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Availability of power is one of the most important ingredient of industrial growth and prosperity of the country as a whole. Before 2001 the power sector in the country was completely owned by the public sector and the companies were on the verge of bankruptcy. This led to the emergence of private player in this market thus increasing competition in this sector.
The three major sources of power generation are thermal, hydro and nuclear. India is the sixth largest producer and consumer of electricity in the world equaling the capacities of UK and France combined. The number of people connected to the Indian power grid exceeds 75 million. But the pace at which India is planning to grow in the near future will demand huge GW of power and the scope in this sector is immense.
But even after so much growth in this sector India still remains a power hungry country. The dominant source of power in India is thermal power which accounts for 64%% of generated power. Other modes of power generation accounts for only the rest 25% which include hydropower, nuclear power, biogas energy, wind power etc. Although the other modes of power generation has made much improvement since 1998 when it contributed to 25% of generated power to that of the year 2008 when it contributed for 36% of generated power.
Despite the rise in the installed capacity there has been significant shortage in the country. This shortage is mainly due to poor financial condition of the SEBs as a result they cannot increase capacity as planned. Also most of the projects in the private sector are also delayed owing to high fuel cost, delay in obtaining clearance from the CEA, roadblocks in achieving fuel linkages etc.
Over the last eleven years the dependence on thermal power has reduced from 75% to 64%. This reduction is mainly facilitated by the growth of hydel power and to some extent nuclear power.
Current installed capacity of Thermal Power (as of 12/2008) is 93,398.64 MW which is 64.7% of total installed capacity.
Current installed base of Coal Based Thermal Power is 77,458.88 MW which comes to 53.3% of total installed base.
Current installed base of Gas Based Thermal Power is 14,734.01 MW which is 10.5% of total installed base.
Current installed base of Oil Based Thermal Power is 1,199.75 MW which is 0.9% of total installed base.
The state of Maharashtra is the largest producer of thermal power in the country.
The main advantage of thermal power is low cost of generation and still the abundance of coal makes it a dominant mode of power generation. The biggest disadvantages of the thermal power is long gestation period, emissions of carbon-dioxide and other oxides of sulphur along with lack of flexibility of operation.
Thermal power generation in India in last 20 years
If we analyse the generation of thermal power we can see that the industry output has grown with certain jerks that it received in certain years like 1998-99, 2004-05 etc. In these years the industrial output had suddenly increased immensely as is evident from the graph.
Power generation in India in last 20 years
This is the trend of generation of power in India based on all sources. If we compare these two graphs we can see that the power generation has also grown in a similar pattern as the thermal power sector. Based on this two graphs we can conclude that the generation capacity in India is largely driven by the thermal power sector. Growth in the thermal power sector triggers growth in the entire power sector and fall in the thermal power sector triggers fall in the entire power sector.
Industry life cycle:
The industry life cycle for the thermal power sector can be analyzed broadly on the basis of 6 selected parameters. These parameters give us an idea to determine which part of the life cycle the industry currently is in. These parameters are
Threat of substitution
Threat of entry
Power of complementors
Nature of competition
We will analyze each of these factors individually and finally try and conclude the position of the industry in the industry life cycle.
Threat of substitution:
From the graph, it is evident that over the years as the total power generation has grown no other modes of power generation has contributed substantially to the power generation as against thermal power. There are other viable substitutes like hydro power and nuclear power which is expected to have bright future. Although hydro power is an inexhaustible fuel source and viable source and generates useful levels of energy production but there are several disadvantages which has prevented the widespread use of hydro power for power generation. The biggest disadvantage is it involves high investment cost, hydrology dependent, involves inundation of land and wildlife habitat etc. These factors have prevented the growth of hydroo power on a large scale. Another mode of power generation, nuclear energy has the potential to become a source of large scale power generation. As India went ahead with their nuclear weapon program they have been deprived of civilian nuclear fuel for power generation. But after the recent nuclear deal there is a chance of increase of nuclear fuel substituting thermal power sector in the near future.in 2008 nuclear power accounted for 2.5% of total power generation in the country but the nuclear power has the potential to account for 25% of the power generated in the country in near future.
