China Yangtze Power (CYPC), known as Yangtze Power, is a Chinese utility company headquartered in Beijing, China. The company was founded in 2002, and it is registered on Shanghai Stock Exchange. The company is the world’s largest hydropower developer and investor China Three Gorges Corporation, which controls the 61% stake of the company. It operates hydropower plants, power selling businesses, investment, construction and operation of power distribution networks, distributed energy resources and microgrids, energy efficiency management services at the user side, concentrated management, operation and maintenance of power facilities, and operation of intelligent parking lots and charging piles. (Forbes, 2021). Porter’s five forces model is a valuable tool to identify threats and opportunities faced by Yangtze Power in the energy utility industry.
Competitive Rivalry in The Market
The electric generation industry has grown invariably and is one of the important proponents of growth. According to the China electricity council (CEC), in February, forecast a year-on-year increase in electricity consumption of 6-7pc for 2021 (Argusmedia, 2021). It is a crucial part of today’s industrial revolution. Yangtze power is one of the biggest electricity producers in China based on revenue (Statista, 2021). The majority of the electric power generator is dependent on fossil fuel. Yangtze Power has an advantage over them because it is solely based on hydro projects. Yangtze Power has published an annual revenue of $8.78 Billion in the last fiscal year (Dun & Bradstreet, 2021). The competitive rivalry is high due to the presence of local companies with specialized entities.
Threat of Substitutes
Climate change forces the industry to move away from conventional production methods such as fossil fuel-based plants, which is the cause of the significant pollution in the world. According to the Union of Concerned Scientists (2020), China emitted around 28% of total global greenhouse emissions. Alternative renewable energy products are a threat to established companies. The company has a total installed capacity of 45.495 GW along the mainstream of the Yangtze River, and the company is the largest listed electric power company in China and the largest listed hydropower company globally (CYPC, 2021). The company is the leader in hydropower. The world is moving away from traditional companies, which increases the business scope for the company. All these factors result in low-level threats.
The Threat of New Entrants
State-owned companies dominate the Chinese utility sector. Chinese strict governing and regulatory law makes it difficult for foreign direct investment in the energy utility sector. The government has stringent oversight protocols because of the involvement of the general public. The main barriers to entry in any industry are capital requirements, product differentiation, regulatory requirements, and economies of scale (Grant, 2010). The new entrants need to establish a link with transmission and distribution companies as well. The regulated bodies determine the price; companies aren’t allowed to set their price, which results in a decrease in their profit. The competition is stiff, there are tight profit margins with stringent compliance requirements, and thus the threat of new entrants remains low.
Bargaining Power of Buyers
Buyers exercise higher bargaining power if there are available options. Solar energy is the general solution, but it requires high initial capital per person. China is the primary producer of solar panels in the world. According to Gabbatiss (2019), the cost of solar energy is cheaper than the grid electricity in most Chinese cities. The buyers of the energy utility company are commercial entities and domestic users. The buyers can’t exert any influence because they don’t have anything to a bargaining chip in this case. Commercial or industrial users get electric power at a subsidies rate. Domestic user’s only hope is a minor relief in the form of direct subsidy or tax relief. States can exert their power to bring the tariff down from companies. Considering the available facts, buyers have no or low bargaining power.
Bargaining Power of Suppliers
The major suppliers in the electrical equipment industry are providers of raw materials and energy distributors, transmission and marketing companies. Distributors bring the consumer. The major equipment is Solar panels, wind turbines, and fossil fuel generators in the energy production industry. The stronger the power of suppliers in an industry, the more difficult it is for firms within that sector to make a profit. The suppliers can determine the terms and conditions on which business is conducted (Oregon State, 2021). The products are industry-oriented and specialized. There aren’t many suppliers in the market. It provides them a little bit of advantage, but suppliers also have limited clientele due to industry specialty. By analyzing all the facts mentioned above, suppliers hold moderate bargaining power.
References
Argusmedia. (2021). China’s 2021 electricity use may rise by 7-8pc: Update. Available at: https://www.argusmedia.com/en/news/2209114-chinas-2021-electricity-use-may-rise-by-78pc-update
CYPC. (2021). About us. Available at: http://en.cypc.com.cn/cypcweb/cypcen/20170109000019.html
Dun & Bradstreet. (2021). China Yangtze Power Co., Ltd. Available at: https://www.dnb.com/business-directory/company-profiles.china_yangtze_power_co_ltd.9df4bf62c622dd81879781b4a03cc4be.html
Forbes. (2021). China Yangtze Power. Available at: https://www.forbes.com/companies/china-yangtze-power/?sh=56172b8f566c
Gabbatiss. J (2019). Solar now ‘cheaper than grid electricity’ in every Chinese city, study finds. Available at: https://www.weforum.org/agenda/2019/08/solar-now-cheaper-than-grid-electricity-in-every-chinese-city-study-finds
Grant, R. M. (2010). Contemporary Strategy Analysis. 7th Edition.
Oregon State (2021) Analyzing the Organization’s Microenvironment. Available at: https://open.oregonstate.education/strategicmanagement/chapter/3-analyzing-the-organizations-microenvironment/
Statista. (2021). Leading Chinese power generation companies on the Fortune China 500 ranking in 2020, by revenue. Available at: https://www.statista.com/statistics/454593/china-fortune-500-leading-chinese-power-generation-companies/
Union of Concerned Scientist . (2020). Each Country’s Share of CO2 Emissions. Available at: https://www.ucsusa.org/resources/each-countrys-share-co2-emissions