thailand solar - 5 force industry analysis
TRANSCRIPT
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CHAPTER 3
INDUSTRY ANALYSIS
3.1 INTRODUCTION
Michael Porter introduced a tool for comprehensive industry analysis which
is referred to as “Five Force Model”, the overall concept of this model is
shown in the figure below. The Five key factors of this model are as follows
Five Forces
1. Threat of New Comer (New Entrants)
2. Threat of Substitution (Substitute products)
3. Bargaining power of Supplier
4. Bargaining power of Customer
5. Internal Rivalry (Market Structure)
The model shall be applied to study our industry which is ‘Solar Power
Industry’
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3.2 THREAT OF NEW ENTRANTS
High – In the Solar Industry, the threat of new entrants is always high
because of the following reasons
Easy to Enter and Exit the Industry because of no barriers to enter the
market. Entering the solar power industry as a systems integrator virtually
has no barrier at all and would require just a good organized team to
integrate the system and less capital.
Entering the industry as a supplier also does not require astronomical
resources. There are plenty of PV Cell manufacturing machinery supplier with
5 out of top 10 suppliers based out of China (Refer Table 3-1)
Solar cell company
Country Shipment 2009 in MW
Shipment 2010 in MW
Suntech China 704 1,572 JA Solar China 520 1,464
First Solar USA 1,100 1,411 Yingli Solar China 525 1,062 Trina Solar China 399 1,057
Motech Solar Taiwan 360 924 Q-Cells Germany 586 907 Gintech Taiwan 368 827
Sharp Japan 595 774 Sungen Solar China 193 588
*Source - Wikipedia
Total space of 935 m2 will be enough to establish a 5 MW production facility in 8 hr single
shift which can also be increased to 10 MW through 2 shifts at an investment of US $ 115,000,
considering that the equipment is sourced from Asian suppliers.
*Source: 5MWp / 10 MWp Solar PV module production Unit – Ohm Solar Technologies
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3.3 THREAT OF SUBSTITUTIONS
There are so many sources to generate electricity but the characteristic of
each of these sources are different from one another. In order to analyze the
threat of substitutes, it is decided to categorize these sources to get a clear
picture
Polluting Power Sources - High
Presently, majority of world’s power needs are met by polluting sources
which includes Coal, Natural Gas, Oil, NG extracted through Hydraulic
fracturing, etc., these sources can be considered substitutes only because of
the cost of electricity obtained from these sources is less.
With increasing international pressure & global warming issues, it is more
than likely that the price of externality of polluting the environment is added
to the power production cost by the government (Already India & China have
imposed tax & increasing it each year for Coal).
A big clue as to how serious India is about its energy transformation policy is in the doubling this week of its national tax on coal.
The increase, to Rs400 per metric ton (US$6/t) is the third time the coal tax—introduced in 2010—has been doubled, and it applies to all domestic and imported coal. Given that domestic Indian coal sells for an average US$20/t, this coal tax has just become very material—equal to a 30 percent on the wholesale price of coal, before transportation costs are penciled in.
*Source – Institute of Energy Economics and Financial Analysis www.ieefa.org
This would make the cost of electricity generated from these polluting power
sources more and more expensive unless or otherwise Supply side glut is
kept artificially up. However, there is a price point beyond which the projects
using these sources will not be feasible and at the present taxing rate &
international developments, it seems that the Governments will push these
projects to such a point where it is not feasible to operate at the same costs
and maintain the glut in supply.
Threat of these sources is strong now and will become weak in the future.
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Clean & Renewable Power Sources - Low
There are number of other clean & renewable power sources such as Wind,
Hydro, Geothermal, Biomass, Tidal etc., all of which are also thriving on
almost same level of subsidies handed over to Solar.
In spite of number of options available, the sheer limitation in serving energy
needs of the whole world is enough to consider these sources not a threat
to solar. At best, these sources in combination with other polluting power
sources may provide some resistance for solar acceptance in the market.
However, considering the macro environment analysis conducted, it is clear
that these sources along with polluting sources cannot meet the energy
demand of the world, solar will still grow at a substantial pace.
Therefore, it can be concluded that these sources are also not a threat to
solar industry.
Other Alternative Sources - Low
There is only one other alternative source which might prove detrimental for
solar industry which is Nuclear. Fission reactors are becoming increasingly
safe.
Nuclear Fusion is particularly proving to be a very interesting option.
International Thermonuclear Experimental Reactor (ITER) is an international
fusion research and engineering megaproject funded and ran by seven
countries (EU, US, China, Russia, India, Japan & South Korea) with an
investment of 14 Billion $ aiming to bring in the long awaited transition of
electricity production through Nuclear Fusion process.
The recently formed www.breakthroughenergycoalition.com which
comprises of all the technology tycoons in the likes of Bill Gates, Mark
Zuckerberg etc. are also working on exciting new technologies such as Solar
Chemical Cells, Used Nuclear fuel energy extraction system, Flow Batteries,
Solar Paint etc.,
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All these other sources are trying to achieve maximum result with minimum
effort which does not require long, arduous process of installing solar PV
panels to meet the world’s energy requirement.
Presently, these technologies are good in theory and are not expected to
come into commercial market any time soon except for the Nuclear Fusion
project under construction by ITER which is expected to commission by 2018.
Looking at the entire picture, this could be the only true threat for Solar
industry. Looking deeper into such industries may raise number of other
questions related to Safety, Scalability etc. and considering the time frame,
we could say that as of now these sources are not a threat but the
developments in these areas have to be closely monitored in the future.
