Posted in Marketing & Strategy Articles, Total Reads: 17195
, Published on 22 May 2012
The article explains the Porter's five forces of Indian power sector. The Indian Power sector registered 9.2 per cent growth in power generation in April-December 2011 as against 4.6 per cent growth in the same period in 2010.
The threat of the entry of new competitors
Highly capital-intensive industry and hence demands huge investment
Power producers – Behemoth like NTPC, SEBs contributing around 85 % of total power produced
Ditto for Power Grid Corp. of India in Transmission and Distribution Segment
Major plans by big companies like Reliance power, Adani power, Lanco etc. to make a entry into power sector after market opened up for private sector through Electricity Act 2003 and subsequent reforms
However obtaining regulatory approvals,fuel linkages, land etc. still remain the major bottlenecks.
Hence the threat of new entrant appears to be low
The threat of substitute products or services
Power does not have substitute but it can be generated from different sources of energy.
Currently thermal power is dominant in India, coal being the major raw material.
Coal availability is limited and therefore power from nuclear, hydro and other renewable sources could be used as substitute for thermal power in future.
Agreements with various countries for nuclear collaboration will give major impetus to Nuclear power plants
Although demand for power outstrips its supply, going forward, thermal power plant companies have threat from non-thermal power generators.
Hence the threat of substitute products is medium
The bargaining power of customers (buyers)
Industrial consumers have huge demand for power
Their bargaining power is low in India as the number of power companies to buy from is limited in number. Hence power companies are in better position.
Retail customers -Government regulates the power sector to ensure supply of power at reasonable prices but this regulation is limited.
Peak shortage is much more in every region and it is about 12 % on all India basis which allow suppliers to dictate terms with the buyers.
Overall, the bargaining power of buyers is Medium.
The bargaining power of suppliers
Coal is majorly used as a feed for generating power.
The supply of coal in India is limited and hence coal players are in dominant position.
Power companies are required to import coal if the domestic supply is not sufficient, which proves to be an expensive affair.
With companies like Lanco, Adani Power buying coal mines in Indonesia, Australia etc. to import better grade coal than available in India, market dominance of Govt. Companies like Coal India will subside gradually.
However looking at the present situation, the power of suppliers is high.
The intensity of competitive rivalry within the Industry
Power producing companies – No competitive rivalry as demand for power is way above its supply and all the power generated is used up.
However, with government encouragement, private participation is expected to increase in the coming years to take advantage of huge demand for power
Power equipment market - Market leader like BHEL is facing tough competition from L&T, Alstom, Doosan and most importantly Chinese suppliers.
Major orders of Boiler, Turbine and Generator grabbed by Chinese suppliers from most of the private sector clients.
So overall the intensity of competitive rivalry is medium.
This article has been authored by Keyur Vinchhi from MDI Gurgaon.