detailed analysis of power plant equipments (power sector)

Detailed Analysis of Power Plant Equipments (Power Sector)

PROJECT REPORT

Submitted By

KAMALAKKANNAN G

Section – B

DEPARTMENT OF MANAGEMENT STUDIES

SCHOOL OF MANAGEMENT

PONDICHERRY UNIVERSITY

ACKNOWLEDGEMENT

The successful completion of any task would be incomplete

without mentioning the names of the persons who helped to make it

possible. I take this opportunity to express my gratitude in a few words to

all those who helped me in the completion of this project.

I convey my sincere thanks to Prof. R. Sathyanarayanan for

giving this opportunity to have such a detailed study about Power

Sector.

I express my sincere thanks and deep sense of gratitude to my

friends for giving timely advice in all the aspects for the success of this

project work.

CONTENTS

S. No. TITLES Page No.

1 Executive Summery

2 Introduction to Power Sector

3 Power Sector in India

4 Power Sector Impacts on Environment

5 Analysis of Power Sector

6

Study of Selected Companies

a) BHEL

b) GE

c) ALSTOM

7 Conclusion

POWER SECTOR ANALYSIS 1 | P a g e

EXECUTIVE SUMMARY

Availability of power is one of the important ingredients for industrial growth. It

is an important infrastructure facility without which no industrial activity can be

thought of in modern times. Increasing automation of Indian industries has created

huge demand of power in India. This huge demand has resulted into demand supply

gap in India in recent times.

This report gives an extensive study of Power Sector. Analysis of the power

sector by PORTER’s Five Force Model and through SWOT analysis gives the

direction of the sector. Environmental impact of the sector is discussed.

The PORTER’s five forces analysis, SWOT analysis are used to analyze the

industry of power sector. The various analyses show that there has been a

continuous growth in generation and consumption of power in India.

World electricity generation rose at an average annual rate of 3.7% from 1971

to 2004, greater than the 2.1% growth in total primary energy supply. Total world

consumption of marketed energy is projected to increase by 50 percent from 2005 to

2030.


INTRODUCTION

TO

POWER

SECTOR


The energy required to support our economies and lifestyles provides

tremendous convenience and benefits. Energy consumption is reportedly higher in

countries where less than 5 % of the population lives below the poverty line than it is

in countries where most people live in poverty -- four times higher.

For example, Americans make up less than 5 % of the world’s population yet

consume 26 % of the world’s energy. World electricity generation rose at an average

annual rate of 3.7% from 1971 to 2004, greater than the 2.1% growth in total primary

energy supply. This increase was largely due to more electrical appliances,

development of electrical heating in several developed countries and rural

electrification programmes in developing countries.

De-regulation in areas of the global energy markets has led to fierce competition.

Now more than ever electricity has to be produced at a lower cost with many

countries imposing ever tightening environmental legislation to reduce the impact

power generation has on the environment. The enormous challenges are recognised

in providing electricity as efficiently as possible and strive to develop technology to

meet your needs. Collectively, developing countries use 30% of the world's energy,

but with projected population and economic growth in those markets, energy

demands are expected to rise 95 %. Overall global consumption is expected to rise

50 % from 2005 to 2030.

World energy consumption is projected to expand by 50% from 2005 to 2030 in the

IEO2008 reference case projection. Although high prices for oil and natural gas,

which are expected to continue throughout the period, are likely to slow the growth of

energy demand in the long term, world energy consumption is projected to continue

increasing strongly as a result of robust economic growth and expanding populations

in the world’s developing countries.

Energy demand in the OECD economies is expected to grow slowly over the

projection period, at an average annual rate of 0.7%, whereas energy consumption

in the emerging economies of non-OECD countries is expected to expand by an

average of 2.5 % per year.


China and India—the fastest growing non-OECD economies—will be key

contributors to world energy consumption in the future. Over the past decades, their

energy consumption as a share of total world energy use has increased significantly.