Threat of entry:
There are huge entry barriers for any other mode of power generation to enter. First of all it takes years of research and development to find viable alternative to power generation. Most of the modes of alternate sources of energy end up being a laboratory tool and finds very little industry application. That is why it is said that generation of power through alternative mode and having high industry acceptance is nothing less than a miracle.
Hence it can be concluded that in power sector threat of a new entrant is extremely high and hence it can be said that the barriers of entry are huge.
India is a coal rich country. It is the 4th largest coal producer in the world but recently India has to depend heavily on coal imports to feed their thermal power plants. This is mainly due to poor quality of coal and naxalite movement which is acting as a hindrance in using local coal. India's coal imports likely to touch 48 million tonnes in the next financial year.
Today there are huge numbers of coal suppliers in the country. Along with that the option of importing good quality coal from abroad has further reduces the bargaining power of the suppliers. Since a Thermal power plant has the option of buying coal from many suppliers the suppliers also compete among themselves to try and provide better quality coal at a cheaper price. Although in spite of this there have been instances where certain big names in the coal industry like the coal India does have high bargaining power which prompted NTPC to go for backward integration but huge availability of coal suppliers reduces this power for the suppliers.
Thus it can be concluded that supplier power for the thermal power industry is normally low.
India's electricity requirement is grossly under fulfilled. There is severe shortage of electricity in the country and the dream of 'electricity for all' seems a distant reality. If we look at the demand and availability position of electric power in various sectors of the country we can see that in all the sectors the demand is more than the supply.
Demand/availability in various sectors of the country in 2009
In this situation where the demand is so huge and there is severe shortage of supply the bargaining power of the buyer is expected to be very low. The buyers also do not have the option of selecting the mode of power (i.e thermal, hydro or nuclear) as this sector is highly regulated by the Government and license is given to only very few players in a particular sector to operate. Also this sector is mainly driven by public sector as a result competition among the players are lacking here. As a consumer his only demand is power and the mode of power is not the choice that he can make in the present scenario. Unless the Government run central and State electricity boards move towards other mode of power production this industry is free from any danger. As long as power is provided to all and the sector comes out from the Government regulation it is highly unlikely for the buyer power to grow here.
86.5% of power is generated by public sector
Power of complementors:
Nature of competition:
Power sector is India is a highly regulated sector. Here 64.6% of power is generated through thermal power plants and the rest is done through other means like hydro, nuclear, geothermal etc. The market is regulated and each sector is allotted to a few numbers of suppliers thus reducing the competition among the players. Mostly the state electricity boards and central players like NTPC are the primary players in the market. Although in some sectors some private players like reliance power, TATA power etc have made inroads but private players still just account for only 13.5 % of the industry.
Although Government is looking to relax the regulations to accommodate private players in the market as the public sector has failed to meet the demands but in the present scenario it can be concluded that the competition among the players in the industry is benign and the industry is far from being competitive.
Conclusion on the life cycle:
Based on the analysis of the six parameters we can come to a conclusion that the industry could be in the stage of growth in the present scenario.
We will be doing the analysis of the macro-environment with a help of PESTLE analysis. This is a widely used tool to enable the analysis of the macro-environment affecting the players of the particular industry.
The full form of PESTLE is as follows
We will analyse each factors one by one
Prior to 1991 the entire power industry was a Government monopoly which performed all the functions of generation, transmission, distribution and trading through a vertically integrated set up. With the advent of liberalization the Government began unbundling the generation, transmission, distribution and trading to separate entities and then came the a certain degree of privatization in this sector.
Still today the thermal power sector is highly regulated. The state electricity boards account for the highest generation of electricity followed by the central Government plants. This high degree of regulation has reduced the competition in this sector as in any sector there is mostly monopoly of one single player. High degree of Government regulation has also been the prime reason for so much of power shortage in the country. The lack of competition in this sector reduces the bargaining power of buyers to near zero. The lack of competition in this sector has also given rise to lackluster management practices as the companies fail to employ methods to reduce power theft, reduce transmission loss and improve power generation efficiency.
Many of the big cities in the country like Mumbai is supplied only by TATA power, Kolkata is supplied by RPG cesc etc. Government is slowly trying to reduce this regulation and allowing multiple players to operate in same segment. In Mumbai it has already allowed Reliance Infra and TATA power to supply power in the same segment. But such a scenario in the whole country is a long way to go.
