STRATEGIC ANALYSIS OF EDF ENERGY, THE UK BASED COMPANY.

Chioma Pamela Nwuruku

6238104

STRATEGIC ANALYSIS OF EDF ENERGY, THE UK BASED COMPANY. INTRODUCTION EDF Energy EDF Energy is one of the largest energy supplying companies in UK. It was formed in 2002 following the acquisition and merger of SEABOARDPLC, London Electricity PLC, SWEB Energy and some coal and gas power stations. They are in charge of supplying gas and electricity to most UK homes and businesses. They are an integrated branch of the EDF group, which generates about 1/5th of UK electricity. In 2011, they retained their potion as the largest UK generator of electricity and the largest generator of low carbon [Cornwall Energy Association Report-Published Q4, (2011)] EDF generates electricity using fossil fuels, wind, and nuclear and renewable energies. EDF energy consists of three main business units: Nuclear Generation, Nuclear New Build, Energy Sourcing and Customer supply. The Nuclear Generator (NG) are in charge of operating and maintaining eight nuclear stations in United Kingdom. It has a capacity of approximately 9000mw electricity. The Nuclear New Build (NNB) are in charge of delivering the new generation of the nuclear plant. The Energy sourcing and Customer Supply (ESCS) runs the power station and wind farms, they sell and buy power. They are in charge of customer handling and small business.

AIM AND SCOPE OF REPORT This report is going to analyse strategically, the UK based EDF Energy Company. The analysis would be broken down to virtually Macro-environment analysis Micro-environment analysis Internal analysis

A summary of the findings using SWOT analysis.

MACRO- ENVIRONMENT ANALYSIS

Going through this analysis would help to identify the factors that are outside EDF Energys control but affect it nonetheless whether directly or indirectly. It would also help to spot out the opportunities that can be taken advantage of. This analysis is done using PEST (political, economic, sociocultural, technological) analysis tool. PEST is an acronym for political, economic, sociocultural, and technological, which are the four factors that would be considered in this Macroenvironment analysis. POLITICAL Energy is a major issue politically in UK. There are many speculations and buzz on how much carbon emission is out there and how secure the supply of energy is. With the escalating demand in energy from emerging economies, there is equally a rise in competition for Energy supplies. It is typical that we consider the political factors that may affect EDF Energy as the leading Energy Supply Company in UK or factors that may be taken advantage of to further improve. These factors include; Security of UK Energy supplies: Security of Supply can be defined as a guarantee of supply of goods and services sufficient for a Member State to discharge its defense and security commitments in accordance with its foreign and security policy requirements. In the energy case in UK, the UK energy supply is become more and more depended on the production from UKs offshore oil and gas industry, which has gradually depleted creating a vulnerability to escalating price and shortage of supply. Also, the countries with which UK sources are based on can be under political unrest, which would affect the supply to meet UKs high demand of energy. Because of this dangerous mix of high demand of energy and depleting supply, the price of fossil fuel may be driven up a lot.

International competition for energy: With its production of oil and depleting, UK has to compete in the international energy market. With countries like china, India with rapidly growing encomias, the struggle for energy supplies at the international level is harder than ever and that is because these countries have a large appetite for energy and have a great influence in the market and with the energy suppliers. Change in climate: As of 2013, Carbon emission is seen as the major threat to the ozone layer and thus perceived as the basic cause of the climate change. This puts a strain to Energy Companys and their production of fossil fuels. The UK government is determined in finding alternatives to burning fossil fuels and concentrate on clean renewable energy. As of recent, companies have to pay for the carbon emission they release to the atmosphere. The UK government is promoting initiatives to reduce co2 at all cost and investing in energy saving product. This has affected the economy an thus climate change is now the topic of many political debate and its reduction is now negotiated internationally. Potential terrorist attacks: The power stations and pipelines are the number one target in case of a potential terrorist attack in the UK. The main threats are from countries that do not agree with UK foreign policies like military units from middle east and attacking the gas pipelines and power stations wouldnt not online affect lives but its a good way to cripple the UK economy. Because of this, the UK government would be triggered to create more and more nuclear stations etc. all these would disrupt the supplies to UK energy companies. Planning Consent: UK energy companies now require consent for infrastructure projects from the government. There are also changes that would streamline decisions on energy companys infrastructures

