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Bayernwerk Ag: Responding To Deregulation Essay

2224 words - 9 pages

BAYERNWERK AG: RESPONDING TO DEREGULATION

Describe the power industry's value chain. In 2010, what are the current trends in the industry and how could this change the value chain in the future?

Electricity Value Chain

Distribution Chain

Electricity Value Chain

Generation:

The power industry value chain begins with a source of energy, such as nuclear power, lignite, hard coal and gas. Due to increasing environmental consciousness, renewable energy such as wind power and biofuel has gained importance. Before 1998, 8 interconnected, supraregional companies controlled 79% of generation part of the value chain. Due to the Energy Law which deregulated the power market, suppliers were forced to eliminate overcapacities and increase efficiency of their internal cost structure.

Electricity Trading:

Power suppliers sell electricity via marketplaces to sales companies or to major resellers. A portion of power supplier's generation goes directly to the company's own sales units. The price paid by the sales units is determined in the marketplaces.

Sales:

Private people and industries sign delivery agreements with the different power suppliers at the sales stage. Prices are regulated via various types of agreement between sales companies and customers.

Distribution Chain

Transmission:

The national grids are the large high-voltage networks that transport large volumes of electricity over longer distances. In most countries national grids are state owned, while in Germany they are owned by the electricity companies since the time that the Energy Law was passed. Before this, 79% of the transmission was controlled by eight interconnected, supraregional companies.

Distribution

Regional and local electricity networks transport electricity to end- customers. Bayernwerk AG and other large players share the market with regional and local network companies. Before the deregulation, these distribution channels had largely been insulated from competition. 33% of the distribution was controlled by the big eight, 36% was controlled by regional utilities, and 31% was controlled by local utilities.

This has changed, and as a result of a decade or more of R&D, the gas industry has new commercial products ready for the customer base. Many compete with products driven by electricity. In the new energy value chain, the consumption of electricity deserves special attention. Because of competition and deregulation, a whole new area of energy services has sprung up around electricity consumption. Many enthusiasts look to a new concept, a distributed power network, to revolutionize how electricity is produced, bought, sold, and used. The supply is now directly related to the demand, which in turn is dependent on the customer requirements and preferences. In the power industry one supplier's product is to a large extent indistinguishable from another's. The one...

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