Similarly this kind of Government regulation has been a boon for the state electricity boards of the country as they don't have to face competition from other players. The central Government owned NTPC Ltd is the largest producer of thermal power in the country but along with the largest producer it is also the most efficient producer of power. This is the competitive advantage of NTPC Ltd even if they have to face competition.
But the state electricity boards have also faced problems due to Government intervention. The state Government has constantly interfered in tariff setting without subsidizing the state electricity boards which have landed them into huge financial doldrums. Power supply to agriculture is highly subsidized but only a part of this subsidy reaches the state electricity boards.
As the industry operates in an environment where demand is much higher than the supply hence any economic downturn has failed to affect the sale of the product of the industry. Even during economic downturns, all the industries used electricity almost in similar quantities as it used before the downturn. Similarly during economic downturns individuals try to reduce electricity consumption but since the gap between demand and supply in this sector is so huge that this slight reduction in power usage does not affect the industry.
But this industry is not influenced by the impact of economy on its raw materials like coal, diesel and petrol. With the increase in price of coal, diesel or petrol, the cost of generation goes up thus increasing the cost of unit megawatt of power generated. But the factor that is in favor of the industry is that any player does not face competition from others as virtually they have the monopoly in their segment. This enables the player to increase the cost of the power generated thus negating its losses. Ultimately the increase in cost of the raw materials is borne by the end user and the players are insulated from any loss due to economic changes. Similar is the case during inflation. The rise in the cost of raw materials during inflation is passed on to the end customers thus keeping the industry insulated from economic downturns.
per capita consumption of power in india
But with the passage the time the income of the city population has been growing immensely. This high growth of income has enabled them to saturate their homes with heaps of electronic gadgets which are mostly power hungry. This increase on the sale of luxury products is increasing power consumption in the cities thereby increasing the ever increasing demand for power. This increase of demand encourages organizations to increase their power generation and efficient generation leads to higher profitability.
Social and cultural factors:
Social and cultural factors have very little impact on the thermal power sector. Power has become the basic need for people and it is hardly affected by any social factors.
Technological factors do have an effect on the players of this industry. With the passage of time new methods of power generation are coming up which are more sustainable as they are using the renewable sources of energy. In many parts of the country solar power have made certain inroads thereby snatching away market from the thermal power sector. Similarly with the latest nuclear deal with the U.S has risen a lot of hope of power generation through that route. This will further take away some market share from the thermal power sector. Even if we analyze the power sector over the last 20 years we can see that although the demand is very high in this sector but still among the marketed power thermal power share came down from 75% to 64.6% in 2008 which is quiet a dip. Similarly hydro power getting cheaper and more efficient over the period of time is also a threat to the thermal power sector. There are many other modes of power generation which do not have much presence in the market because of lack of technological development to make them feasible for mass use. These are like geothermal power, wind power, waste power etc which in future could be a threat to the industry if feasible and cheap technology is developed to tap these sources for mass scale power generation.
Although the basic mode of power generation in this segment is constant but certain organizations like NTPC Ltd, CESC Ltd, TATA power etc are constantly innovating to improve their technology to increase the efficiency of power generation. This improved technology is instrumental in increasing the efficiency of NTPC Ltd to such high level that they generate one fourth of the country's power generation but account for only one fifth of the installed capacity. The state electricity boards do not improve their technology at a fast pace and that is primarily the reason for their poor economic health in spite of being insulated from competition.
There have been many complaints against thermal power sector that it creates a lot of environmental pollution. Many activists have raised their voice against the pollution created by this industry. But the unavailability of any other sustainable and efficient mode of power generation has prevented ban on this mode of power generation.
Environmental laws have forced the players of this sector to go for clean coal. Clean coal results in significant reduction in environmental pollution but the cost of clean coal is much higher than that of ordinary coal. This reduces the profitability of the players. With the passage of time there have been several reforms that have taken place in this sector to make this sector more and more efficient. Reforms began in 1991with electricity laws (amendment) act, when this sector was opened to the private sector thus preventing the monopoly of the public sector. The government notification allowed the independent power producers (IPP) many incentives the most noteworthy among them was the guaranteed minimum 16% return on equity for the plants that operated at the rated capacity for 6000 hours in a year. Along with this they were given five year tax holiday. These were done to attract foreign and private investors in this market. With the passage of time the Government is passing many laws at the state level as the Government is now trying to move towards large scale competition among the players in the power sector. They are now starting to allow more than one player to operate in the same sector thus enabling competition among the players.
