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PORTER’S FIVE FORCES

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