Porter’s Five Forces Analysis of Energy Industry 

The energy industry outlines all those businesses and companies dealing with the production and sale of energy. It comprises various processes like fuel extraction, refining, production and manufacturing, and distribution of energy. Today, we’ll discuss Porter’s five forces analysis of Energy industry; bargaining power of suppliers and buyers; threat of new entrants and substitutes; and intense rivalry as competitive forces in strategic management.

Types of energy and sources in Energy Industry

• Fossil fuel
• Petroleum companies
• Coal industries
• Natural gas extraction
• Electrical power industry
• Nuclear power energy
• Sustainable energy
• Renewable energy
• Alternate energy
• Solar energy
• Wind power energy

Statistical facts and figures of Energy Industry

• Energy consumption – 604.04 EJ
• CO2 emission – 36.8 GtCO2
• Global renewable energy capacity – 3372 GW
• Renewable energy consumption 45.18 exjoules

Top companies in the Energy Industry

• Total Energies
• Conoco Phillips
• Exxon
• Vestas
• BP
• Chevron
• Iberdrola
• NextEra Energy
• Common Energy
• Equinor
• Suncor Energy
• GE
• Duke Energy

Porter’s five forces analysis of Energy industry would analyze the bargaining power of suppliers and buyers; the threat of new entrants and substitutes; and intense rivalry as competitive forces in strategic management. Here’s Energy industry Porter’s five forces analysis of petroleum and renewable energy business as follows;

Porter’s Five Forces Analysis of Energy Industry

Let’s discuss Porter’s five forces analysis of Energy Industry as competitive forces in strategic management and they’re as follows;

Bargaining Power of Suppliers in Energy Industry

The bargaining of suppliers is Moderate in the Energy Industry as competitive forces in strategic management. Some of the main factors impacting the bargaining power of suppliers in the Energy Industry Porter’s five forces analysis of petroleum and renewable solar and wind energy business are as follows;

I-Variant Suppliers

Coal and gas companies, renewable energy sources, and hydroelectric power are the main suppliers in the Energy Industry. Their concentration of energy suppliers is different in various parts of the world. A higher number of energy suppliers would decrease their bargaining power and limited suppliers would increase their bargaining power. For instance, energy suppliers have lower bargaining power in China; their bargaining power is higher in India, Bangladesh, Pakistan, and other African countries.

II-High Switching

The energy supplier switching cost is dependent on multiple factors; availability of suppliers, infrastructure cost, and availability. When multiple energy suppliers are available and they have established infrastructure, then the switching cost is lower. Otherwise, it is much higher.

III-Forward Integration

Many companies in the Energy Industry move toward forward integration by owning and performing retail distribution of energy to the end consumers. When a company engages in forward integration, then it has significant bargaining power and decides the terms and conditions.

Bargaining Power of Buyers in Energy Industry

The bargaining of Buyers is low to moderate in the Energy business as competitive forces in strategic management. Some of the main factors impacting the bargaining power of suppliers in the Energy Industry five forces analysis of petroleum and renewable solar and wind energy business are as follows;

I-Limited Energy Providers

Generally speaking, energy companies are limited in numbers globally. However, the ratio is different in various countries. For instance, there are multiple energy companies in the US and Europe, and limited and very few in the 3rd world and developing countries. In the case of a higher number of companies, customers would have higher bargaining power because the customer has multiple alternative options available to them. Otherwise, the bargaining power is lower when there are few energy companies.

II-High Switching Cost to Renewable Energy

If a customer moves toward renewable sources of energy, then the energy company switching cost is much higher. They have to spend a lot of capital resources to procure solar panels, batteries, cables, appliances, and other relevant tools and equipment. Collectively, it becomes a significant amount of heavy expense, and it decreases the switching cost.

Threat of New Entrants in Energy Industry

The threat of new entrants is low in Energy industry as competitive forces in strategic management. Some of the main factors impacting the threat of new entrants in the energy industry five forces analysis of petroleum and renewable solar and wind energy are as follows;

I-High Initial Cost

When it comes to launching the energy company, then it requires heavy capital investment. It would be in the form of mega infrastructure, mass-scale production units, countrywide network, marketing, and distribution costs and expenses. All of these factors decrease the threat of new entrants.

II-Regulatory Compliance

Along with heavy initial investment, energy companies have to comply with government regulations and get approval and license from the energy regulatory department. Meeting their legal requirements amplifies the regulatory cost to a great extent. Often, it comes in the form of bribing politicians and bureaucrats in some countries; otherwise, you won’t get approval.

Threat of Substitutes to Energy Industry

The threat of substitute products and brands is moderate in the Energy industry as competitive forces in strategic management. Some of the main factors impacting the threat of new substitutes in the energy industry five forces analysis of the energy industry or petroleum and renewable solar and wind energy business are as follows;

I-Multiple Energy Alternative

It is no doubt there are multiple energy options are available to customers worldwide. They have the option to easily switch from one energy company to another. However, if the customers could afford renewable energy substitute sources, then they should take advantage of the situation. Otherwise, the substitution threat is lower for the customer market, where the buying power of customers is lower.

Competitive Rivalry in Energy Industry

The competitive rivalry among Energy companies is very high in the Energy industry as a competitive forces in strategic management. Some of the main factors impacting competitive rivalry in the Energy Industry five forces analysis of petroleum and renewable solar and wind energy business are as follows;

I-Competition

Technological development and mass-scale production of solar panels are increasing the competitive rivalry among energy companies. They all offer the same type of energy service, and it has made the energy market highly competitive.

Conclusion: Energy Industry Porter’s Five Forces Analysis |5 Forces Analysis of Energy Industry

After an in-depth study of Porter’s five forces analysis of the energy industry; we have realized that Energy Industry is the world’s top-growing business. If you are learning about the Energy industry 5 forces analysis of petroleum and renewable solar and wind energy business; then you should keep in mind the abovementioned bargaining power of suppliers and buyers; threat of new entrants and substitutes; and intense rivalry as competitive forces in strategic management.