The power industry in the Philippines has moderate supplier power, low threats of new entrants, moderate to significant rivalry among existing firms, low bargaining power of customers, and low threats of substitute products. Specifically, there are few suppliers of raw materials for power generation and suppliers can control the industry due to reliance on their resources. However, entering the power market requires high capital investments and established firms have significant economies of scale advantages over new entrants. Existing power companies compete intensely on price and market share as the power market has slow growth. However, customers have few alternatives for electricity and switching costs are low. Threats of substitutes are also low as the main alternative energy sources are still in development.
The power industry in the Philippines has moderate supplier power, low threats of new entrants, moderate to significant rivalry among existing firms, low bargaining power of customers, and low threats of substitute products. Specifically, there are few suppliers of raw materials for power generation and suppliers can control the industry due to reliance on their resources. However, entering the power market requires high capital investments and established firms have significant economies of scale advantages over new entrants. Existing power companies compete intensely on price and market share as the power market has slow growth. However, customers have few alternatives for electricity and switching costs are low. Threats of substitutes are also low as the main alternative energy sources are still in development.
The power industry in the Philippines has moderate supplier power, low threats of new entrants, moderate to significant rivalry among existing firms, low bargaining power of customers, and low threats of substitute products. Specifically, there are few suppliers of raw materials for power generation and suppliers can control the industry due to reliance on their resources. However, entering the power market requires high capital investments and established firms have significant economies of scale advantages over new entrants. Existing power companies compete intensely on price and market share as the power market has slow growth. However, customers have few alternatives for electricity and switching costs are low. Threats of substitutes are also low as the main alternative energy sources are still in development.
MODERATE BARGAING POWER OF SUPPLIERS Drivers of Supplier Power
Suppliers of raw materials, building materials, and electrical systems are relatively Limited abundant, but few specializes in specific power generating categories like wind farms, number of solar power, etc. In the country, coal takes up 49.6 %, diesel at 3.3 %, natural gas at 21.8 suppliers % and geothermal at 10.9 %. The suppliers of these energy sources can control the power sector due to the need of raw materials to generate power. Raw materials for power Supplier generation cannot be easily substituted because such materials are needed to run the group poses Product is facilities built specifically for power generating purposes (e.g. nuclear fuel for nuclear a credible unique power plants cannot be substituted with coal). Power industries are heavily reliant on the threat of… supplies because they are vital on the production of energy. Given the fact that there is lack of substitution and few players in the supplier market of power generation, there is Industry is High relatively high switching costs for power companies. The power industry can be noted as not an switching an important customer because the materials needed in constructing and maintaining imporant cost for power plants are made specifically for that use. Although these materials are used and customer… buyers can be utilized by other industries, the quantity of these materials needed by energy companies are great that they bring huge amounts of profits to the suppliers. The ability of supplier group to cultivate natural resources and raw materials can be a factor in forward integration. However, investments in this sector are costly which is a downturn 1 for most suppliers. PORTER’S FIVE FORCES
Factors Affecting Likelihood of
LOW THREAT OF NEW ENTRANTS New Entrants Entering the market requires high capital ang for new entrants to achieve reasonable cost per unit of output, they should operate in large volumes. According to the studies by Bain (1956), Pratten (1971), Weiss (1975), and Sherer et al. (1975), an Economies of energy company, to be considered stable, should have at least two or three plants scale which adds more costs before stabilizing their name in the industry. Prices should go along with the costs without being too high to encourage customers to switch, Cost Product but lowering price is a struggle in terms of capitalization and maintaining the high disadvantage differentiation costs of the business. Another factor is the amount of supply being generated by established firms. . Huge capital investment requirement promotes significant Access to barriers to entry. This high cost can hinder companies because it would take a long distribution Capital time to recover. In addition, the cost of regulatory compliance imposes difficulty of requirements channels entrance. Established corporations have cost advantages that cannot be replicated Government Switching by a potential entrant. There are also incumbent that are being subsidized for policy costs various costs by the government such as Kalayaan PSPP dam and MAKBAN geothermal facility. 2 PORTER’S FIVE FORCES
Drivers of Degree of Rivalry
MODERATE TO SIGNIFICANT RIVALRY AMONG EXISTING FIRMS Currently, the top players in the power industry are Aboitiz Power,First Gen Corporation. Hedcor, Inc, Marubeni, National Power Corporation, SN Aboitiz Power - Number of Magat, Inc (SNAP), and Philippines National Oil Company - Energy Development competitors Corporation (PNOC-EDC). These are already well-established firms with multiple Diverse Slow growth and diverse power generating facilities that serve majority of the country. One of competitors industry the biggest expenses of Aboitiz Power is cost of generated power amounting to P 63,949,850 with capital expenditure of P 15,370,915 and total operating expenses of P 60,487,375 The expenses are attributed to the effect of TRAIN bill that High exit High fixed increases the cost of importing coal. This operating expense includes maintenance barriers cost of power plant facilities and other related expenses. Holding cost is high as different types of storage and distribution channels are needed for different types of energies. In order to maintain their position in the industry, power companies High strategic Lack of should constantly upgrade their facilities and continuously look for investments stakes differentiation when it comes to generating electricity. Power as a commodity and given that products have low variation, potential gains are low as well which makes Capacity competitors’ rivalry intensified. Each company competes to beat each other’s position and be the top power generating company. 3 PORTER’S FIVE FORCES
Drivers of buyer Power
LOW BARGAINING POWER OF CUSTOMERS Industry is The Aboitiz Power Corporation caters over 917,000 customers mainly in Central concentrate Luzon, Visayas and Mindanao. Given the nature of the product, it is very important to d customers. The existence of few alternatives leaves the buyers a little amount of power to negotiate the product cost. As mentioned above there are few alternatives Buyer has Products are which are key players in the power industry, thus there are few choices for buyers to full standard switch to another company. Buyers have limited choices that leaves them to have no information control over this sector. In the Philippines, electrification rate is 85%. With few established companies in the power sector, these firms have more control over the Threat of It faces few movements of prices in the industry. There are a lot of methods in producing power backward switching and different facilities of generating electricity, nonetheless, the end product is still integration Products costs the same - electricity. There are no distinction between the energy generated by represent a AboitizPower and another power company. Thus, the choices buyers make are based significant It earns low not on the product itself but by its price. The costs of disconnection and installation is fraction of profit relatively easy for customers who wants to transfer to another power company. buyer's However, switching costs to other sources of power such as solar energy requires purchases buyers to have full information about the product, the costs that it has, and the long range of time in phasing in new technology 4 PORTER’S FIVE FORCES
Factors Influencing Threat of
LOW THREATS OF SUBSTITUTE PRODUCTS Substitutes Alternative Substitutes in the power industry are mainly composed of sources of alternative sources of energy such as natural gas and solar energy industry. Demand for centralized generation of energy could be reduced through auto generation of power through solar panels or wind turbines. Top power companies are also diversifying their business by expanding its sources of energy. Aside from power using coal, they also build other plants like hydro- powered plants and geothermal energy. This diversification makes the threat of substitutes low. Cheap Low cost of alternatives switching