RWE Group is a German Multinational Energy company headquartered in Essen, German. It was founded in 1898. It generates and trades electricity in Europe, United States, and the Asia Pacific. The Company has four distinct divisions RWE Renewable, RWE Generation, RWE Power, and RWE Supply & Trading (RWE, 2021). The Company’s significant presence in Europe RWE Renewable generates electricity from onshore and offshore wind farms, photovoltaic plants, and battery storage systems. RWE Generation produces power from gas, hard coal, hydro, and biomass. RWE Power has power from lignite, and nuclear energy RWE policy in the future is the generation of renewable energy. They want to sustain the global need for energy utilization in times of climate awakening. Porter’s five forces model is used to oversee threats and Opportunities Company is exposed to.
Competitive Rivalry in the Market
Energy production and distribution is a profitable business and can be very rewarding. The services offered by utility companies are commodities. The demand for energy in recent times has seen unprecedented growth. The business sector provides an opportunity for State and Private Entities to expand the business because of decent revenue. The Company faces competition among European utility providers. Due to major multinational companies in Europe, the competition is intense. RWE’s major competitors are Enel and E.ON. RWE posted annual revenue of $ 13.688 billion in 2020 (Statista, 2021). Enel earned a yearly income of €19.9 Billion for the year 2019 (Enel, 2021). E.ON made an annual revenue of $ 46.861 billion (Fortune, 2021). Due to multinational companies’ presence, there is intense competition.
Threat of Substitutes
The energy industry is changing due to the concern of climate change. The activist is forcing the companies to abandon fossil fuel plants and turn towards renewable energy resources. The utility of energy has grown exponentially & consumption patterns are evolved. The switch from fossil fuel-based companies to renewable is changing the landscape. The traditional energy producers are facing threats from renewable energy producers. RWE Renewable is the leading renewable energy company in the world. It is planning to be carbon neutral by 2040. The Company has already decreased its greenhouse gases by half from 2012 to 2019 (RWE, 2021). The Company is innovating and trying to produce renewable energy at a sustainable cost. Energy is required as a commodity, but its production method is changing. So the threat is against them is minimum as long as the Company keeps investing in renewable energy products. TT
Threat of new Entrants
Energy production acts as the backbone of the country, and whole countries depend on their product. It makes that sector highly regulated and strict compliance for day-to-day operation. The high initial capital investment and hiring of expert human resources make it impossible for the new entrants. Today’s important variable is the rigor regulators have applied in fulfilling their regulatory responsibilities, making the regulatory environment very complex and severe, leaving the energy companies grappling with ways to demonstrate, document, and report compliance (Metricstream, 2021). There is intense competition in the industry. Considering the state of competition, profit margins, and compliance, and capital requirement threat of entrants remains low.
Bargaining Power of Buyers
Energy is a commodity required by everyone. The buyers can exert any power because they don’t have anything to bargain for. The buyers of the energy utility company are commercial entities and domestic users. Buyers exercise higher bargaining power if there are available options. Suppose they can backward integrate themselves to make their product (Porter, 1979). The state-provided subsidy is the only leverage buyer gets, either in tax relief or bill reduction. Commercial users get subsidies from the state. An individual can’t opt for solar power, and it also requires higher initial capital. States can exert their power to bring the tariff down from companies. Considering the available facts, buyers have no or low bargaining power.
Bargaining Power of Suppliers
The suppliers hold high bargaining power if they can provide unique products, and there are few suppliers. The supplier can reduce the Company’s profit if there are many buyers of its products (Martin, 2019). A lesser number of suppliers provides them higher power. Businesses hold more power if there are multiple suppliers. Suppliers, in this case, are the distribution companies. Companies offer the product to the consumer. The suppliers can reduce the profit margins of the utility companies by driving the cost up. If the utility distribution company has vertical integration, then they use that to their advantage. Large companies have a vertically integrated supply chain that protects them from supplier’s risk. If the Company does not have vertical integration, then suppliers hold high bargaining power and vice versa.
References
RWE. (2021). The Group. Available at: https://www.group.rwe/en/the-group
RWE. (2021). Who we are. Available at: https://www.group.rwe/en/the-group/organisational-structure/rwe-renewables
Metricstream. (2021). Regulatory Compliance – Creating an Enterprise Roadmap for the Power Industry. Available at: https://www.metricstream.com/insights/Regulatory_compliance_power_industry.htm
Fortune. (2021). E.ON. Available at https://fortune.com/company/e-on/global500/
Enel. (2021). Enel 2020 preliminary results, ordinary Ebitda at 17.9 billion euros in line with 2019. Available at: https://www.enel.com/media/explore/search-press-releases/press/2021/02/enel-2020-preliminary-results-ordinary-ebitda-at-179-billion-euros-in-line-with-2019
Statista. (2021). RWE’s revenue from 2008 to 2020. Available at: https://www.statista.com/statistics/263477/revenue-of-electricity-provider-rwe-ag/
Porter., E. M (1979) How Competitive Forces Shape Strategy. Available at: https://hbr.org/1979/03/how-competitive-forces-shape-strategy
Martin., M (2019) How Porter’s Five Forces Can Help Small Businesses Analyze the Competition. Available at: https://www.businessnewsdaily.com/5446-porters-five-forces.html