3.4 BARGAINING POWER OF SUPPLIER
Low – Since the barriers to entry is quite low, many suppliers of PV modules
are available. For better understanding of PV modules, the value chain of PV
modules is provided in the Figure 3-1. Concentrated PV Technologies are
more complicated and the suppliers working with these have relatively
higher bargaining power than when compared with Thin Film Technologies.
Thailand has Six (6) major PV module manufacturers with total production
capacity of 200 MW per year with investment of 5 Billion THB. These makers
are IEC-Certified and can export to International markets as well. Apart from
these, there are numerous other traders of PV modules.
Few Chinese PV module makers are also considering establishing their
manufacturing line in Thailand given the ease of business compared with rest
of SE Asia. An example would be the proposed plan by Yingli Solar from China
(One of the top 10 manufacturers in the world) to build 300 MW solar PV
manufacturing plant in Thailand.
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Figure 3-1: Solar PV Value Chain
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3.5 BARGAINING POWER OF CUSTOMERS
High – There are two (2) types of customers who have to be considered.
Power DISCOMS
One would be the power distribution company (Power DISCOMS) who
already have the infrastructure in place such as Transmission Line, Own &
Operate few Conventional power plants, Substations etc., and are already
serving the entire population of Thailand. These would be Traditional
governmental authorities such as EGAT, PEA and MEA.
These are the entities who would have to invariably buy the power sold from
Solar at the government subsidized Feed-In tariff rates. They are an
important stakeholder whose cooperation would be needed to ensure
smooth transition to carbon free economy.
As more and more Solar power plants & other renewable energy gets added
to the power production mix, more difficult it would be for these Power
DISCOMS to operate & maintain the grid stability. Therefore naturally, these
DISCOMS are little resistive to the Solar transition.
The bright side would be the development of energy storage technologies,
IOT and major systems / architecture developed by Technology companies
to monitor & maintain Grid stability.
Considering all the above, the Power DISCOMS have a lot of bargaining
power in deciding the quota level in an area, amount of electricity which can
be bought, the feed – in tariffs etc.,
End users
The residential & commercial end users also have a lot of bargaining power
because the present infrastructure facilitates ‘Plug & Play’ electricity
connection at a rate which is cheap. The Solar power on the other hand has
challenges such as Fluctuations in energy production, High capital
investment cost which makes the cost of electricity expensive.
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Presently, Government subsidies make Solar power competitive with
conventional sources. These end users therefore can easily make a choice to
utilize the conventional energy sources as it is cheaper and reliable.
3.6 COMPETITIVE RIVALRY WITHIN AN INDUSTRY
High –
Thailand Photo Voltaic Association (TPVA) lists 60+ companies (As on 2013)
as registered members which includes the top project developers, suppliers
& contractors
The sheer number of importers / exporters of solar panels, the
manufacturers present in the country and the number of systems integrators
functioning as EPC Contractors makes this industry a hugely competitive
industry.
There are no restrictions on entry, the technology is fairly simple and the
only challenge is the execution. In the future, if Thailand implements the
‘Net-metering’ system, the industry will see many other new players coming
in to capture the market share.
In another way, this competitive rivalry can become a virtuous cycle which
would increase the market size as a whole because if the price of solar power
drops below conventional sources without Government subsidies then there
is nothing which would stop Solar from conquering the entire Power Industry
because who wouldn’t want energy which is cheap, clean, independent from
government grids without blackouts.
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3.7 STAKEHOLDER ANALYSIS
Conventional Power Source Fuel Suppliers – Supportive & low power
These fuel suppliers include the owners & operators of Natural Gas fields,
their distribution & sale. As Thailand is less dependent on Coal at present,
the stakeholders in Coal industry will not be that much affected by rise of
Solar Industry in Thailand.
Growth of Solar Industry will mean that the Power production & use will be
more distributed than central. This means that the central control exerted by
Fuel suppliers in the present market will lose their bargaining power with the
customers and hence will be naturally resistive.
Furthermore, the lobbying power of these sources will be very high mainly
because of the reach & resources that they carry.
Government – Supportive & low power
The Government will be naturally supportive because of the growing
concerns about environmental degradation and international pressure to
switch to less carbon intensive future.
However, there is a change in Government leadership all around the world
where slowly business leaders are having more & more say in formulating
policies & procedures. The same is applicable for Thailand as well which gives
less & less power to officials to formulate policies.
A system with strong checks & balances to ensure proper functioning of the
Government will be ideal and presently, Thailand is striving towards such a
system and it remains to be seen whether they would be able to succeed in
establishing such a system.
Solar Industry requires a lot of support from the Government till the time it
can stand on its own to compete without any support.
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General Public – Neutral & low power
The majority of General public is Neutral in the competition between clean
energy & polluting energy even though everyone is feeling the brunt of
Global warming these days.
The importance of Solar Energy & harmful effects of Global warming has not
sunk into the general conscience of the public because the climate change is
happening incrementally and the man made arrangements of comfort &
convenience ensures that people don’t spend much time in a Natural
environment to realize how bad it is.
The biggest challenge for Solar Industry would be to lobby powerfully enough
to create awareness, the possibilities of solar energy, and dangers of global
warming for the general public so that they will become Supportive stake
holders.
When the General public becomes supportive stake holders, the possibilities
of few lobbying groups to influence policies will dramatically decrease.