In the coming years legal factors will play a major role to regulate the performance of the players in this market. With the Government passing laws to enable many players to operate in the market and allowing high degree of competition the legal factors will be one of the major macro environmental factors that will control the profitability and performance of the existing players in the thermal power sector.
Thermal power is known to cause high degree of environmental pollution. It mainly causes air pollution, water pollution, land pollution and noise pollution. Of these the air pollution and land pollution are more severe. Also the basic raw materials used for thermal power generation are coal, petrol and diesel. All these sources are non renewable sources. These have prompted huge amount of money being investment in R&D to find alternative source of power generation which is feasible in the large scale and also used renewable sources of energy. Although hydro power, solar power etc seem to be viable alternatives but they lack dependability as compared to the thermal power.
Lack of viable substitute has been something which has been in favour of the thermal power sector. Till today thermal power is the only dependable source of mass scale power generation. This fact actually puts all the environmental considerations at bay. If hydro power or solar power can be used for mass scale power generation with greater dependability then thermal power will face severe pressure to survive.
Porter's five force model:
Porter's Five Force Model:
The model of pure competition implies that risk-adjusted rates of return should be constant across firms and industries. However, numerous economic studies have affirmed that different industries can sustain different levels of profitability; part of this difference is explained by industry structure.
Porter's model is based on the insight that a corporate strategy should meet the opportunities and threats in the organizations external environment. Especially, competitive strategy should base on and understanding of industry structures and the way they change.
Porter has identified five competitive forces that shape every industry and every market. these forces determine the intensity of competition and hence the profitability and attractiveness of an industry. The objective of corporate strategy should be to modify these competitive forces in a way that improves the position of the organization. Porter's model supports analysis of the driving forces in an industry. Based on the information derived from the Five Forces Analysis, management can decide how to influence or to exploit particular characteristics of their industry.
The original competitive forces model, as proposed by Porter, identified five forces which would impact on an organization's behaviour in a competitive market. these include the following:
The rivalry between existing sellers in the market.
The power exerted by the customers in the market.
The impact of the suppliers on the sellers.
The potential threat of new sellers entering the market.
The threat of substitute products becoming available in the market.
Understanding the nature of each of these forces gives organizations the necessary insights to enable them to formulate the appropriate strategies to be successful in their market.
Porter's Five Forces Analysis in Thermal Power Sector
Supply - Many projects have been planned but due to slow regulatory environment, the supply is far lesser than demand. Currently, India needs to double its generation capacity to meet the potential demand.
Demand - The long term average demand growth rate is 6%.
Barriers to Entry - Barriers to entry are high, as entering this business requires heavy investment initially. The other barriers are fuel linkages, payment guarantees from State Governments, Retail distribution licensed, etc.
Bargaining Power to Suppliers - It is not very high as Government controls tariff structure. However, this may change in the future.
Bargaining Power of Customers - Bargaining power of retail customers is low, as power is in short supply. However, Government is a big buyer and payment by Government can be more irregular.
Competition - It is not very high currently. The Electricity Act, 2003 will encourage investments, thereby increasing competition.
National Thermal Power Corporation Ltd. (NTPC)
National Thermal Power Corporation Ltd. (NTPC) a global giant in the power sector was set up on 7th November 1975, with an objective to accelerate the electricity generation by planning, promoting and organizing integrated development of thermal power in India.
Considering multidimensional opportunities in the energy sector, NTPC will adopt a multi-pronged growth strategy for capacity addition through Greenfield sites, expansion of existing stations, takeovers and joint ventures. The capacity addition plans that we have drawn up for the fifteen-year period using all the above strategies to enable the corporation to become a 40,000 MW company by 2012 A.D.
The total installed capacity of the company is 30, 644 MW (including JVs) with 15 coal based and 7 gas based stations, located across the country. In addition under JVs, 3 stations are coal based & another station uses naptha/LNG as fuel. By 2017, the power generation portfolio is expected to have a diversified fuel mix with coal based capacity of around 53000 MW, 10000 MW through gas, 9000 MW through Hydro generation, about 2000 MW from nuclear sources and around 1000 MW from Renewable Energy Sources (RES). NTPC has adopted a multi-pronged growth strategy which includes capacity addition through green field projects, expansion of existing stations, joint ventures, subsidiaries and takeover of stations.