ECONOMICAL Global economic downtown: Because of the global crisis in the economic sector, banks including those in the UK have limited the way they loan and invest in companies. And this has put a strain in the energy companies in UK, who especially by 2020 would need a lot of investment for the infrastructures and difficulty in getting the banks to loan and investment would delay future projects or cripple them. Investment in Infrastructures: In order to provide an efficient and equally sufficient service in the long run, the uk energy market has to make huge investments in infrastructure all over the industry. To generate, new nuclear power stations need to be built, renewable energy projects need to be funded for. To transmit, new renewable energy plants are need, the gas sector needs efficient storage units, in distribution; the maintenance has to be monitored meters are being dispatched to homes. So it is evident that huge investment is needed in the UK energy sector to improve efficiency and reliability. Tax Reduction: SOCIAL: Social factors that may affect EDF are self explanatory. Factors like ; Rising energy prices Reduced carbon emission Microgeneration Energy supply security Marketing of gas and electricity

TECHNOLOGY Renewable energy: Technological challenges would be faced as emerging projects in the renewables energy sector is required. The renewable energy market is gradually expanding and wind farm amongst other renewable energy sources would have to be built to keep up with this demand. Carbon capture and storage: EU legislations has limited the extent to which power stations can be used without a realistic reduction in the carbon emission. The technology used to capture carbon (CSS) is a necessity and should be considered. Smart meters: Extensive work needs to be put out to give consumers information at which they consume energy. That is where smart meters come in handing, these devices can be used to measure and control how much energy comsumers use. The UK government has required the usage of these smart meters in all UK homes by 2020.

MICRO-ENVIRONMENTAL ANALYSIS
Porters five forces is a tool for internal analysis that can be used in this scenario. This would help to narrow down the environment and limit it to EDFs micro surrounding and how it interacts with it. To do this, questions need to be answered. Competitive rivalry: This is the competition that already exists and EDF Energy is already facing right now. In the UK, there are 6 major energy providers and they are the most prominent leaders of the market EDF, BritishGas (centrica) , E.ON, Scottish power, Scottish and southern energy, Npower. Basically these six are the major competions for EDF right now. Although there are other small energy companies like Ecotricity, first utility, Sainsbury energy etc. The profit of these big 6 for 2011 can be shown in the graph [http://www.consumerfocus.org.uk/files/2011/07/Big-Six-profits-2006-2010Excel.xlsx]

Threat of new entrants: This is about potential competitors, companies that may spring up in the future and compete but are not set now. Industries with low barrier to entry face a higher threat. Although the barrier is high, we find that new smaller energy companies mostly those that are green and pro-renewable and those offering smarter meter- spring up now and then over the years. One thing to notice about this market is that the larger companies ie the big 6 are in some way vertically integrated with interest in generation. So although there are smaller companies that may spring, theyre not seen as potential threats nevertheless they shouldnt be overlooked. The main barriers to entry in the energy industry are: Delivering government policy Access to wholesale energy supplies Low margin expectations Complexity and regulatory burden Frequent network changes Scales economics

Threat of substitute products: This is about the alternative/substitute products that another company might provide that meet the same needs as EDF energy to the customers. It should serve as a form of awareness about what other companies are offering that may not directly be EDFs competition. There are no main known substitute products out there because EDF energy is a large group that covers basically all their customer needs. It delivers gas and electricity to its customers, hence it is very difficult to find substitute for this.

Bargaining power of buyer: A lot of customers need and want gas and electricity. EDF supplies electricity and gas to a round up of 5.5 million user (both residential and business) in the uk. By volume it can be seen as the largest supplier of electricity in the UK. With prices soaring higher than ever lately, a lot of buzz about switching energy suppliers have been heard. But how easy is it really to switch supplier? What is the bargaining power of the buyer? Although there are other energy suppliers, a recent survey by BBC watchdog shows that its not really easy to switch energy suppliers becos of reasons like cancellation fees, delays in instalment, paper work, double billings etc. Bargaining power of supplier: EDF energy gets the bulk of its supply from own UK power stations and some are bought from independent power generators. Since EDF produces energy mainly from nuclear power station and they own their own PowerStation, they do not have any threats of suppliers having a lot of bargaining power over them. (they are also vertically integrated with the option of self supply.)Although in cases like fossil fuels, where EDF trades on the gas market, as they do not have gas fields, the bargaining power of the supplier is high hence the price fluctuations in gas prices.