In 1980, China and India together accounted for less than 8 % of the world’s total

energy consumption. In 2005 their share had grown to 18 %. Even stronger growth is

projected over the next 25 years, with their combined energy use more than doubling

and their share increasing to one-quarter of world energy consumption in 2030 in the

IEO2008 reference case. In contrast, the U.S. share of total world energy

consumption is projected to contract from 22 % in 2005 to about 17 % in 2030.

Energy consumption in other non-OECD regions also is expected to grow strongly

from 2005 to 2030, with increases of around 60 % projected for the Middle East,

Africa, and Central and South America. A smaller increase, about 36 %, is expected

for non-OECD Europe and Eurasia (including Russia and the other former Soviet

Republics), as substantial gains in energy efficiency result from the replacement of

inefficient Soviet-era capital stock and population growth rates decline.

POWER SECTOR - Current Scenario

2.4% of the overall world energy output

6th largest energy user, comprising about 3.3% of the overall global energy

expenditure per year.

The gross electricity production capability of Indian Power Sector is placed at

around 111 GW.

POWER SECTOR – Scope

Abundant coal reserves (enough to last at least 200 years).

Vast hydroelectric potential (150,000 MW).

Large pool of highly skilled technical personnel.

Impressive power development in absolute terms (comparable in size to those

of Germany and UK).

Enabling framework for private investors.


Potentially, one of the largest power markets in the world

POWER SECTOR – Future

Exponential demand growth

Capacity Enhancement

Increased significance of the role of the private players and foreign

investments

New strategies and reforms

Increased significance of renewable sources of energy


POWER

SECTOR

IN

INDIA


The process of electrification commenced in India almost with the developed

world, in the 1880s, with the establishment of a small hydroelectric power station in

Darjeeling. However, commercial production and distribution started in 1889, in

Calcutta (now Kolkata). In the year 1947, the country had a power generating

capacity of 1,362 MW. Generation and distribution of electrical power was carried out

primarily by private utility companies such as Calcutta Electric. Power was available

only in a few urban centers; rural areas and villages did not have electricity. After

1947, all new power generation, transmission and distribution in the rural sector and

the urban centers (which was not served by private utilities) came under the purview

of State and Central government agencies. State Electricity Boards (SEBs)

were formed in all the states.

Legal provisions to support and regulate the sector were put in place through the

Indian Electricity Act, 1910. Shortly after independence, a second Act - The

Electricity (Supply) Act, 1948 was formulated, paving the way for establishing

Electricity Boards in the states of the Union.

In 1960s and 70s, enormous impetus was given for the expansion of distribution of

electricity in rural areas. It was thought by policy makers that as the private players

were small and did not have required resources for the massive expansion drive, the

production of power was reserved for the public sector in the Industrial Policy

Resolution of 1956. Since then, almost all new investment in power generation,

transmission and distribution has been made in the public sector. Most of the private

players were bought out by state electricity boards.

From the installed capacity of only 1,362mw in 1947, has increased to 97000 MW as

on March 2000 which has since crossed 100,000 MW mark India has become sixth

largest producer and consumer of electricity in the world equaling the capacities of

UK and France combined. The number of consumers connected to the Indian power

grid exceeds is 75 million.


India's power system today with its extensive regional grids maturing in to an

integrated national grid, has millions of kilometres of T & D lines criss-crossing

diverse topography of the country.

However, the achievements of India's power sector growth looks phony on the face

of huge gaps in supply and demand on one side and antediluvian generation and

distribution system on the verge of collapse having plagued by inefficiencies,

mismanagement, political interference and corruption for decades, on the other.

Indian power sector is at the cross road today. A paradigm shift is in escapable- for

better or may be for worse.

World’s Energy Overview

35% of world energy need is supplied by crude oil, 25% by coal & 21% by

gas.

Most of the reserve is concentrated in the Middle-east region.

World Primary Energy Sector growing at 2%

India’s Energy Overview

India is the 5th largest energy consumer

India has vast potential in the Exploration Sector.

