STRATEGIC ANALYSIS OF EDF ENERGY, THE UK BASED COMPANY.Chioma Pamela Nwuruku6238104
STRATEGIC ANALYSIS OF EDF ENERGY, THE UK BASED COMPANY.
INTRODUCTION
EDF Energy
EDF Energy is one of the largest energy supplying companies in UK. It
was formed in 2002 following the acquisition and merger of SEABOARDPLC,
London Electricity PLC, SWEB Energy and some coal and gas power stations.
They are in charge of supplying gas and electricity to most UK homes and
businesses. They are an integrated branch of the EDF group, which generates
about 1/5th of UK electricity. In 2011, they retained their potion as the largest
UK generator of electricity and the largest generator of low carbon [Cornwall
Energy Association Report-Published Q4, (2011)]
EDF generates electricity using fossil fuels, wind, and nuclear and
renewable energies.
EDF energy consists of three main business units: Nuclear Generation,
Nuclear New Build, Energy Sourcing and Customer supply.
The Nuclear Generator (NG) are in charge of operating and maintaining
eight nuclear stations in United Kingdom. It has a capacity of approximately
9000mw electricity.
The Nuclear New Build (NNB) are in charge of delivering the new
generation of the nuclear plant.
The Energy sourcing and Customer Supply (ESCS) runs the power station
and wind farms, they sell and buy power. They are in charge of customer
handling and small business.
AIM AND SCOPE OF REPORT
This report is going to analyse strategically, the UK based EDF Energy
Company. The analysis would be broken down to virtually
Macro-environment analysis
Micro-environment analysis
Internal analysis
A summary of the findings using SWOT analysis.
MACRO- ENVIRONMENT ANALYSIS Going through this analysis would help to identify the factors that are
outside EDF Energy’s control but affect it nonetheless whether directly or
indirectly. It would also help to spot out the opportunities that can be taken
advantage of. This analysis is done using PEST (political, economic, sociocultural,
technological) analysis tool.
PEST is an acronym for political, economic, sociocultural, and
technological, which are the four factors that would be considered in this Macro-
environment analysis.
POLITICAL
Energy is a major issue politically in UK. There are many speculations and
buzz on how much carbon emission is out there and how secure the supply of
energy is.
With the escalating demand in energy from emerging economies, there is equally
a rise in competition for Energy supplies. It is typical that we consider the
political factors that may affect EDF Energy as the leading Energy Supply
Company in UK or factors that may be taken advantage of to further improve.
These factors include;
Security of UK Energy supplies:
Security of Supply can be defined as a guarantee of supply of goods and
services sufficient for a Member State to discharge its defense and security
commitments in accordance with its foreign and security policy requirements.
In the energy case in UK, the UK energy supply is become more and more
depended on the production from UK’s offshore oil and gas industry, which has
gradually depleted creating a vulnerability to escalating price and shortage of
supply.
Also, the countries with which UK sources are based on can be under political
unrest, which would affect the supply to meet UK’s high demand of energy.
Because of this dangerous mix of high demand of energy and depleting
supply, the price of fossil fuel may be driven up a lot.
International competition for energy:
With its production of oil and depleting, UK has to compete in the international
energy market. With countries like china, India with rapidly growing encomia’s,
the struggle for energy supplies at the international level is harder than ever and
that is because these countries have a large appetite for energy and have a great
influence in the market and with the energy suppliers.
Change in climate:
As of 2013, Carbon emission is seen as the major threat to the ozone layer and
thus perceived as the basic cause of the climate change. This puts a strain to
Energy Company’s and their production of fossil fuels. The UK government is
determined in finding alternatives to burning fossil fuels and concentrate on
“clean “ renewable energy. As of recent, companies have to pay for the carbon
emission they release to the atmosphere. The UK government is promoting
initiatives to reduce co2 at all cost and investing in energy saving product.
This has affected the economy an thus climate change is now the topic of many
political debate and its reduction is now negotiated internationally.
Potential terrorist attacks:
The power stations and pipelines are the number one target in case of a
potential terrorist attack in the UK. The main threats are from countries that do
not agree with UK foreign policies like military units from middle east and
attacking the gas pipelines and power stations wouldn’t not online affect lives
but it’s a good way to cripple the UK economy. Because of this, the UK
government would be triggered to create more and more nuclear stations etc.
all these would disrupt the supplies to UK energy companies.
