Independent Study

11

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’

Independent Study

12

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

Independent Study

13

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.

Independent Study

14

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.,

Independent Study

15

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.

Independent Study

11

Figure 3-1: Solar PV Value Chain

Independent Study

11

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.

Independent Study

12

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.

Independent Study

13

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.

Independent Study

14

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.