Essay On Electricity Industry

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INDUSTRY OVERVIEW
Electricity industry is one of the fastest growing industries in Australia. Any electricity industry essentially comprises of electricity generators, transmission and distribution networks and retailers, who facilitate final sale of electricity to the end consumers (industry, households, etc.). Electricity industry in Australia has shown a very robust revenue growth year on year. The Australian electricity industry has undergone huge transformation in the past two decades. Regulatory barriers to the interstate trade have been removed in phases. (Australian Energy Regulator)
Despite a slight decline in consumption volumes, the Australian electricity market exhibited strong growth in value during the 2008-2012 period. The Australian electricity market had total revenues of $41.2bn in 2012, representing a compound annual growth rate (CAGR) of 12% between 2008 and 2012. (MarketLine Industry Profile, February 2014).

MARKET DEFINITION
The retail market is the final link in the electricity supply chain. This market accounts for almost 70 % of the total electricity market revenue of Australia. The electricity retail market consists of the sale of electricity to industrial, commercial, household, transportation, and other end-users, including agricultural users.
In Australia, the industry is dominated by four large energy retailers that account for over 75.0% of industry revenue combined. The figure below gives the percentage of market share occupied by the four major industry players.

Figure-1: Electricity Retail Market share (Finch, 2013)
We would confine our Porter’s five force analysis only to the state of Victoria. The idea is to analyze the five forces in a relatively competitive market. In Australia, almost eve...

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...han the retail price of the electricity, the shifting of customers entirely to the rooftop solar systems in order to meet their electricity demands seems highly unlikely.
Alternatively, for residential and some commercial buyers, natural gas is often the main substitute. However gas is not a complete substitute as it can only be used for heating and cooking, and there are switching costs associated with the transition from all -electric to dual-fuel household. This makes the cross price elasticity of demand for gas very less.
Overall, the threat of substitutes is very weak. However, the impact of declining cost of solar technology cannot be neglected. If the government incentive schemes on installation of renewable energy persist, one of the biggest threats that the industry would face is that households may cut them out of the electricity supply chain altogether.

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