54% Coal, 32% Oil, 9% Natural Gas

Indian Primary Energy Sector growing at 5%


World India

Energy Consumption (MTOE) 10224 376

Coal 27% 54%

Oil 37% 32%

Natural gas 24% 8%

Nuclear 6% 1%

Hydro 6% 5%

Oil & Gas Imports (MTOE) 2467 98 (US$ 30 billion)

Total Primary Energy 2.1% 4.8%

Natural Gas 2.6% 6.8%


POWER SECTOR

IMPACTS

ON

THE

ENVIRONMENT


The need for electricity – for productive purposes and for extending home

electrification – far outstrips supply in India.

Electricity generation has several impacts on the environment, depending on the

choice of technologies. While the evaluation of specific power plants would

necessitate the assessment of site and plant-specific issues, in general, one can

consider source-specific local, regional, and global impacts.

LOCAL IMPACTS

Large power sources can affect their surroundings through impacts such as

air pollution, submergence of land and waste accumulation, excessive resource use

and disruption of human activity.

The impacts of coal-based thermal plants are particularly important in a study of

India, as these plants currently provide the largest generating capacity in India, and

about 80% of the actual generation. Electricity generation consumed 67% of India’s

coal use, in 2002; further, India’s coal consumption is projected to grow 2.2%

annually between 2002 and 2025 (EIA, 2005).

Most of the existing thermal power plants in India use the traditional pulverized coal

combustion technology. As a result, they have to contend with gaseous emissions

including carbon dioxide, nitrogen oxides, carbon monoxide, sulphur dioxide,

mercury and particulate matter. Coal-burning thermal power plants in India are

responsible for about 40% of the country’s SO2 and 41% of its CO2 in 2000. Coal-

plant emissions far outweigh those from other fossil-fuel plants contributing to acid

rain, and air pollution and the consequent adverse effects on health.

When based on locally mined coal, the associated problems of mining accidents and

land degradation are serious. In some areas, the use of high ash coal results in

disposal problems, although ash does have productive uses such as brick-making.

However, with the alternative fossil-fuel options, oil- and gas-based plants, too,

issues of waste disposal and possible drilling and pipeline accidents have to be

considered. The water use by some thermal plants constitutes a more serious


problem; Indian thermal power plants reportedly use 88% of the country’s industrial

water supply (DTE, 2003). Temperature increases and pollution of receiving water

bodies through inadequately treated effluents have also to be dealt with.

Although based on a clean and renewable source, large hydroelectric plants are not

impact free. Large dams can cause submergence of human settlements and natural

forests, adversely affecting or even destroying people’s livelihoods, particularly

traditional lifestyles, and also terrestrial ecosystems. However, the magnitude of

these impacts varies with the location and the height of the dams constructed.

With nuclear power plants, radiation hazards (not only through accidents), and

disposal of radioactive spent fuel must also be contended with. Thus far, no country

is sure of safe and permanent waste disposal. And, while clean in terms of carbon-

emissions, both ends of the nuclear fuel cycle – uranium mining and nuclear waste –

have harmful environmental impacts, if not very carefully managed.

However, environmental impact costs are not easily quantifiable. Pollution-induced

health impacts are underestimated when economically disadvantaged people do not

obtain medical treatment; similarly, disruption costs of displaced communities could

be inestimable.

REGIONAL IMPACTS

Regional pollution issues, for example the issue of acid rain and sulphur deposition,

have received attention in Northeast Asia. While the magnitude of coal-fired power

plants' contribution may be disputed, particularly during winter and spring, when

dominant high pressure systems sweep accumulated pollutants off the landmass

toward the eastern ocean mass.

GLOBAL IMPACTS

The Indian power sectors contribute about 52% of the carbon emissions in the

country. Due to the magnitude of its electricity generation, China’s total carbon

emissions are over three times those from India and even on a per capita basis are

over 2½ times. However, as emissions per capita are low by international standards

(EIA, 2003), and developing countries are not required to adopt greenhouse gas


(GHG) reduction targets under the Kyoto protocol (in effect from February 16, 2005),

global issues currently remain less important than local impacts.


