供应链管理原版文章连载27个pdf文章passing value to customers-on the power of regulation in the industrial electricity supply chain_W

1、IntroductionPassing value to customers: on the power of regulation in the industrial electricity supply chainThis article maps and analyses the supply chain for industrial electricity. Its main aim is to explain the appropriation of value in the chain by considering which firms are powerful and what

2、 the bases of that power might be. The supply chain is best defined as a sub-set of the generic supply chain for electrical energy. The generic chain can be defined as the process of converting a primary fuel source into electrical energy and delivering that energy to the end user. The specific supp

3、ly and value chain under consideration is, therefore, to some extent defined by its end customer. In this case, the end customer is an industrial concern from one of the following sectors: chemicals; food, beverages and to- bacco; iron and steel; paper; mechanical engineering; mineral products; vehi

4、cles; elec- trical engineering; non-ferrous metals; textiles; and construction. In 1997 these sectors accounted for approximately 32 per cent of UK demand for electricity (Market- Line, 1998).Another vital element of definition, how- ever, is the volume of electricity required by the end user. This

5、has a crucial impact on the price paid by the end user and therefore on the appropriation of value by the electricity supplier. Traditionally, electricity demand has been segmented into three types of customer: those which use more than 1 megawatt (MW) per annum; those which use between 100 kilowatt

6、s (kW) and 1MW per annum; and finally, those which use less than 100 kW per annum. The focus of this article is on the first two segments, because it is here that we find the vast majority of industrial users. Custo- mers in the final segment (below 100 kW per annum) are primarily domestic.The analy

7、sis presented here must also take account of a number of important political, economic and environmental variables that have impacted on both the demand and supply sides of the electricity supply chain over the last decade. A key factor on the demand side is that the UK demand for electricity in all

8、 sectors is exhibiting slow growth. Between 1993 and 1997, the average growth rate for all sectors, and for industrial users in particular, was a mere 2 per cent per annum (MarketLine, 1998). This compares very unfavourably with the average annual growth rates of 7-8 per cent experienced in the 1960

9、s (McGowan and Thomas, 1989).Joe SandersonJoe Sanderson is a Research Fellow at the Centre for Business Strategy and Procurement, Birmingham BusinessSchool, University of Birmingham, Birmingham, UK.Supply chain, Value chain, Electricity industry,Competitive strategy, RegulationsProvides both a descr

10、iptive and an analytical under- standing of the supply chain for industrial electricity. It explains which actors in thechain havepower and how this impacts upon the process of value appropriation. There are three main elements. The first is a descriptive mapping of the supply chain based on key fun

11、ctional stages, resources and resource ownership. The second is a descriptive mapping of the corresponding value chain based on the revenues and gross profit margins typically being earned at each functional stage. The final element is a discussion of the power resources that determine the competiti

12、ve dynamics, and by extension the appropriation of value, in the chain. Regulatory intervention by the stateis identified as a key mediating factor in this case.The current issue and full text archive of this journal is available atSupply Chain Management: An Internation

13、al Journal Volume 4 . Number 4 . 1999 . pp. 199?208# MCB University Press . ISSN 1359-8546199Electronic accessAbstractKeywordsThe authorPassing value to customersSupply Chain Management: An International Journal Volume 4 . Number 4 . 1999 . 199?208Joe SandersonThe reasons for this slow growth are fa

14、r too complex to discuss in detail here. In simple terms, however, it can best be explained as a combination of market saturation and of pressure on industry to cut its costs and to begreener by being more energy efficient.A related demand side factor has been the pressure from industrial users for

15、electricity prices to be consistently reduced in real terms. This pressure has driven a number of significant changes on the supply side. Per- haps the most obvious and significant of these changes were the privatisation and liberal- isation of the UK electricity supply chain in the period 1990-91.

16、Before 1990, the totality of the electricity supply chain, with the exception of primary fuel supply, was owned and controlled by the state through the Central Electricity Generating Board (CEGB). All of the other key functional stages (generation, transmission, distribution and supply) were vertica

17、lly integrated within this single organisation. Generation and transmission were centrally controlled, while distribution and supply were the responsibil- ity of local electricity boards operating under the auspices of the CEGB (McGowan and Thomas, 1992). The privatisation process launched in March

18、1990 has had two crucial impacts on this supply chain.First, within England and Wales, ownership of the supply chain was divided along the lines of the key functional stages. Ownership of the non-nuclear generation function was divided between PowerGen and National Power, which were newly privatised

19、 and separated divisions of the CEGB. The nuclear genera- tion function, at that stage, remained within the public sector under the name Nuclear Electric. In 1996, however, the nuclear generation function was also split between two organisations, British Energy and Mag- nox Electric, and the former

