The Model of the Five Competitive Forces on Portuguese Electricity Market

Abstract

In Portugal, the energy sector apparently shows lack of efficiency as the amount of energy used to generate a unit of GDP, also called energy intensity of the economy (TPES/GDP), an indicator of energy efficiency, which decreased in Portugal in a couple of decades less than in the EU 27 overall. The TPES/GDP indicator stills high in most Portuguese economic sectors in comparison with the EU27 average. To determine the reasons of such lack of energetic efficiency this work aims to analyze the Portuguese electricity market based on the model of the five competitive forces of Michael Porter that was chosen due to the idiosyncrasies of electricity sector, of strategies highly anchored on its external competitive setting and of little innovation around a non-differentiated electricity product of extended life cycle. Firstly, the theoretical aspects of the model are explained; secondly, it is made a critical review, including the reasons for choosing it; thirdly, the model is applied to the electricity market in Portugal and finally the main findings are revealed. The main methodology used is literature review of secondary sources and data. Authors mainly relied on sources of high-quality material. The input data has been collected from national institutes and from the information offered by the main players on their web sites. These sources are certified, and the input information is supported by their credibility and by the supervision departments. Portugal, due to the Country dimension and the barriers, the players are still few, and the electricity market is concentrated. The competition is high among 3 - 4 major players; the barriers are high; the electricity of traditional national suppliers is high although mitigated by the entry of other European Union distributors; the bargaining power of consumers is low and the substitutes are inexistent. Moreover, the equipment in consumption is aggregated to electricity, which is not easy to change. As electricity cannot be differentiated, energy distribution companies need to set strategies to engage consumers. The present paper reflects and analyses on these assumptions and concludes that to augment energetic efficiency, companies in energy markets as Portugal must prioritize diversity, complementary services and non-related products. Also, the low degree of competition has no conditions to be surpassed in the near years due to the inefficient features of the energy market and subsequent barriers.