ANALYSIS

OF

POWER

SECTOR


PORTER’S FIVE FORCE MODEL:

The model of pure competition implies that risk-adjusted rates of return should

be constant across firms and industries. However, numerous economic studies have

affirmed that different industries can sustain different levels of profitability; part of this

difference is explained by industry structure.

Porter’s model is based on the insight that a corporate strategy should meet

the opportunities and threats in the organizations external environment. Especially,

competitive strategy should base on and understanding of industry structures and

the way they change.

Supply

Many projects have been planned but due to slow regulatory environment, the

supply is far lesser than demand. Currently, India needs to double its generation.

Many projects have been planned but due to slow regulatory environment, the

supply is far lesser than demand. Currently, India needs to double its generation

capacity to meet the potential demand.

Demand

The long-term average demand growth rate is 6%.

Barriers to Entry

Barriers to entry are high, as entering this business requires heavy investment

initially. The other barriers are fuel linkages, payment guarantees from State

Governments, Retail distribution licensed, etc.

Bargaining Power to Suppliers

Not very high as Government controls tariff structure. However, this may change the

future.

Bargaining Power of Customers

Bargaining power of retail customers is low, as power is in short supply. However,

Government is a big buyer and payment by Government can be more erratic.


Competition

Not high currently. The Electricity Act, 2003 will encourage investments, thereby

increasing competition.

SWOT ANALYSIS

STRENGHTS AND OPPORTUNITIES OF POWER SECTOR:

Well established and vast transmission and distribution network.

Highly qualified engineering and technical personnel.

Regulatory framework is further facilitated with enactment of Electricity Bill,

2003.

The Electricity Bill, 2003 holds promises for the power sector and certainly for

the consumer by way of competition reliability and rationalized tariff structure.

Emergence of strong and globally comparable central utilities (NTPC,

POWERGRID).

India has substantial non-conventional energy resource base and

technologies to meet growing power requirements by tapping this energy.

WEAKNESSES AND THREATS TO POWER SECTOR:

Poor infrastructure has led to heavy T&D losses. Old and poor transmission

and distribution network has led to frequent power outages and poor quality of

power

Lack of proper metering and theft has led to large scale losses. Only 51% of

the power generated is billed and only 41% is realized

Moreover, Government provides power to agricultural sector at subsidized

rates and also free of cost in some states. All these factors have resulted in

financial disorder of the State Electricity Boards (SEBs).

Restoration of SEBs financial health and improvement in their operating

performance continues to be a critical issue. The Government of India has

signed a Memorandum of Understanding (MOU) with various states reflecting

the joint commitment of centre and states to undertake reforms in a time

bound manner

Poor return to utilities, which affect their profitability and capacity to make

further investments


Increasing gap between unit cost of supply & revenue, approximately Rs 1.10/

unit

Managerial and financial inefficiencies in state sector utilities have adversely

affected capacity addition and systems improvement

Non-availability of quality coal may hamper thermal plants’ efficiency in power

generation

Inability of SEBs to raise funds, as most of the SEBs is on the verge of

bankruptcy due to poor operational performance. Adding to the problems,

SEBs need huge money to measure up competition from efficient private

players

The major risk of privatizing a critical sector like power is the precedence of

commercial over public interest. Some of these interests that will take a back

seat include development of environment friendly generation and provision of

electricity for rural areas. The new Electricity Act does not provide any specific

financial incentives for private players to address public issues

The SBEs which are right now holding 60% of total installed capacity, will be

hit adversely by some provisions of the new electricity act such as delicensing

of generation and open access for IPPs and CPPs, there by such units will

take away the most lucrative customers (like industrial and commercial users)

from the SEBs. This will not only affect SEB’s but also the entire power sector

for near term.


