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Case Analysis

1090 words - 5 pages

Case Analysis
Luotang Power Company

Background
Luotang Power Company is a 600 Mega Watt coal-fired power plant, located in Hubei Province, China, the parent company of which is China Hua Tong Power (HT Power). The major business is to generate electricity by coal burning and sell it to Hubei Provincial Power Company (HPPC), the major customer which is the only power transmission and distribution company in Hubei Province. Whereas the coal is purchased from Pindingshan Coal Company who is required to supply low sulfur bituminous coal that meets certain quality specifications. Regardless of the improved plant availability and fuel economy, the company wasn’t performing well for the ...view middle of the document...

Technological aspect:
With the improvement of technology, both the plant availability and fuel economy were improved, which led to the increase of production. However, new technology also facilitates the shift from traditional energy sources to renewable energy sources.
Environmental aspect:
Despite a coal burning power plant, Luotang was to be one of the least polluting coal power plants for the size in the country. Meeting the Chinese standards as well as the World Bank Standards, Luotang is doing well at reducing environmental concern.

Overall, the Chinese electricity market had total revenues of $425.8 billon in 2011, representing a compound annual growth rate of 14.5% between 2007 and 2011. The market is expected to grow further in terms of value with moderate but rather steady growth rates throughout the years up to 2016.

Microeconomics analysis
Porter’s 5 Forces Model is used to analyze the current business environment of Luotang Power Company.
Supplier:
According to the contract, Pindingshan Coal Company was required to supply low sulfur bituminous coal that met certain quality specification based on coal extracted from its mines in the neighboring Henan province. Despite the relative stable price of coal, the quality was actually declining. Lower heat content combined with higher water content coals were sending to the company, resulting in more coal consumed per net electricity generation. (Appendix3) However, Pindingshan is not the only player in the coal mining industry. Yanzhou Coal Mining Company Limited and Shanxi Lu’an environmental energy development Co., Ltd are also supplying coal in the nearby area, thus reducing the bargaining power of Pindingshan. (Appendix2)
Customer:
The major customer of Luotang is Hubei Provincial Power Company (HPPC), which is a state-owned power transmission and distribution company regarded as a monopoly in the province. Thus the bargaining power of HPPC is high as to the electricity price and the quantity to purchase. Unfortunately, its demand for electricity had fallen dramatically over the previous 12 mouths, thus posing a threat to Luotang.
Competitors:
HPPC has many of its own electricity generating units across Hubei province. Meanwhile there are more than 60 electricity-generating companies of all sizes in Hubei Province, among which the famous Three Gorges dam project alone has a capacity of 22500 MW. This to some extent limits the future growth of Luotang project.
New entrants:
To tackle the greenhouse gas...

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