INTERNAL ANALYSIS
EDF Energy is known as the largest electricity in the UK with approximately 5.5 million customers including business and domestic. EDF deals mostly with nuclear energy with a total of eight nuclear plants capable of producing 9000 mega watts of electricity. Not only does EDF produce electricity but it also distributes/ supplies it. Even though the company doesnt have its own gas field, financial reports have shown that it gets the bulk of its revenue from electricity dealership. EDF Energys core competencies are its efficiency in its nuclear power sector. The EDF group in France from where EDF Energy UK comes from is the biggest nuclear power generator in the world.

SWOT ANALYSIS. This takes a look at EDF Energys internal and external factors, positive and negative and lays them out in an easy to analyse format.

POSITIVE
WEAKNESSES

NEGATIVE

STRENGTHS 1. Good customer knowledge. 2. Customer resilience to change: habit to subscribe to EDF. 3. Monthly quarterly bills facilitate marketing efforts. 4. Knowledge of and access to state of the art technology. 5. Financing capacity. 6. Vertically integrated structure. 7. Brand name.

1. Communication

and

reaction to customer needs is slower than smaller companies. 2. Unplanned outages 3. Dependency on thermal generation I N T E R N A L

OPORTUNITIES 1. Significant margin for improvement with regards to end use energy efficiency 2. Inovational opportunities with regards to reduction of carbon emission 3. Access to state of the art technologies monitoring appliances. 4. Contribution to the dematerialization of economy by offering services that enable decoupling. of enabling electric

THREATS 1. Risk offered 2. Opening of market to competition share. 3. New 4. Recession laws and will diminish EDF market E X T E R N A L of competitors service imitating

regulations.

BCG MATRIX
When a business has numerous product lines all operating at the same time, it is important to know which lines are helping grow and those that are holding it back. BCG matrix helps in identifying that by comparing product lines market share and the product lines market growth. The three EDF business units are placed in the bcg matrix as below. STAR QUESTIONMARK

NUCLEAR NEW BUILD

NUCLEAR GENERATION CASHCOW DOG

ENERGY SOURCING AND CUSTOMER SUPPLY

CONCLUSION EDF Energy has been made successful over the years, since 2003

following a series of mergers and acquisition which include; London electricity,SWEBB supply business ,Sutton bridge power station and so on. [http://www.edfenergy.com/energyfuture/edf-energys-approach-about-edfenergy/edf-energys-history]. One notable acquisition was made in 2009 when EDF acquired BE (British energy) which made EDF one of the largest energy company in UK and also no1 uk electricity producer. EDF also partnered with Centrica in the nuclear sector giving Centrica a 20% stake in the companys nuclear power stations. Following the footsteps of its parenting company, EDF has efficiency In nuclear handling and that is its core competence. Although as a French company, EDF isnt listed in the London stock exchange, it aims to maintain standards and principles as those companies listed in the exchange.

REFERENCE 1. Cornwall Energy Association Report-Published Q4, (2011) 2. http://www.consumerfocus.org.uk/files/2011/07/Big-Six-profits-2006-2010Excel.xlsx]

3. http://www.edfenergy.com/energyfuture/edf-energys-approach-about-edfenergy/edf-energys-history]. 4. Case No COMP/M.5224 - EDF / BRITISH ENERGY Article 6(2) NON-OPPOSITION Date: 22/12/2008

5. Mergers and acquisitions in the European electricity sector: cases and patterns (PDF, pages 4044; Centre d'conomie industrielle) 6. UK Power Networks Services the new name in infrastructure projects
(PDF, page 1; UK Power Network Services) 7. Nuclear development in the United Kingdom (World Nuclear Association) 8. Drejer, A. 2002, Strategic management and core competencies: theory and application, Greenwood Publishing Group 9. EDF Energy, No Date, Key figures, [Online] Available at: http://www.edfenergy.com/sustainability/performance-report/economic/keyfigures.shtml [Accessed on May 06, 2010] 10. EDF Energy-a, No Date, About EDF Energy, About US, [Online] Available at: http://www.edfenergy.com/about-us/about-edf-energy/index.shtml [Accessed on May 06, 2010]