STUDY

OF

SELECTED

COMPANIES


Bharat Heavy Electricals Limited

Bharat Heavy Electricals Limited (BHEL) was set up in 1959 by the

Government of India with the objective of creating indigenous manufacturing base for

power plant equipments. Today, BHEL is the 12th largest company in the world in

Power Plant Equipments manufacturing and the largest in India. The company has

the ability to manufacture the entire range of power plant equipment and has one of

the largest capacities of power plant equipment in the world. This enables the

company to bid for large power projects. BHEL's cost-competitiveness vis-a-vis

international competition in the power sector can be attributed to the factors like fully

depreciated manufacturing facilities, lower labour and freight costs and economies of

scale. Apart from being the lowest cost producer, BHEL also possesses the

infrastructure that can supply power equipment for 4,000 MW of generating capacity

annually.

The company operates through 14 plants and 9 service centers. The major

inhibiting factor for the growth of BHEL in the past has been lack of access to large

fund base. The company is a candidate for disinvestment as the Central Government

has decided to offload atleast 20% of its stake towards a strategic partner. This could

help the company in the long run as the strategic partnership could bring in benefits

like access to new technologies and capital.

The business of BHEL is focused essentially on two broad segments, viz.

Power Equipment, accounting for 60% of revenue, and, Industrial Equipment, and

accounting for the rest. Earlier the company was focused on the Power Equipment

only. However, in order to reduce the dependence on power utility providers (SEBs),

the company widened its focus area and hence product base. BHEL is now

manufacturing equipments for industrial users, railways and several other industries

including telecommunications, metallurgical and process industry.

BHEL's forte is coal-based Thermal Power Plants. BHEL's products, services

and projects are exported to over 52 countries including United States and New

Zealand. BHEL's market share in the coal-based thermal power plant segment is

75%, 65% in nuclear-based thermal plants, 50% in hydro-based thermal power


plants. However, in the emerging gas-based combined cycle thermal plants, which

have short gestation period, the company has a relatively low market share of just

18%. BHEL also provides services of erecting plants and executing projects on a

turnkey basis. The cumulative capacity of power generating equipment supplied by

BHEL outside India is over 3000 MW.

Power Sector Products:

THERMAL POWER PLANTS GAS BASED POWER PLANTS HYDRO POWER PLANTS

DG POWER PLANTS INDUSTRIAL SETS BOILERS

BOILER AUXILIARIESHEAT EXCHANGERS AND

PRESSURE VESSELSPUMPS

POWER STATION CONTROL

EQUIPMENTBUS DUCTS SWITCHGEAR

COMPRESSORS SILICON RECTIFIERS CONTROL GEAR

OIL FIELD EQUIPMENT TRANSPORTATION EQUIPMENT POWER DEVICES

THYRISTOR EQUIPMENTINDUSTRIAL ELECTRICAL

MACHINESENERGY METERS

CAPACITORS SYSTEMS AND SERVICES AVIATION

TELECOMMUNICATIONNON-CONVENTIONAL ENERGY

SYSTEMSSEAMLESS STEEL TUBES

CASTINGS AND FORGINGS INSULATORS TRANSFORMERS


5 Forces Model

Rivalry among competitors

o ALSTOM, Mitsubishi

o Creating competitive advantages to gain bigger market share

Acquisitions, mergers and joint-ventures in other countries

Technological Improvements

Potential of New Entrants

o BGR Energy (1985)

o Competitive Price

o Many orders are captured in recent times

o Existing tactic in the market will not help in the current scenario

Suppliers

o Materials, parts, components, other resources

o Suppliers are well diversified across the globe

o Prompt delivery by Suppliers are ensured by BHEL

Substitutes

o Has many substitutes that might pose a threat

o Has less diversification with sectors, so that concentrated focusing on

the respective sector avoids chance of getting substituted

o Eg. Power Sector Equipments, Industry Equipments

o Has a order book worth thousands of crores


Buyers

o Wide Customer base in India and in all parts of the world

o With excellent customer satisfaction the order are booked for the next

two years (Information from the employee)

SWOT Analysis:

Strengths:

The company has 180 products under 30 major product groups that cater to

the needs of the core sector like power, industry, transmission, transportation,

defence, telecommunications and oil business.