NTPC has been operating its plants at high efficiency levels. Although the company has 18.79% of the total national capacity it contributes 28.60% of total power generation due to its focus on high efficiency.
National Thermal Power Corporation is the largest power generation company in India. Forbes Global 2000 for 2009 ranked it 317th in the world. NTPC is the largest power utility in India, accounting for about 20% of India's installed capacity.
BUSINESS PORTFOLIO GROWTH
To further consolidate NTPCâ€ŸS position as the leading thermal power generation company in India and establish a presence in hydro power segment.
To broad base the generation mix by evaluating conventional sources of energy to ensure long run competitiveness and mitigate fuel-risks.
To diversify across the power value chain in India by considering backward and forward integration into areas such as power trading, transmission, distribution, coal mining, coal beneficiation, etc.
To develop a portfolio of generation assets in international markets.
To establish a strong brand in the domestic & international market
To foster a collaborative style of working with customer growing to be a preferred brand for supply of quality power.
To expand the relationship with existing customers by offering a bouquet of services in addition to supply of power e.g. trading, energy consulting, distribution consulting, management consulting, management practices.
To expand the future customer portfolio through profitable diversification into downstream business, inter alia retail distribution and direct supply.
To ensure rapid commercial decision making, using customer specific information with adequate concern for the interests of the customer.
To ensure effectiveness in business decisions and responsiveness to change in the business environment by
Adopting a portfolio approach to new business development.
Continuous and coordinated assessment of the business environment to identify and respond to opportunities and threats.
To develop a learning organization having knowledge based competitive edge in current and future businesses.
To effectively leverage information technology to ensure speedy decision making across the organization.
To continuously improve on project execution time and cost in order to sustain long run competitiveness in generation.
To operate & maintain NTPC stations at par with the best-run utilities in the world with respect to availability, reliability, efficiencies.
To aim for performance excellence in the diversification businesses.
To embed quality in all systems and processes.
HUMAN RESORUCE DEVELOPMENT
To enhance organizational performance by institutionalizing an objective and open performance management system.
To align individual and organizational needs and develop business leaders by implementing a career development system.
To enhance commitment of employees by recognizing and rewarding high performance.
To build and sustain a learning organization of competent world-class professionals.
To institutionalize core values and create a culture of team building, empowerment, equity, innovation and openness which would motivate employees and enable achievement of strategic objectives.
To maintain and improve the financial soundness of NTPC by prudent management of the financial resources.
To continuously strive to reduce the cost of capital through prudent management of deployed funds, leveraging opportunities in domestic and international financial markets.
To develop appropriate commercial policies and processes this would ensure remunerative tariffs and minimize receivables.
To continuously strive for reduction in cost of power generation by improving operating practices.
To contribute to sustainable power development by discharging corporate social responsibilities.
To lead the sector in the areas of resettlement and rehabilitation and environment protection including effective ash-utilization, peripheral development and energy conservation practices.
To lead developmental efforts in the Indian power sector through efforts at policy advocacy, assisting customers in the operations and management of power plants etc.
RESEARCH & DEVELOPMENTS
To pioneer the adoption of reliable, efficient and cost-effective technologies by carrying out fundamental and applied research in alternate funds and technologies.
To carry out research and development of breakthrough techniques in power plant construction and operation that can lead to more efficient, reliable and environment friendly operation of power plants in the country.
To disseminate the technologies to other players in the sector and in the long-run generating revenue through proprietary technologies.