Planning Consent: UK energy companies now require consent for infrastructure
projects from the government. There are also changes that would streamline
decisions on energy company’s infrastructures
ECONOMICAL
Global economic downtown:
Because of the global crisis in the economic sector, banks including those
in the UK have limited the way they loan and invest in companies. And this has
put a strain in the energy companies in UK, who especially by 2020 would need a
lot of investment for the infrastructures and difficulty in getting the banks to loan
and investment would delay future projects or cripple them.
Investment in Infrastructures:
In order to provide an efficient and equally sufficient service in the long
run, the uk energy market has to make huge investments in infrastructure all
over the industry. To generate, new nuclear power stations need to be built,
renewable energy projects need to be funded for. To transmit, new renewable
energy plants are need, the gas sector needs efficient storage units, in
distribution; the maintenance has to be monitored – meters are being dispatched
to homes. So it is evident that huge investment is needed in the UK energy sector
to improve efficiency and reliability.
Tax Reduction:
SOCIAL:
Social factors that may affect EDF are self explanatory. Factors like ;
Rising energy prices
Reduced carbon emission
Microgeneration
Energy supply security
Marketing of gas and electricity
TECHNOLOGY
Renewable energy:
Technological challenges would be faced as emerging projects in the
renewables energy sector is required. The renewable energy market is gradually
expanding and wind farm amongst other renewable energy sources would have
to be built to keep up with this demand.
Carbon capture and storage:
EU legislations has limited the extent to which power stations can be used
without a realistic reduction in the carbon emission. The technology used to
capture carbon (CSS) is a necessity and should be considered.
Smart meters:
Extensive work needs to be put out to give consumers information at which they
consume energy. That is where smart meters come in handing, these devices can
be used to measure and control how much energy comsumers use. The UK
government has required the usage of these smart meters in all UK homes by
2020.
MICRO-ENVIRONMENTAL ANALYSIS
Porter’s five forces is a tool for internal analysis that can be used in this
scenario. This would help to narrow down the environment and limit it to EDF’s
micro surrounding and how it interacts with it. To do this, questions need to be
answered.
Competitive rivalry:
This is the competition that already exists and EDF Energy is already
facing right now. In the UK, there are 6 major energy providers and they are the
most prominent leaders of the market – EDF, BritishGas (centrica) , E.ON,
Scottish power, Scottish and southern energy, Npower.
Basically these six are the major competions for EDF right now. Although there
are other small energy companies like Ecotricity, first utility, Sainsbury energy
etc.
The profit of these big 6 for 2011 can be shown in the graph [http://www.consumerfocus.org.uk/files/2011/07/Big-Six-profits-2006-2010-Excel.xlsx]
Threat of new entrants:
This is about potential competitors, companies that may spring up in the
future and compete but are not set now. Industries with low barrier to entry
face a higher threat. Although the barrier is high, we find that new smaller
energy companies – mostly those that are green and pro-renewable and those
offering smarter meter- spring up now and then over the years.
One thing to notice about this market is that the larger companies ie the
big 6 are in some way vertically integrated with interest in generation. So
although there are smaller companies that may spring, they’re not seen as
potential threats nevertheless they shouldn’t be overlooked.
The main barriers to entry in the energy industry are:
Delivering government policy
Access to wholesale energy supplies
Low margin expectations
Complexity and regulatory burden
Frequent network changes
Scales economics
Threat of substitute products:
This is about the alternative/substitute products that another company
might provide that meet the same needs as EDF energy to the customers. It
should serve as a form of awareness about what other companies are offering
that may not directly be EDF’s competition.
There are no main known substitute products out there because EDF energy is a
large group that covers basically all their customer needs. It delivers gas and
electricity to its customers, hence it is very difficult to find substitute for this.
Bargaining power of buyer:
A lot of customers need and want gas and electricity. EDF supplies
electricity and gas to a round up of 5.5 million user (both residential and
business) in the uk. By volume it can be seen as the largest supplier of electricity
in the UK.
With prices soaring higher than ever lately, a lot of buzz about switching
energy suppliers have been heard. But how easy is it really to switch supplier?
What is the bargaining power of the buyer?
Although there are other energy suppliers, a recent survey by BBC
watchdog shows that it’s not really easy to switch energy suppliers becos of
reasons like cancellation fees, delays in instalment, paper work, double billings
etc.
Bargaining power of supplier:
EDF energy gets the bulk of its supply from own UK power stations and
some are bought from independent power generators. Since EDF produces
energy mainly from nuclear power station and they own their own PowerStation,
they do not have any threats of suppliers having a lot of bargaining power over
them. (they are also vertically integrated with the option of self supply.)Although
in cases like fossil fuels, where EDF trades on the gas market, as they do not have
gas fields, the bargaining power of the supplier is high hence the price
fluctuations in gas prices.