BHEL's ability to acquire modern technology and make it suitable to Indian

conditions has been an exceptional strength of the company.

Strong relationship with NTPC is the strength, as NTPC is planning a capacity

expansion of Rs. 52 bn and based on the past, 85% of NTPC projects have

been bagged by BHEL. The company also enjoys purchase price preference.

Weaknesses:

PSU status is a big weakness for BHEL as it is subject to their rules and

regulations and is forced to carry a huge amount of labor force, which it is not

able to retrench.

The company offers very stringent credit facilities to the customers and this is

a weakness when compared in the face of rising competition. On the other

hand their customers in the power segment, SEBs, have a huge amount of

receivables standing against their name in the company's balance sheet. This

is a major weakness for the company.

The company is vertically integrated, which could have been avoided by

outsourcing its components for power generation and transmission. This could

have reduced the cost.


Opportunities:

The power sector reforms are expected to pick up in the near future in India,

which would directly benefit BHEL.

Increase in defence budget will increase the topline for the company.

NTPC is planning additional capacities to the tune of 2,800 MW, at a cost of

Rs 52 bn. BHEL could benefit a lot as it has happened in the past that

significant portion of the project of NTPC is handled by BHEL. Nearly 85% of

the NTPC projects were assigned to BHEL only.

The business of modernization and renovations of power plants is expected to

grow in India.

The disinvestment plans of the government would bring in new resources and

experience into the company.

Joint Venture with Siemens in the name of Powerplant Performance

Improvement Ltd. (PPIL), is a major strength for the company. This tie-up will

be beneficial as there is a lot of scope for business. During FY00 the PPIL

received orders worth Rs. 320 crore.

Threats:

The global trend of consolidation has already resulted in a fall in turnover of

the company and this will prove to be a major threat in the years to come as

well.

The company is dependent on NTPC to a great extent.

Recently, the government has permitted the import of second hand capital

goods that are 10 years old without the need for a license. This move will

definitely increase competitive pressures for BHEL.


GENERAL ELECTRIC

Introduction:

It all started with the flicker of a light bulb and soon enough GE was off and

running…

o In 1890, Thomas Alva Edison established the Edison General Electric

Company in Menlo Park, New Jersey

o At the same time Charles A. Coffin was growing his business, The

Thompson Company

o It was increasingly difficult for Edison and Coffin to remain competitive

based their own technologies

Headquarters

o Fairfield, Connecticut

Number of Employees

o Over 315,000

Locations

o Over 160 Countries

Symbol on Stock Exchange

o GE

Number of Shareholders

o 4 Million

GE is imagination at work- - a diversified technology, media, and financial

services company focused on solving some of the world’s toughest problems. With

products and services ranging from aircraft engineering, power generation, water

processing and security technology to medical imaging, business and consumer


financing, media content and advance materials, GE serves customers in more than

100 countries and employs more than 3,00,000 people worldwide.

GE is focused on growth and is committed to achieving worldwide

leadership in each of its business. The company is organized into six market focused

group. GE infrastructure, GE commercial financial services, GE industrial, NBC

universal, GE health care and GE consumer finance. This structure is aimed at

expanding the company’s growth capability and positioning the company for

sustained growth.

Commitment:

GE is committed to serving the communities where we do business, providing our

customers with innovative, high-quality products and services and protecting the

health of our workers and our environment.

Integrity

GE’s reputation for honest and reliable business conduct, built by so many people

over so many decades, is tested and proved in each business transaction they

make.

Environment, Health & Safety

They are committed to keeping our workers safe on the job and ensuring compliance

with environmental regulations.

Quality

GE employees embrace Six Sigma's customer-focused, data-driven philosophy and

apply it to everything they do.


