STRATEGIC ANALYSIS OF EDF ENERGY, THE UK BASED COMPANY.Chioma Pamela Nwuruku6238104

STRATEGIC ANALYSIS OF EDF ENERGY, THE UK BASED COMPANY.

INTRODUCTION

EDF Energy

EDF Energy is one of the largest energy supplying companies in UK. It

was formed in 2002 following the acquisition and merger of SEABOARDPLC,

London Electricity PLC, SWEB Energy and some coal and gas power stations.

They are in charge of supplying gas and electricity to most UK homes and

businesses. They are an integrated branch of the EDF group, which generates

about 1/5th of UK electricity. In 2011, they retained their potion as the largest

UK generator of electricity and the largest generator of low carbon [Cornwall

Energy Association Report-Published Q4, (2011)]

EDF generates electricity using fossil fuels, wind, and nuclear and

renewable energies.

EDF energy consists of three main business units: Nuclear Generation,

Nuclear New Build, Energy Sourcing and Customer supply.

The Nuclear Generator (NG) are in charge of operating and maintaining

eight nuclear stations in United Kingdom. It has a capacity of approximately

9000mw electricity.

The Nuclear New Build (NNB) are in charge of delivering the new

generation of the nuclear plant.

The Energy sourcing and Customer Supply (ESCS) runs the power station

and wind farms, they sell and buy power. They are in charge of customer

handling and small business.

AIM AND SCOPE OF REPORT

This report is going to analyse strategically, the UK based EDF Energy

Company. The analysis would be broken down to virtually

Macro-environment analysis

Micro-environment analysis

Internal analysis

A summary of the findings using SWOT analysis.

MACRO- ENVIRONMENT ANALYSIS Going through this analysis would help to identify the factors that are

outside EDF Energy’s control but affect it nonetheless whether directly or

indirectly. It would also help to spot out the opportunities that can be taken

advantage of. This analysis is done using PEST (political, economic, sociocultural,

technological) analysis tool.

PEST is an acronym for political, economic, sociocultural, and

technological, which are the four factors that would be considered in this Macro-

environment analysis.

POLITICAL

Energy is a major issue politically in UK. There are many speculations and

buzz on how much carbon emission is out there and how secure the supply of

energy is.

With the escalating demand in energy from emerging economies, there is equally

a rise in competition for Energy supplies. It is typical that we consider the

political factors that may affect EDF Energy as the leading Energy Supply

Company in UK or factors that may be taken advantage of to further improve.

These factors include;

Security of UK Energy supplies:

Security of Supply can be defined as a guarantee of supply of goods and

services sufficient for a Member State to discharge its defense and security

commitments in accordance with its foreign and security policy requirements.

In the energy case in UK, the UK energy supply is become more and more

depended on the production from UK’s offshore oil and gas industry, which has

gradually depleted creating a vulnerability to escalating price and shortage of

supply.

Also, the countries with which UK sources are based on can be under political

unrest, which would affect the supply to meet UK’s high demand of energy.

Because of this dangerous mix of high demand of energy and depleting

supply, the price of fossil fuel may be driven up a lot.

International competition for energy:

With its production of oil and depleting, UK has to compete in the international

energy market. With countries like china, India with rapidly growing encomia’s,

the struggle for energy supplies at the international level is harder than ever and

that is because these countries have a large appetite for energy and have a great

influence in the market and with the energy suppliers.

Change in climate:

As of 2013, Carbon emission is seen as the major threat to the ozone layer and

thus perceived as the basic cause of the climate change. This puts a strain to

Energy Company’s and their production of fossil fuels. The UK government is

determined in finding alternatives to burning fossil fuels and concentrate on

“clean “ renewable energy. As of recent, companies have to pay for the carbon

emission they release to the atmosphere. The UK government is promoting

initiatives to reduce co2 at all cost and investing in energy saving product.

This has affected the economy an thus climate change is now the topic of many

political debate and its reduction is now negotiated internationally.

Potential terrorist attacks:

The power stations and pipelines are the number one target in case of a

potential terrorist attack in the UK. The main threats are from countries that do

not agree with UK foreign policies like military units from middle east and

attacking the gas pipelines and power stations wouldn’t not online affect lives

but it’s a good way to cripple the UK economy. Because of this, the UK

government would be triggered to create more and more nuclear stations etc.

all these would disrupt the supplies to UK energy companies.

