PORTERS FIVE FORCES FOCUSSING ON POWER SECTOR

BY: ROHIT AKIWATKAR ROLL NO.151 PGDM(GEN)

CURRENT SCENARIO
With the coming of Electricity Act 2003, the power sector, was deregulated to an extent. But things are still happening very slowly on ground. The sector is facing serious delays in terms of capacity expansion. The Eleventh Five-Year Plan (2007-12) target of setting up 78,000 MW of new generation capacity has already been lowered by around 25%. And even the revised target seems unattainable given the current progress. The key problems hindering the growth of the power sector are land, fuel, environment, and forest clearances. Even the government is finding it very difficult to get the required land for allotting to power projects. One of the key problems in getting land is Naxalism in the eastern and central states, where a large number of projects are being planned owing to abundance of fuel resources.

 Central institutions like NTPC and the State Electricity Boards (SEBs) continue to dominate the power sector in India. India has adopted a blend of thermal, hydel and nuclear sources with a view to increasing the availability of electricity. Thermal plants at present account 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% of total power generation compared to less than 15% for developing economies. The T&D losses are due to a variety of reasons, viz., substantial energy sold at low voltage, sparsely distributed loads over large rural areas, inadequate investment in distribution system, improper billing and high pilferage.

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.

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

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.

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 of Adani 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.

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.

COMPETITION
High: Getting intense, but there is enough room for many players. The Electricity Act 2003 aims to encourage investments, thereby increasing competition. Adani power cant afford to digress from its future plans of generating 20,000 MW by 2020 if it has to remain in the race.

FUTURE PROSPECTS
Recognising that electricity is one of the key drivers for rapid economic growth and poverty alleviation, the industry has set itself the target of providing access to all households over the next few years. As per government reports, about 36% of the households did not have access to electricity. Hence, meeting the target of providing universal access is a daunting task requiring significant addition to generation capacity and expansion of the transmission and distribution network. Coal costs from both domestic linkages and imported sources are 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 only 55 to 60% of the PLF equivalent. Hence purchase of coal by way of Coal India's e-auction would only become more expensive.

 On an overall basis, power distribution has been loss-making business 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.