GE in POWER SECTOR:

GE energy business supplies a full spectrum of power plant solution, ranging

from fossil fuel technology to renewable energy, to suit customer specific

requirements. Offering includes equipment-only packages, engineered packages or

total turnkey projects. GE technology gas and steam turbine, hydro turbine, wind

turbine and nuclear units account for more than 10% of India’s power generation

installed capacity. With more than 200 customers in the Indian subcontinent, GE’s

energy business also offers an array of transmission and distribution product and

services, as well as condition monitoring products and services, optimization

services, energy rentals, aero derivative technology, wind energy, gas fuelled

reciprocating engines, hydro power, solar technologies and nuclear energy

GE is Organized along 11 Businesses


5 Forces Model

Rivalry among competitors

o ALSTOM and Siemens, in particular

o Creating competitive advantages to gain bigger market share

Acquisitions, mergers and joint-ventures

Battle for innovation and technological improvements

Potential of New Entrants

o Adaptac (1981) and Adept Technology (1983)

o Late bloomers, but slowly gaining market share

o Does not pose too much of a threat to GE, ALSTOM or Siemens for

now

o Tough for new entrants to pinch a sizable chunk of market share from

GE, ALSTOM or Siemens

Suppliers

o Materials, parts, components, other resources

o Vertically integrated (GE Advanced Plastics, GE Consumer and

Industrial Manufacturing)

o Has to be aware of suppliers that might integrate forward

Substitutes

o Has many substitutes that might pose a threat

o Very well-diversified which means that GE is spreading the risk of

failure in every market

o Eg. GE’s NBC-Universal’s substitute are pirated VCD’s or DVD’s


Buyers

o Similar to its substitutes, GE has a broad line of buyers, ranging from

consumers to large corporations

o Eg. GE Healthcare’s buyers are hospitals and pharmacies.

SWOT Analysis

Strengths

o Global strength and recognition

5th in Fortune 500 list, operating in more than 160 countries

o Excellent management

Proven leadership and business model

Confident investors – raising capital

o Diverse product range

Long Term (GE Aircraft engines)

Short Term (GE Lighting, Plastics, NBC)

Financial Services (contributes to 40% of GE’s revenue)

Spreading the risk of failure in every market and not just one

o Better service

o Better technology

Weaknesses

o Company size/ acquisition restriction

Eg. GE’s planned acquisition of Honeywell International

specializing in aerospace products, was rejected by the EU


o Energy Segment

Underperforming, no signs of near future recovery

o Flexibility

Large and diverse businesses might overstretch the company

and reduce reaction times to shifts in targeted markets

o Higher prices

Opportunities

o Research and Development

Immense capital allows GE to contribute a lot to R&D for product

development and improvement

o Increased geographic growth

Global expansion = more opportunities (Eg. China)

o Merger between NBC and Vivendi

Further opportunities in the media business

o Improved customer services

Adopted a new customer focus initiative

Threats

o Exposure to global economy

Economy slowdown would affect GE, since 40% of the revenue

is generated overseas

Exposed to currency fluctuations

o Intense scrutiny after Enron

More transparency and disclosure; skeptical investors


Public image of all large companies suffered

o Competition

Constant change in technology heats up competition

Very diverse:- tough to be the best in all industry

o Changing market trends & Demand


ALSTOM

Alstom is a large French multinational conglomerate which holds interests in

the power generation and transport markets. According to the company website, in

the years 2007-'08 Alstom had annual sales of over €16.9 billion, and employed

more than 81,500 people in 70 countries. Alstom's headquarters are located

in Levallois-Perret, near Paris. Its current CEO is Patrick Kron.

Alstom is a world leader in hydroelectric power generation; in conventional

islands for nuclear power plants; and in environmental control systems. It is also a

producer of very high speed trains and of high speed trains, being the manufacturer

of the AGV, TGV, and Eurostar series, as well as of Citadis trams. Alstom is also

present in the urban transport market, and is behind regional train models, signalling

infrastructure equipment, and a number of associated services.