INTERNAL ANALYSIS
EDF Energy is known as the largest electricity in the UK with
approximately 5.5 million customers including business and domestic. EDF deals
mostly with nuclear energy with a total of eight nuclear plants capable of
producing 9000 mega watts of electricity.
Not only does EDF produce electricity but it also distributes/ supplies it.
Even though the company doesn’t have its own gas field, financial reports have
shown that it gets the bulk of its revenue from electricity dealership.
EDF Energy’s core competencies are its efficiency in its nuclear power
sector. The EDF group in France from where EDF Energy UK comes from is the
biggest nuclear power generator in the world.
SWOT ANALYSIS.
This takes a look at EDF Energy’s internal and external factors, positive
and negative and lays them out in an easy to analyse format.
STRENGTHS
1. Good customer knowledge.
2. Customer resilience to change:
habit to subscribe to EDF.
3. Monthly quarterly bills facilitate
marketing efforts.
4. Knowledge of and access to
state of the art technology.
5. Financing capacity.
6. Vertically integrated structure.
7. Brand name.
WEAKNESSES
1. Communication and
reaction to customer
needs is slower than
smaller companies.
2. Unplanned outages
3. Dependency on thermal
generation
OPORTUNITIES
1. Significant margin for
improvement with regards to
end use energy efficiency
2. Inovational opportunities with
regards to reduction of carbon
emission
3. Access to state of the art
technologies enabling
monitoring of electric
appliances.
4. Contribution to the
dematerialization of economy
by offering services that enable
decoupling.
THREATS
1. Risk of competitors
imitating service
offered
2. Opening of market to
competition will
diminish EDF market
share.
3. New laws and
regulations.
4. Recession
POSITIVE NEGATIVE
INTERNAL
EXTERNAL
BCG MATRIX
When a business has numerous product lines all operating at the same
time, it is important to know which lines are helping grow and those that are
holding it back. BCG matrix helps in identifying that by comparing product lines
market share and the product lines market growth.
The three EDF business units are placed in the bcg matrix as below.
STAR QUESTIONMARK
CASHCOW DOG
NUCLEAR GENERATION
NUCLEAR NEW BUILD
ENERGY SOURCING AND
CUSTOMER SUPPLY
CONCLUSION
EDF Energy has been made successful over the years, since 2003
following a series of mergers and acquisition which include; London
electricity,SWEBB supply business ,Sutton bridge power station and so on.
[http://www.edfenergy.com/energyfuture/edf-energys-approach-about-edf-
energy/edf-energys-history].
One notable acquisition was made in 2009 when EDF acquired BE (British
energy) which made EDF one of the largest energy company in UK and also no1
uk electricity producer. EDF also partnered with Centrica in the nuclear sector
giving Centrica a 20% stake in the company’s nuclear power stations.
Following the footsteps of its parenting company, EDF has efficiency In
nuclear handling and that is its core competence. Although as a French company,
EDF isn’t listed in the London stock exchange, it aims to maintain standards and
principles as those companies listed in the exchange.
REFERENCE
1. Cornwall Energy Association Report-Published Q4, (2011)
2. http://www.consumerfocus.org.uk/files/2011/07/Big-Six-profits-2006-2010- Excel.xlsx]
3. http://www.edfenergy.com/energyfuture/edf-energys-approach-about-edf-energy/edf-energys-history].
4. Case No COMP/M.5224 - EDF / BRITISH ENERGY Article 6(2) NON-OPPOSITION Date: 22/12/2008
5. Mergers and acquisitions in the European electricity sector: cases and patterns (PDF, pages 40–44; Centre d'économie industrielle)
6. UK Power Networks Services – the new name in infrastructure projects (PDF, page 1; UK Power Network Services)
7. Nuclear development in the United Kingdom (World Nuclear Association)8. Drejer, A. 2002, Strategic management and core competencies: theory and
application, Greenwood Publishing Group
9. EDF Energy, No Date, Key figures, [Online] Available at:
http://www.edfenergy.com/sustainability/performance-report/economic/key-
figures.shtml [Accessed on May 06, 2010]
10. EDF Energy-a, No Date, About EDF Energy, About US, [Online] Available at:
http://www.edfenergy.com/about-us/about-edf-energy/index.shtml [Accessed
on May 06, 2010]