Planning Consent: UK energy companies now require consent for infrastructure

projects from the government. There are also changes that would streamline

decisions on energy company’s infrastructures

ECONOMICAL

Global economic downtown:

Because of the global crisis in the economic sector, banks including those

in the UK have limited the way they loan and invest in companies. And this has

put a strain in the energy companies in UK, who especially by 2020 would need a

lot of investment for the infrastructures and difficulty in getting the banks to loan

and investment would delay future projects or cripple them.

Investment in Infrastructures:

In order to provide an efficient and equally sufficient service in the long

run, the uk energy market has to make huge investments in infrastructure all

over the industry. To generate, new nuclear power stations need to be built,

renewable energy projects need to be funded for. To transmit, new renewable

energy plants are need, the gas sector needs efficient storage units, in

distribution; the maintenance has to be monitored – meters are being dispatched

to homes. So it is evident that huge investment is needed in the UK energy sector

to improve efficiency and reliability.

Tax Reduction:

SOCIAL:

Social factors that may affect EDF are self explanatory. Factors like ;

Rising energy prices

Reduced carbon emission

Microgeneration

Energy supply security

Marketing of gas and electricity

TECHNOLOGY

Renewable energy:

Technological challenges would be faced as emerging projects in the

renewables energy sector is required. The renewable energy market is gradually

expanding and wind farm amongst other renewable energy sources would have

to be built to keep up with this demand.

Carbon capture and storage:

EU legislations has limited the extent to which power stations can be used

without a realistic reduction in the carbon emission. The technology used to

capture carbon (CSS) is a necessity and should be considered.

Smart meters:

Extensive work needs to be put out to give consumers information at which they

consume energy. That is where smart meters come in handing, these devices can

be used to measure and control how much energy comsumers use. The UK

government has required the usage of these smart meters in all UK homes by

2020.

MICRO-ENVIRONMENTAL ANALYSIS

Porter’s five forces is a tool for internal analysis that can be used in this

scenario. This would help to narrow down the environment and limit it to EDF’s

micro surrounding and how it interacts with it. To do this, questions need to be

answered.

Competitive rivalry:

This is the competition that already exists and EDF Energy is already

facing right now. In the UK, there are 6 major energy providers and they are the

most prominent leaders of the market – EDF, BritishGas (centrica) , E.ON,

Scottish power, Scottish and southern energy, Npower.

Basically these six are the major competions for EDF right now. Although there

are other small energy companies like Ecotricity, first utility, Sainsbury energy

etc.

The profit of these big 6 for 2011 can be shown in the graph [http://www.consumerfocus.org.uk/files/2011/07/Big-Six-profits-2006-2010-Excel.xlsx]

Threat of new entrants:

This is about potential competitors, companies that may spring up in the

future and compete but are not set now. Industries with low barrier to entry

face a higher threat. Although the barrier is high, we find that new smaller

energy companies – mostly those that are green and pro-renewable and those

offering smarter meter- spring up now and then over the years.

One thing to notice about this market is that the larger companies ie the

big 6 are in some way vertically integrated with interest in generation. So

although there are smaller companies that may spring, they’re not seen as

potential threats nevertheless they shouldn’t be overlooked.

The main barriers to entry in the energy industry are:

Delivering government policy

Access to wholesale energy supplies

Low margin expectations

Complexity and regulatory burden

Frequent network changes

Scales economics

Threat of substitute products:

This is about the alternative/substitute products that another company

might provide that meet the same needs as EDF energy to the customers. It

should serve as a form of awareness about what other companies are offering

that may not directly be EDF’s competition.

There are no main known substitute products out there because EDF energy is a

large group that covers basically all their customer needs. It delivers gas and

electricity to its customers, hence it is very difficult to find substitute for this.

Bargaining power of buyer:

A lot of customers need and want gas and electricity. EDF supplies

electricity and gas to a round up of 5.5 million user (both residential and

business) in the uk. By volume it can be seen as the largest supplier of electricity

in the UK.

With prices soaring higher than ever lately, a lot of buzz about switching

energy suppliers have been heard. But how easy is it really to switch supplier?

What is the bargaining power of the buyer?

Although there are other energy suppliers, a recent survey by BBC

watchdog shows that it’s not really easy to switch energy suppliers becos of

reasons like cancellation fees, delays in instalment, paper work, double billings

etc.

Bargaining power of supplier:

EDF energy gets the bulk of its supply from own UK power stations and

some are bought from independent power generators. Since EDF produces

energy mainly from nuclear power station and they own their own PowerStation,

they do not have any threats of suppliers having a lot of bargaining power over

them. (they are also vertically integrated with the option of self supply.)Although

in cases like fossil fuels, where EDF trades on the gas market, as they do not have

gas fields, the bargaining power of the supplier is high hence the price

fluctuations in gas prices.