Introduction of steam generators (boilers) of the size of 800 MW
Integrated Gasification Combined Cycle (IGCC) Technology
Launch of Energy Technology Center -A new initiative for development of technologies with focus on fundamental R&D
The company sets aside upto 0.5% of the profits for R&D
Roadmap developed for adopting Clean Development
Corporate Social Responsibility
As a responsible corporate citizen NTPC has taken up number of CSR initiatives
NTPC Foundation formed to address Social issues at national level
NTPC has framed Corporate Social Responsibility Guidelines committing up to 0.5% of net profit annually for Community Welfare Measures on perennial basis
The welfare of project affected persons and the local population around NTPC projects are taken care of through well drawn Rehabilitation and Resettlement policies
The company has also taken up distributed generation for remote rural areas
All stations of NTPC are ISO 14001 certified
Various groups to care of environmental issues
The Environment Management Group
Ash Utilization Division
Centre for Power Efficiency & Environment Protection
Group on Clean Development Mechanism
NTPC is the second largest owner of trees in the country after the Forest department
Partnering government in various initiatives
Consultant role to modernize and improvise several plants across the country
Disseminate technologies to other players in the sector
Consultant role "Partnership in Excellence" Programme for improvement of PLF of 15 Power Stations of SEBs.
Rural Electrification work under Rajiv Gandhi Grameen Vidyutikaran Yojana
SWOT ANALYSIS of NTPC
Strengths of NTPC
Largest market share in domestic power generation and a broad customer portfolio across the country.
Excellent track record of performance in project implementation and plant operation.
Diversified thermal generation portfolio - multiple sizes and fuel types.
Highly skilled and experienced human resources, exposed to state-of-the art technologies in project execution and power generation.
High brand equity among shareholders.
Strong balance sheet - ability to raise low cost debt.
Engineering skills in project configuration and package design.
Turnaround ability for old plants - demonstrated in the takeover plants of Talcher, Tanda & Unchahar.
High credit rating that is indicative of the confidence of lenders.
Thrust on reducing social costs of capacity growth - strong execution of Resettlement and rehabilitation plans.
Low risk-diversification of business portfolio consists primarily of generation assets.
Poor financial health of customers.
Functional orientation hampering cross functional perspective in decision making.
Long and multi layered procurement process leading to long lead times and process delay.
Fragmented IT architecture.
Gaps in HR systems such as performance management, rewards and incentives and career development.
Inadequate deployment of a strong knowledge management system that could assist in improving efficiency and effectiveness in all aspects of the business.
Hierarchy for decision making that affects responsiveness.
Role ambiguity and dilution within different lends of the organization.
Expand generation capacities by putting up thermal and hydro capacities; maintain the position of a dominant generating utility in the Indian Power sector.
Broad base fuel mix by considering imported coal, gas, domestic coal, nuclear power etc with a view to mitigate fuel risks and maintain long run competitiveness.
Backward integrate into fuel management to exercise greater control and understanding of supply economics.
Lead the development and commercial deployment of non-conventional energy sources especially in the distributed generation mode.
Improve collections by trading, direct sale to bulk customers and the active role in allocation in new plants.
Execute increased number of power plants that classify for Mega Power Projects status, thereby reducing the cost of the projects and power and power generated.
Limited experience of operating in a truly liberalized environment with competition.
Limited experience of operating in an independently regulated system.
Redirecting power may be constrained by inter-regional connectivity.
Downward regulatory and competitive pressure on tariffs.
Stringent norms for approval of increase in capital costs for projects in event of time overrun.
Stringent environmental norms in the future may add to the cost of generation.
Absence of an independent regular for coal industry and the delay in private investments lending to the risk of low availability of coal in the future
From the SWOT analysis various opportunities along with certain threats have been identified for NTPC. It is important for NTPC Ltd to leverage on the opportunities and also needs to deal effectively with the threats. Each point will deal with the business strategy that NTPC is employing to leverage on the opportunities.
To leverage upon the opportunity to generate electricity through the hydro power mode NTPC Ltd is following a business level diversification. Recent acquisition of NHPC Ltd is a strategy to leverage on the first opportunity that we have observed. By going for a business level diversification the company will be able to generate electricity through a more eco friendly mode and also the raw material used will be renewable sources of energy. With the world looking forward to eco friendly sources of energy it is all the more important for NTPC Ltd to diversify into a segment which possibly could be the future of power generation.
For the thermal power sector, the whole industry depends a lot on the quality of coal, petrol and diesel supply. In this kind of scenario the bargaining power of the supplier goes up tremendously. But the environment has opportunity to increase the supply base so that NTPC can insulate itself from the bargaining power of the supplier. NTPC follows the business strategy of supply base optimization or supply base rationalization by which it is increasing its supply base thereby ensuring that the bargaining power of the supplier is kept under check. They have imported good quality coal from overseas market also to leverage this opportunity.
