Arthur: Strategic Analysis of Competitiveness of Public Electric Utility Companies in a Deregulated

Artikel-Nr.: 978-3-905814-53-8
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Management Summary

Electricity sector deregulation is inevitable, and levels of attainments in the different countries across the globe, vary through the stages of monopoly, wholesale competition and retail competition. Electricity generation by traditional large plants benefitted from economies of scale production, which made it possible for them to supply electricity at cheapest cost rather than running a number of firms. This natural monopoly situation however brought about the challenges of utilities charging high monopoly prices. The need to institute interventions to control this situation led to regulations of the industry, with the most widely used rate of return regulation. Rate of return regulation grants the utilities a tariff that covers cost of production plus reasonable margin of profit for re-investment to improve service delivery and build the businesses.

Advancement of renewable energy technologies to address environmental concerns have further changed the characteristics of large traditional electricity generating plants that benefitted from economies of scale. Additionally competition in electricity supply industry has rather been proven as a panacea for price reduction. Therefore electricity deregulation or reform has become necessary with the objective of reducing prices and also to promote electricity generation from renewable energy sources such solar and wind power etc.

Privatizations of utilities have featured strongly in the industry reforms and in the particular case of Ghana, where electricity demand has outstripped the capacity to supply, private investment capital is necessary to expand generation capacities. This situation is common to most countries in sub Saharan Africa.

Some countries across the globe have implemented full privatization of the electricity industry, whiles others have maintained the State Owned Electric (SOE) utilities. As competition in the electricity sector is inevitable, the public enterprises are faced with competition from private Independent Power Producers (IPPs). There is need therefore for these public enterprises to restructure their operations and strategies in order to remain relevant and most importantly gain competitive advantage in the industry.

In this report, the case of Volta Rive Authority (VRA) as a dominant SOE in Ghana has been used to illustrate how public enterprises can refresh their mandates to reshape new strategies that will meet customers’ expected values. 

The following customer value propositions (CVPs) are suggested as core of VRA’s new strategy:

  • Provision of energy efficiency services to customers, as part of demand side management, with the benefit of lowering customers’ electricity bills.
  • Promotion of renewable energy sources for power generation, with emphasis on home/ independent solar PV systems to create energy sufficiency for customers.
  • Facilitating customer options, which gives the choice to produce own power, determine consumption and feed in excess onto the grid.

A tailored value chain is developed, which focuses on core businesses and also based on resource and capability analysis that has been detailed in this report.

Two trade offs to reinforce the core of VRA’s new strategy are proposed as follows;

  1. Rejection of industrial customers who do not invest in energy efficient equipment and operate below power factor of 0.9. Power factor being an indicator of how efficient an equipment utilizes power (best point at 1.0).
  2. VRA to trade off its fossil fuel thermal plants for renewable energy generation.

A fit is demonstrated in the activity map of VRA’s new strategy. It is relevant and important to also ensure continuity of this strategy and its development to meet the global energy objectives, which also focus on advancement of energy efficiency, characterised by CO2 reduction. Aligning the core of strategy to the world energy outlook, also presents a good basis for VRA to build a reputation for its business operation.

Both governments and public enterprises have respective roles in ensuring competitiveness of State Owned Electric utilities. Governments must adhere to policies that ensure good corporate governance for the utilities to operate on sound commercial basis. Executive and management teams of utilities must also restructure to focus on core business and most importantly deploy strategies that will create value to meet customer’s expectations. In creating such unique values for customers, the SOEs can in turn capture some of the value from the industry, to build the business.

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