POWER GENERATION

Alstom power activities include the design, manufacturing, services and supply of

products and systems for the power generation sector and industrial markets. The

group covers all energy sources - gas, coal, nuclear, hydro, wind. Alstom supplies

and maintains all components of a power plant and provides complete turnkey

solutions. During the financial year 2007/08, Alstom Power sales amounted to 11.4

billion euros.

Products

Boilers

Steam turbines, gas turbines

Turbo generators and generators

Air quality control systems

Monitoring and control systems for power plants

Turnkey solutions

Gas-fired power plants

Coal-fired (steam) power plants

Conventional islands for nuclear power plants


Hydroelectric power plants

Wind farms

Services

Product retrofitting

Maintenance and services

Refurbishment of existing plants

FIVE FORCE ANALYSIS

Strengths

• Strong parental support gives ALSTOM a clear edge in integrated power and

hydroelectric projects.

• Strong order backlog (Rs30 bn+, >2.4XFY07 revenues) imparts earnings visibility.

• Strong references in India provide a definite advantage to ALSTOM for future

projects.

• ALSTOM is one of the few players to execute hi-end power projects in India.

Weaknesses

• ALSTOM has a longer execution cycle (Hydro projects >5 years, gas projects 2-

2.5 yrs & steam > 4 years)

• ALSTOM’s hydro projects carry various risks including on environmental issues

over which ALSTOM has no control.

• ALSTOM operates in a cyclical industry where business volumes are dependent

upon government plans.

Opportunities

• 11th & 12th Plans comprise 72%+ (coal & lignite) capacity addition in 660/800 Mw

unit size.

• Huge capex in generation (11th plan envisages 157% more than what was

achieved in the 10th plan).

Threats

• Competition with the likes of BHEL remains a key threat for ALSTOM.

• Problems with fuel (like gas) could lead to cancellation / delays in planned projects.


Porter’s Five Force analysis

The Intensity of Competitive Rivalry

The number of players in the power sector it comes to providing fully

integrated service are few but the intensity of competitive rivalry can be termed as

medium as there is sufficient scope available in the industry for all the existing

players.

Bargaining Power of Suppliers

As the requirement of equipments are growing exponentially, the supply of

Power Equipments can be met by Importing or from the domestic suppliers. So the

bargaining power of the Supplier is medium enough to tackle in the current scenario.

Bargaining Power of Buyers

In today’s world customer is the king. The power sector has to be developed

at a much rapid pace to cope up with the development activities which are in

progress. So that the bargaining power of the Buyer is more when compared to other

sectors.

The Threat of Substitute Product

As renewable power generation for the world the threat of substitute product

is low. Wind power projects are also the most preferred bearing in mind the large

coastline, which we posses.

The Threat of New Entrants

As the power sector are highly capital intensive and involves large amount of

commitment in terms of capital , assets and work- force the threat of new entrants is

low . As only those organizations which have the required capabilities and are willing

to take the risk of entering a sector which can be seen as still developing will enter

the market. New entrants such as BGR Energy Systems pose threat to their Indian

Operations.


CONCLUSION:

India possesses a vast opportunity to grow in the field of power generation,

transmission, and distribution. The target of over 150,000 MW of Hydel power

generation is yet to be achieved. By the year 2012, India requires an additional

100,000 MW of generation capacity.

A huge capital investment is required to meet this target. This has welcomed

numerous power generation, transmission, and distribution companies across the

globe to establish their operations in the country under the famous PPP (public-

private partnership) programmes.

The power sector is still experiencing a large demand-supply gap. This has

called for an effective consideration of some of strategic initiatives. There are strong

opportunities in transmission network ventures - additional 60,000 circuit kilometres

of transmission network is expected by 2012 with a total investment opportunity of

about US$ 200 billion.

detailed analysis of power plant equipments (power sector)

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