There was a huge scope for NTPC to develop their own supply base by creating their own subsidiary which can act as their supplier. To leverage this opportunity, NTPC went ahead with their plans of backward integration by which in intends to play the role of the supplier of their own thermal power plants. This backward integration will enable them to have a more secure source of raw materials.
To leverage this opportunity NTPC is also working towards developing energy through non conventional modes like wind, solar, biomass etc. Renewable energy technologies provide not only electricity but offer an environmentally clean and low noise source of power.
NTPC has also formulated its' business plan of capacity addition of about 1,000 MW thru renewable resources.
India's ambitious growth plans require inclusion of all sectors, especially the rural sector where two third of our population lives. Such economic development cannot be achieved without availability of energy and subsequently efficient energy management which is crucial for rural development. As per census 2001, about 44% of the rural households do not have access to electricity. Some of the villages are located in remote & inaccessible areas where it would be either impossible or extremely expensive to extend the power transmission network.
The power trading arm of NTPC is the second largest in terms of market share in short-term trading. It also holds a minor stake in Power Trading Corporation, the largest power trader.
The company is already a seasoned player in operation and maintenance of power projects and is taking up projects for renovation and modernization and life extension for third parties. The company has recently formed a JV with BHEL for engineering and a forgings and casting JV with Bharat Forge to reduce equipment delays.
For this the company is following the strategy of forward integration.
Here NTPC Ltd is trying to follow the preemptive strategy. With the help of this strategy they are trying to make it impossible for any other player to match them on scale. With so much increase in scale they will also be able to attain economies of scale and the efficiency with which they operate they might make it impossible for any other plant to compete with them.
Dealing with threats:
Limited experience of operating in a truly liberalized environment with competition:
With private companies entering the power sector, NTPC is coming out of its comfort zone in the liberalized environment. However, NTPC still has the money power to grow more strongly in face of competition. The company has a debt: equity ratio of 0.64% for the year ended March 2009. NTPC had Rs 17,431 crore in free cash as of September 2009, enough to comfortably fund the equity for more than 15,000 MW of the planned 25,000 MW capacity (in addition to 17,900 MW which are in various stages of commissioning). Also, internal accruals continue to be high, the free cash will only grow further.  This will prove useful for the company to finance its backward integration into coal mining and to fund acquisition of mining assets.
Redirecting power may be constrained by inter-regional connectivity:
National and regional power grids are being established to enable transfer of power across regions with reliability. Also many joint ventures have come about to jointly solve the problem of inter region connectivity. For example, Power Grid Corporation of India Ltd, has signed a bi-lateral agreement with NTPC Ltd for turnkey execution of 44 km long 400 KV D/C Transmission line from Dadri to Loni at an estimated cost of Rs. 47 crores in June,2009.
Downward regulatory and competitive pressure on tariffs: Since power is a public utlity, the government regulates the prices so that they are in the best interest of the public. More so, with competitors entering the industry with better efficiency, costs can be pulled down much more in future as it would benefit the end consumer. In face of this threat, only option for NTPC is to increase its efficiency. NTPC has been doing this by continuously introducing sophisticated technology in its new projects. For example, NTPC is all set to adopt the new Ultra-supercritical steam cycle technology which achieves higher efficiencies than conventional boiler units, resulting in less coal use per megawatt-hour.
Stringent norms for approval of increase in capital costs for projects in event of time overrun:
Stringent environmental norms in the future may add to the cost of generation: NTPC has been developing various environment friendly projects since as early as 1995. Technologies are adopted with focus on low cost high benefit options.
Absence of an independent regulator for coal industry and the delay in private investments lending to the risk of low availability of coal in the future: As mentioned earlier, with addition of new technologies coal requirements are going to go down.
Additionally, by 2017, 20% of NTPC's coal requirement are expected to be met from captive sources and would ensure fuel security for their power projects. Besides, this would also help lower costs and improve the quality of coal supply. 
CORE VALUES -BCOMIT
The following are the core values practiced at NTPC:
C-Customer Focus (Internal and External)
O- Organizational and Professional Pride
M- Mutual Respect and Trust
I- Innovation and Technology
T-Total Quality for Excellence
The following are the competitive strengths of NTPC and the various measures being taken by the company to stay ahead of competition:
Leadership position in the Indian Power Sector: NTPC contributes to more than one fourth of India's power generation with less than one fifth capacity
Strong Cash Flows and Strong Balance Sheet: The company has strong cash fl.ows and access to easy availability of finance to fund its future growth operations, research and development expenses etc.