20、was privatised. Another renamed and privatised division of the CEGB, the National Grid Company, was given ownership of the national transmission system in England and Wales. Finally, own- ership of the distribution and supply functions in England and Wales was divided among 12 regional electricity c

21、ompanies (RECs). Before privatisation, these had been the local elec- tricity boards under the CEGB (McGowan and Thomas, 1992).Within Scotland and Northern Ireland, however, a different approach was taken. The Scottish model was based on the old CEGBstructure in that the electricity supply chain rem

22、ained vertically integrated. The only difference after privatisation was that there were two separate, vertically integrated com- panies. Scottish Power was given responsibility for the southern half of the country, while Scottish Hydro-Electric was given ownership of the key functional stages in th

23、e North. In Northern Ireland privatisa- tion did not occur until 1992. Again, a slightly different structure of ownership and control was put in place. Generation is owned separately from transmission, distribution and supply, which remain vertically integrated within Northern Ireland Electricity (M

24、cGo- wan and Thomas, 1992).The changes described above are of more than purely historical interest, however, be- cause they provide us with a radically different picture of the electricity supply chain than that which existed before privatisation. Rather than looking at a flow of goods and services,

25、 and a parallel flow of value, which is almost exclusively within the boundaries of one organisation (the CEGB), we are now faced with a series of transactions between separate firms operating at one or more of the key functional stages in this supply chain. Allied to this restructuring is the secon

26、d crucial development since privatisation. This has been the states efforts to improve the efficiency of the organisations operating along this supply chain and to force them to pass more value to the end customer in terms of both lower prices and better service quality. The state has pursued these

27、objectives through a combination of liberalisation where possible, and regulation where market com- petition is not economically feasible. Briefly, competition has been introduced, with vary- ing degrees of success, into the generation and supply stages of the supply chain. It has not been possible,

28、 however, to liberalise the transmission and distribution functions, due to their natural monopoly status. The goals of improved efficiency and of greater value for the end customer have therefore been pur- sued by means of price cap regulation (OFFER, 1998a).The discussion that follows has three ma

29、in aims. The first aim is to descriptively map the supply chain for industrial electricity. This will involve a more in-depth discussion of the key functional stages in the chain than has been carried out so far. We will also consider the resources needed by an organisation to200Passing value to cus

30、tomersSupply Chain Management: An International Journal Volume 4 . Number 4 . 1999 . 199?208Joe Sandersonoperate at each stage and will identify those firms that are currently the owners of those resources. The second aim is to descriptively map the corresponding value chain for in- dustrial electri

31、city. This will involve looking at the distribution of value in the chain, mea- sured in terms of the revenues and gross profit margins typically being earned at each func- tional stage. The final aim is to identify and discuss the factors that determine the dis- tribution of value in the chain. The

32、 primary focus here will be on the competitive dy- namics and the role of regulation at each stage in the chain.defined as the capture/extraction andrefining of a raw energy source followed by the delivery of that refined energy source to the generator. Again, the diversity of different fuel types m

33、eans that the resources required by suppliers dovary somewhat. Nevertheless, the following three resources can be identified as common to the provision of all fuels. These are licensed access to specific sites, an expertise in finding and exploiting these sites as efficiently as possible, and an abi

34、lity to provide a reliable supply of satisfactory quality.In identifying the major firms operating at the primary fuel stage it is easiest to place the six fuel types into four groups, because there is a good deal of overlap between types. The first group combines suppliers of coal and coal derivati

35、ves. Together, these fuels are used to generate some 40 per cent of the UKs electricity (MarketLine, 1998). At this level, coal and its derivatives are currently the most used fuel types, but their share has declined significantly from over 70 per cent in 1991. This decline is principally due to a m

36、uch greater use of gas. Since privatisation in 1994, the dominant UK supplier of coal and its derivatives has been RJB Mining. This com- pany accounts for around 70 per cent of UK production. The next largest UK producer is Scottish Coal with around 10 per cent of production. The remaining 20 per ce

37、nt of production is divided between some 50 independent mining companies, each operat- ing one or two mines. In addition to buying coal from UK producers, electricity genera- tors can, of course, use imported coal bought on the international spot market. The use of imported coal has, in fact, grown

38、significantlyMapping the supply chainThere are five key functional stages in the supply chain for industrial electricity. As shown in Figure 1, these are the supply of a primary fuel source, generation, transmission, distribution, and supply.We will consider each of these stages in turn, discussing

39、them in terms of the primary activities carried out at that stage, the resources needed for these activities, and the major firms operating at a particular stage.Primary fuelThe primary fuel stage is perhaps the most complex to map descriptively, because there are a number of different supply market

40、s operating here. These represent the six main types of fuel used to generate electricity in the UK, namely coal, nuclear, gas, renewables, coal and oil derivatives, and oil itself. There is, however, a single primary activity that is common to all of these fuel types. This can beFigure 1. The indus

