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Caspian Canvas: The importance of biofuels

June 15, 2017

Earlier this year, we launched Caspian Canvas, a market development forum within Caspian. Canvas is a platform for us to interact with social entrepreneurs and understand the successes and challenges in their business. In turn, we share our own deep experience from the past decade and more in incubating, funding and institution building. Canvas’ aim is to help build a sustainable market ecosystem for innovation and entrepreneurship in the impact space. More about Canvas here.

 

On May 31, in our second Canvas interaction, we sat down with Kaushik M, a biofuel entrepreneur. Kaushik is the founder and director of Novateur Green Energy, a company that manufactures biofuel briquettes from agri-waste, wood shavings and saw dust. Thus, it not only substitutes fossil fuels, but also makes productive use of agri-waste.

 

Why is the market for biofuels important?

 

There are multiple reasons why industries are shifting to boilers that use biofuels rather than fossil fuels.

  • There is increasing awareness about the environmental damage that fossil fuels cause.

  • The coal available to industries often varies in quality, and ash disposal is costly.

  • The comparatively low sulphur content in biofuels reduces corrosion and deposit formation in boilers.

  • Biofuel purchase processes are less burdensome on working capital. Coal requires upfront payment and purchases in restricted lot sizes. With biofuels, on the other hand, buyers can meet their entire fuel requirement at one go without upfront payment.

  • The food and pharma industries in particular are moving to biofuels for safety reasons as well.

  • The government provides benefits when fossil fuel use is reduced.

 

What makes Novateur’s business interesting?

 

The market for biofuel briquettes is set to grow quickly, for the aforementioned reasons. However, this large opportunity has been identified by many players, and these briquettes are generic, undifferentiated products. The technology itself is also fairly straightforward. So, there is an increasing need for companies to differentiate in order to succeed.

 

Novateur has differentiated itself by producing briquettes based on client specifications of calorific value, moisture content, and fuel to steam ratio. This is possible because Novateur has a deep understanding, gained over time, of the characteristics of each raw material that they could potentially procure and process.

 

Apart from consistency in quality, Novateur also ensures year-round supply, even though the raw materials are seasonal. Otherwise, buyers who are moving to biofuel boilers would have had to look for alternative suppliers. Thus, Novateur has been able to build relationships with large premium buyers. Premium buyers value Novateur’s technical experience and its willingness to address concerns and challenges such as reducing ash, sulphur and smoke.

 

Novateur’s learning curve: It took almost three years for the promoters to learn the biofuels market. Initially, their selling strategy was focused on buyers who offered higher prices. But when this led to payment delays and defaults, Novateur decided to target premium customers. They realized that the ability to supply biofuels throughout the year was key to retaining these premium clients.

 

Another practical hurdle was the reluctance of buyers’ purchase departments to add a new vendor. Additionally, Novateur had to also work with end-users like boiler supervisors and operators, to gain acceptance and address issues.

 

What is the future of the biofuel briquettes?

 

Caspian will be closely following the developments in this growing market for renewable energy. There are several questions to be answered: To what extent will biofuel briquettes be able to replace coal? How can players continue to differentiate themselves in an increasingly competitive market? And finally, what kind of financial products would be suitable for briquette SMEs to help them grow?

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