INTERNAL ANALYSIS

EDF Energy is known as the largest electricity in the UK with

approximately 5.5 million customers including business and domestic. EDF deals

mostly with nuclear energy with a total of eight nuclear plants capable of

producing 9000 mega watts of electricity.

Not only does EDF produce electricity but it also distributes/ supplies it.

Even though the company doesn’t have its own gas field, financial reports have

shown that it gets the bulk of its revenue from electricity dealership.

EDF Energy’s core competencies are its efficiency in its nuclear power

sector. The EDF group in France from where EDF Energy UK comes from is the

biggest nuclear power generator in the world.

SWOT ANALYSIS.

This takes a look at EDF Energy’s internal and external factors, positive

and negative and lays them out in an easy to analyse format.

STRENGTHS

1. Good customer knowledge.

2. Customer resilience to change:

habit to subscribe to EDF.

3. Monthly quarterly bills facilitate

marketing efforts.

4. Knowledge of and access to

state of the art technology.

5. Financing capacity.

6. Vertically integrated structure.

7. Brand name.

WEAKNESSES

1. Communication and

reaction to customer

needs is slower than

smaller companies.

2. Unplanned outages

3. Dependency on thermal

generation

OPORTUNITIES

1. Significant margin for

improvement with regards to

end use energy efficiency

2. Inovational opportunities with

regards to reduction of carbon

emission

3. Access to state of the art

technologies enabling

monitoring of electric

appliances.

4. Contribution to the

dematerialization of economy

by offering services that enable

decoupling.

THREATS

1. Risk of competitors

imitating service

offered

2. Opening of market to

competition will

diminish EDF market

share.

3. New laws and

regulations.

4. Recession

POSITIVE NEGATIVE

INTERNAL

EXTERNAL

BCG MATRIX

When a business has numerous product lines all operating at the same

time, it is important to know which lines are helping grow and those that are

holding it back. BCG matrix helps in identifying that by comparing product lines

market share and the product lines market growth.

The three EDF business units are placed in the bcg matrix as below.

STAR QUESTIONMARK

CASHCOW DOG

NUCLEAR GENERATION

NUCLEAR NEW BUILD

ENERGY SOURCING AND

CUSTOMER SUPPLY

CONCLUSION

EDF Energy has been made successful over the years, since 2003

following a series of mergers and acquisition which include; London

electricity,SWEBB supply business ,Sutton bridge power station and so on.

[http://www.edfenergy.com/energyfuture/edf-energys-approach-about-edf-

energy/edf-energys-history].

One notable acquisition was made in 2009 when EDF acquired BE (British

energy) which made EDF one of the largest energy company in UK and also no1

uk electricity producer. EDF also partnered with Centrica in the nuclear sector

giving Centrica a 20% stake in the company’s nuclear power stations.

Following the footsteps of its parenting company, EDF has efficiency In

nuclear handling and that is its core competence. Although as a French company,

EDF isn’t listed in the London stock exchange, it aims to maintain standards and

principles as those companies listed in the exchange.

REFERENCE

1. Cornwall Energy Association Report-Published Q4, (2011)

2. http://www.consumerfocus.org.uk/files/2011/07/Big-Six-profits-2006-2010- Excel.xlsx]

3. http://www.edfenergy.com/energyfuture/edf-energys-approach-about-edf-energy/edf-energys-history].

4. Case No COMP/M.5224 - EDF / BRITISH ENERGY Article 6(2) NON-OPPOSITION Date: 22/12/2008

5. Mergers and acquisitions in the European electricity sector: cases and patterns (PDF, pages 40–44; Centre d'économie industrielle)

6. UK Power Networks Services – the new name in infrastructure projects (PDF, page 1; UK Power Network Services)

7. Nuclear development in the United Kingdom (World Nuclear Association)8. Drejer, A. 2002, Strategic management and core competencies: theory and

application, Greenwood Publishing Group

9. EDF Energy, No Date, Key figures, [Online] Available at:

http://www.edfenergy.com/sustainability/performance-report/economic/key-

figures.shtml [Accessed on May 06, 2010]

10. EDF Energy-a, No Date, About EDF Energy, About US, [Online] Available at:

http://www.edfenergy.com/about-us/about-edf-energy/index.shtml [Accessed

on May 06, 2010]