porter’s five forces focussing on power sector

7/31/2019 PORTERS FIVE FORCES FOCUSSING ON POWER SECTOR

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PORTERS FIVE FORCES

FOCUSSING ON POWER SECTOR

BY:

ROHIT AKIWATKAR

ROLL NO.151 PGDM(GEN)


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CURRENT SCENARIO

With the coming of Electricity Act 2003, the power sector, wasderegulated to an extent. But things are still happening very slowlyon ground. The sector is facing serious delays in terms of capacityexpansion. The Eleventh Five-Year Plan (2007-12) target of settingup 78,000 MW of new generation capacity has already beenlowered by around 25%. And even the revised target seems

unattainable given the current progress.

The key problems hindering the growth of the power sector areland, fuel, environment, and forest clearances. Even thegovernment is finding it very difficult to get the required land forallotting to power projects. One of the key problems in getting land

is Naxalism in the eastern and central states, where a large numberof projects are being planned owing to abundance of fuelresources.


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Central institutions like NTPC and the State Electricity Boards (SEBs)continue to dominate the power sector in India. India has adopted ablend of thermal, hydel and nuclear sources with a view toincreasing the availability of electricity. Thermal plants at presentaccount for 65% (115,650 MW) of the total power generation

capacity in India. This is followed by hydro-electricity (22% share;37,367 MW). The rest comes from nuclear and wind energy.

Average transmission and distribution losses (T&D) exceed 25% oftotal power generation compared to less than 15% for developingeconomies. The T&D losses are due to a variety of reasons, viz.,

substantial energy sold at low voltage, sparsely distributed loadsover large rural areas, inadequate investment in distributionsystem, improper billing and high pilferage.


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OBJECTIVE

To highlight the concepts of Michael E. Porters five forces that

shape strategy of with respect to Power sector(as I have work

experience in Power) especially focussing on Adani Power

Limited.

Thus helping a company understand the structure of the

industry and stake out a position that is more profitable and

less vulnerable to attack.


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THREAT OF NEW ENTRANTS

For Adani Power threat of new entrant is medium because it

has already set up functional power plants(Eg: 4620 MW

thermal power plant in Mundra, Gujarat)

But as many companies are entering into power industry

Adani Power has to keep the price per unit low and to boost

investments to deter new enterants


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BARRIERS TO ENTRY

Barriers to entry are high, especially in the transmission and

distribution segments, which are largely state monopolies.

Also, entering the power generation business requires heavy

investment initially.

The other barriers are fuel linkages, payment guarantees

from state governments that buy power and retail distribution

license.


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BARGAINING POWER OF SUPPLIERS

Not very high as government controls tariff structure.

However, this may change in the future.

The bargaining power of suppliers is low for the fully

integrated power plants as in case ofAdani power as they

have their own mines of key raw materials(coal,oil).

However, those who are non-integrated or semi integrated

has to depend on suppliers.


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BARGAINING POWER OF CUSTOMERS

Bargaining power of retail customers is low, as power is in

short supply.

However government is a big buyer and payments from it can

be erratic, as has been seen in the past.


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COMPETITION

High: Getting intense, but there is enough room for many

players.

The Electricity Act 2003 aims to encourage investments,

thereby increasing competition.

Adani powercant afford to digress from its future plans of

generating 20,000 MW by 2020 if it has to remain in the race.


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FUTURE PROSPECTS

Recognising that electricity is one of the key drivers for rapideconomic growth and poverty alleviation, the industry has setitself the target of providing access to all households over thenext few years. As per government reports, about 36% of thehouseholds did not have access to electricity. Hence, meetingthe target of providing universal access is a daunting task

requiring significant addition to generation capacity andexpansion of the transmission and distribution network.

Coal costs from both domestic linkages and imported sourcesare expected to be on the rise. Shortfall of coal in India is

expected to go up to 100 MMT (m metric tonnes) by FY14.Availability of coal from domestic linkages would suffice only55 to 60% of the PLF equivalent. Hence purchase of coal byway of Coal India's e-auction would only become moreexpensive.


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On an overall basis, power distribution has been loss-makingbusiness in India. But with the privatization coming in, the

investment in transmission and distribution networking is

expected to improve.

Trading in electricity has brought a sea change in the

structure of the industry because some parts of country are

power surplus and some are deficient. A power trading

company(Adani Power) buys power from surplus area and

sells it in a power deficit area through transmission lines.

While the potential for power trading is huge, the regulator

has to play a key role in removing all discrepancies that occur

in terms of electricity pricing across trading regions.

porter’s five forces focussing on power sector

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