High Operational Efficiency of Coal Based Stations: NTPC operates its stations at a level of efficiency that exceeds the average in India, based upon availability factor (which is a measure of how often a station is available to generate power) and average plant load factor (PLF) (which is a measure of how much of its capacity a plant actually uses to generate electricity).The PLF of NTPC's coal-based stations is higher than the national average (around 89.43% as compared to a less than 80% average for the whole country). Since the plants are present across the country, it does not depend on any one circle for selling its power (unlike Tata Power and Reliance Energy).
Since more than 85% of the generation capacity of NTPC is coal-based, the cost per unit is much lower than the national average, which is a competitive advantage in itself.
Ability to turnaround underperforming Stations: NTPC has, over the years has turned around the performance of Badarpur, Unchahar, Talcher and Tandaeach using its corporate abilities. Business development through Acquisition serves both NTPC's own commercial interest as well as the interest of the Indian economy. Taking over being a part of the acquisition process, is also an opportunity for NTPC to add to its power generation capacity through minimal investment & very low gestation period.
NTPC has reduced default risk as it has PPA (power purchase agreement) signed for almost 99% of the power it produces with various SEBs ( State Electricity Boards). Post the amendment of the Securitisation Act, the recovery rate of dues from SEBs has improved significantly (100% in the last year). Defaults and delayed payments have been a big issue for generation companies, as they were unable to plough back the money into expansion in a planned manner. This provides NTPC with a competitive advantage over the other players in the industry.
Long term agreements for coal and gas supply: To meet its coal requirements, the company has signed long term CSAs covering 12 of its 15 coal-based stations. It has also executed gas supply agreements with GAIL for the supply of gas for its gas-based power stations, which are valid up to 2021.Apart from the supply agreements, NTPC has also been awarded 8 coal mining blocks by the Govt of India, including 2 blocks awarded for development under a joint venture with Coal India Ltd.
Strategic Locations near fuel source: The Plants are strategically located near the source of fuels which provides a great competitive advantage over competitor.
Renovation and Modernisation : NTPC considers Renovation and Modernization (R&M) as quick result low investment option to extract higher generation from old power stations. It gives an opportunity to leverage the technological advancement which has taken place in the power industry so as to continue economical power generation. Introduction of advance technologies is expected to result in improvement in efficiency of the units.
Strong Government Support: The company has a strong government support and backup which proves advantageous for it.
Competent and Committed Workforce: The company takes pride in its highly motivated and trained Human Resource that has contributed its best to bring NTPC to its present height.
Commitment to the environment: NTPC continues to take various proactive measures for protection of the environment and ecology around its projects. It was the first amongst power companies in India to start Environment Impact Assessment (EIA) studies and has reinforced them ever since. NTPC has also put in place various pollution control systems as part of its plants. Some of the devices installed to control air and water pollution are Electrostatic Precipitators, Flue Gas stacks, Low-NOX burners etc.
NTPC established Centre for Power Efficiency & Environmental Protection (CenPEEP) in collaboration with USAID with a mandate to reduce GHG emissions per unit of electricity generated by improving the overall performance of coal-fired power plants. The centre functions as a resource centre for acquisition, demonstration and dissemination of state-of-the-art technologies and practices for performance improvement of coal fired power plants for the entire power sector of India.
Another key concern at NTPC or any coal based station for that matter is Ash Utilization. The vast quantities of Ash produced at NTPC's coal based stations are driven to maximum usage by the Ash Utilization division which was set up in 1991. The division proactively formulates policies, plans and programmes for Ash Utilization.
The concern for the environment and the measures taken contribute to the building of a major competitive advantage for the firm as this is the only way any company can sustain itself in the future.
Emphasis on Corporate Governance and Corporate Social Responsibility: The corporate governance policy of the government is scripted as follows:
"As a good corporate citizen, the Company is committed to sound corporate practices based on conscience, openness, fairness, professionalism and accountability in building confidence of its various stakeholders in it thereby paving the way for its long term success."