, etc. Funding and Capital Risk Lack of sufficient funding Medium Medium Increasing the financial transparency of SOMA Energy Establishment of robust financial and risk management policies Collaborate with international partners to explore various funding methods Working capital locked up in inventory High High Establishment of rainy day fund Sourcing of extra credit lines 21

22 Cambodian Biomass & SOMA Energy Cambodia can be a catalyst for new biomass energy solutions SOMA Energy can be a pioneer in rural economic development Renewable energy can develop before conventional energy infrastructure becomes entrenched Contact SOMA to get more details on investment or partnership opportunities The time for biomass energy is NOW 22

23 THANK YOU! ស មអរគ ណ! Our team wishes the best for SOMA Group and Cambodia!