41、trial electricity supply chain: functional stages and key resources201Passing value to customersSupply Chain Management: An International Journal Volume 4 . Number 4 . 1999 . 199?208Joe Sandersonin recent months, following the withdrawal of a government mandate that generators should buy the bulk of

42、 their coal from UK producers, particularly RJB Mining.The second group of fuel suppliers provides gas, oil and oil derivatives. This group is composed of the 25 or so major oil and gas companies operating in the North Sea, including Shell, BP, British Gas and Amerada Hess. Collectively, these fuels

43、 account for around 30 per cent of UK electricity pro- duction, with gas forming the lions share at 26 per cent (MarketLine, 1998). As was noted above, the use of gas has grown rapidly since 1991, when the EU deregulated it as a fuel for generation. Its popularity is princi- pally due to its high bu

44、rn efficiency and lowgreenhouse emissions as compared withother fossil fuels, such as oil. The use of oil and its derivatives is declining rapidly from a very low base.The third major group of fuel suppliers is made up of those who provide material for nuclear reactors. Nuclear fuel has a relatively

45、 stable share of UK electricity production at around 27 per cent (MarketLine, 1998). This is a supply market where extraction of the major fuel source (uranium) and reprocessing of spent fuel are tightly regulated. Uranium is scarce and very costly to extract and the disposal of nuclear waste also p

46、oses a costly and difficult challenge. It has become in- creasingly common, therefore, for existing fuel rods to be reprocessed. In the UK, the vast majority of this work is done at Sellafield.The final group of fuel suppliers is collec-tively referred to as renewables. The main fuels in this group,

47、 in descending order of importance, are household and industrial refuse, hydro-electricity, landfill gas, sewage gas, and wind power. Together, renewable fuel sources account for 3 per cent of UK electricity production (MarketLine, 1998).This share is growing very slowly under the influence of the g

48、overnments Non Fossil Fuel Obligation, which requires electricity suppliers to buy a certain percentage of their power from renewable generation. This isthe one fuel source, particularly in the case of hydro-electricity and wind power, over which the generator often has joint ownership.Those schemes

49、 based on the burning of refusewill usually involve small-scale, localised generation for a factory, a hospital or a housing estate.GenerationThe key activity at this stage is the conversion of a primary fuel source into electrical energy. This conversion involves a variety of plant types depending

50、on the fuel used, but the fundamental process always includes the same steps. First, the fuel source is converted from potential energy to kinetic energy to drive turbines. Second, the motion of these turbines generates high voltage electrical energy.Whatever the plant type in question, there are th

51、ree resources that are essential to any firm operating at this stage in the supply chain. The first of these are the technical skills necessary to ensure an efficient use of fuel inputs and plant capacity so that the generator achieves the maximum electricity output fora given unit of fuel. A second

52、 and related resource is an expertise in repair and main- tenance to minimise the time when a generating set is inoperable. In combination, these first two resources are vital if a generator is to achieve and maintain a low cost operation. The third key resource for a generator is access to suitable

53、 sites on which to build their power stations. The suitability of a site is determined primarily by its proximity to its fuel source and to the transmission network. Where these distances are great, the costs of a generators output will inevitably be higher. In addition to these three resources, whi

54、ch are essential in the sense that they are necessary for any generator to operate efficiently and effectively, we might also identify a further resource that would give its owner a competitive edge. This is a diversity of plant types running on a range of different fuels. The primary advantage to b

55、e gained from this resource is that it allows a generator to hedge against fuel price fluctua- tions by producing electricity with the cheapest fuel available at a particular pointin time.Since privatisation, the government has tried to create a competitive market at this functional stage in the sup

56、ply chain. The basis of this market was laid down in 1990, when the generation capacity of the CEGB was split between National Power (48 per cent market share), PowerGen (30 per cent market share), and Nuclear Electric (22 per cent market share). Since then, the market has become more competitive, w

57、ith new entrants being encouraged by the deregulation of gas and by regulatory intervention from OFFER. Market202Passing value to customersSupply Chain Management: An International Journal Volume 4 . Number 4 . 1999 . 199?208Joe Sandersoncompetition has been facilitated through a wholesale trading m

58、echanism called the Pool. This mechanism, managed by the National Grid Company, brings together the range of major power producers (MPPs) currently operating in England and Wales with the range of companies now involved in electricity supply.At present, there are 20 MPPs. The largest of these, with

59、their 1997 market share shown in brackets, are National Power (23.6 per cent), PowerGen (21.3 per cent), British Energy (17.6 per cent), Eastern Group (10.2 per cent) and Magnox Electric (6.6 per cent) (MarketLine, 1998). These figures demon- strate that National Power and PowerGen have suffered significant reductions in market share over the last 5-6 years. A large element