National Grid.docx

Pranav Bahl Fy.A Roll 24

Sales Maximisation Oligopolistic Market

National Grid

Having sold part of its UK gas distribution business in 2017 concerned with slowing growth it now plans to use the proceeds in countries like the USA for better growth prospects.

CHANGING SITUATION: RENEWABLE ENERGY UNDER FOCUS #1 Competitive Rivalry(Moderate): National grid has substantial competition in the US where it aims to expand, with the likes of Exelon corporation, Unitil corporation and Dominion energy all vying for market share. Here, however only Dominion Energy is bigger than Nation Grid in terms of valuation. Nation Grid is also investing huge amounts in renewable sources of energy, thus competition that it faces is not very fierce. #2 Buyer Power (LOW): The products being produced, namely electricity and gas, are undifferentiated since there is no “quality” difference for the buyer in obtaining them from one place or the other. This increases buyer power. However, dispensability of the product is low (you cannot do without both). Switching costs between different companies is also high in the US. These decrease the buyer’s power. #3 Threat of Substitution(Moderate): Substitutes like Solar Power, Wind Energy and Nuclear Power are going to give stiff competition to traditional power sector companies in the near future. The reason I will rate this as just a moderate threat is because National grid seems to be investing heavily in renewable sources of energy. For instance, they have allocated $250 Million to invest in growth stage tech startups to boost their innovation and growth pace. #4 Threat of New Entry(LOW): Entry into this industry requires huge capital investments and specialized technology. Also the existing firms enjoy the first mover (ok early mover) advantage and enjoy economies of scale as they become bigger. For example, the average cost of fuel (both electricity and gas) network transmission is 35 Pound per household in the UK for National Grid, a figure that is achieved due to extensive mapping of pipes and a scaled production process something a smaller firm cannot achieve. Conclusion: A revolution is taking place in the energy industry. Change is happening at an unprecedented rate, creating opportunities for the industry and challenges too, which will affect how National Grid works. National grid looks to expand and enter newer segments of the power industry. It plans to spent $250 million on start-ups bringing innovation to the energy industry. Over the years it has built up a reputation of being slow in growth and risk-averse but the company is changing that as we can see through it’s sale of the gas 1

distribution system and investments in renewable sources of energy. I believe it should continue down this road of expanding the usage of sustainable energy as environmental laws become more stringent with time and extracting fuels, like natural gas, becomes a highly regulated activity.

This graph shows the number of employees of national grid and its competitors thus giving us an idea of the size of the companies. Note that National grid is the only company here which has experienced a reduction in the number of employees around the 2017 mark. This is most likely due to it selling off 25% stake of the gas transmission division in UK in that year. Graph Link: https://craft.co/national-grid/competitors

References (Information and Data): https://www.ukessays.com/essays/economics/power-sector-using-porters-five-forcesmodel-economics-essay.php https://www.nationalgrid.com/group/about-us/what-we-do/national-gridventures/accelerating-clean-energy-future https://www.nationalgrid.com/sites/default/files/documents/NGAR18_1_FullReport_Web.pdf

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