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X CEL ENERGY STRAGEGIC ANALYSIS AND TOOLS
Xcel Energy is a for-profit, domestic U.S. energy base company with more than $10 billion gross profit for 2013. Wikipedia shows that the company started in 1904 into three different branch areas. They are located in Minneapolis, Denver, and Amarillo and are called The Northern States Power Company (NSP), the Public Service Company of Colorado (PSCo), and the Southwestern Public Service (SPS) (9). The company works in Colorado, Michigan, Minnesota, New Mexico, North Dakota, South Dakota, Texas, and Wisconsin (3).
Xcel Energy is diversely invested in nine or more major markets, which include coal, natural gas, nuclear, hydro, oil, refuse-derived fuel, utility, fossil fuel, wind, and solar power. The company currently has thirteen coal plants, twenty-seven natural-gas plants, two nuclear plants, twenty-six hydro plants, three oil plants, three refuse-derived fuel plants, three wind plants, and four solar plants. The company profile shows that coal, natural gas, and nuclear account for the greatest shares of net power capacity, and Xcel has been the number one wind power provider for nine years (3).
Data from Xcel Energy can be evaluated by looking at SWOT, PEST, Porter's Five Forces, the Four Corners, the value chain analysis, the early-warning system and war gaming from Jim Downey, and technical information service.
SWOT analysis will help Xcel Energy understand the strengths, weaknesses, opportunities, and threats in their market of operation. The company is in the energy business. Xcel is unique in trading in the alternative market. The company sells affordable wind and solar products to the marketplace. Xcel has a competitive edge in providing services to the energy saver. The company's strength is the diversification of market access, such as domestic coal, fossil fuel, nuclear, hydro power, utility, wind, and solar power.
An article on PV-Tech.org titled "Solar Beats Natural Gas in Landmark US Judicial Ruling" written by Lucy Woods on January 3, 2014, validates the importance of solar panels. A Federal judge ruled in favor of Xcel's solar power instead of the natural gas company. The judge's decision was based on the cost benefit to the Minnesota taxpayer (15).
Technical service is available for those with no expertise, as well as a "do it yourself" option. The strategy is used by Xcel Energy to maximize influence in reducing local competition. This approach allows Xcel to retain their competitive advantage in these marketplaces, especially the new trending alternative markets (3).
Xcel Energy's early initiative is encouraging its customers to "do it yourself" (DIY) and providing solar and wind turbine products at a competitive price that still pays dividends today. The company profile notes that this initiative forced local solar panel and wind turbine producers to set their prices at the new market equilibrium (3).
Xcel's weakness includes the fast-paced developments in the coal industry. Xcel was forced to close coal plants that were not meeting environmental regulations. These plants cost more to operate. The profile shows that the company is trending over to the alternative energy industry and changing customer perception of the business (3).
From the alternative energy sector, Xcel faces broader national and international competition. The market is less regulated due to the ease of access to distribution channels, low capital requirements, and more. This provides an opportunity for Xcel to gain admittance to a wider national and international marketplace and gain new customers. The solar market is more competitive due to international competitors. China is a huge producer of solar panels. A Chinese company utilized dumping to control level of entry (11).
Wikipedia data shows that the United States is investing in the solar marketplace, which provides a growth opportunity for Xcel Energy. Congress's bills H.R 1424 established the financial incentives for business entry into the market with grants, tax credit, and other inducements to spread out this alternative solar-energy sector (14).
The governing data from the associated press show more than 32 plants will close, and 36 more may be forced to shut down due to the EPA regulations. These regulations and guidelines force Xcel to change their energy business model.
Oil is another industry that carries a huge risk for Xcel Energy. An article named "Obama Tightens Oil And Gas Drilling Regulations" written by Steve Hargreaves from CNN analyzes the development and the effect of the current administration regulation in the industry. The government is actively addressing environmental concerns and setting 2015 deadlines for oil and gas companies to meet the administration's standard. The future high cost is not beneficial to Xcel Energy to flourish and be profitable (24).
These unsuitable costs from the government regulation and fees impact Xcel bottom line and increase the cost to the customer. The barrier of entry for oil and gas is very high.
PORTER'S FIVE FORCES
The third analysis is the Porter's five forces. Wiki Analyst data show that the company invested about 8% in wind energy in 2004 to 2009, and this investment will increase to 20% by 2020. The huge cost of investment (about 85%) is due to the installation. Government assistance attracted Xcel to invest with profit potential and lack of competition due to high investment and legal restrictions (10).
Xcel Energy applies the diversification of suppliers. This diversification gives Xcel flexibility of choice. The company website indicates the company's encouragement of subcontracting. Oil and natural gas and raw material of suppliers have substantial bargaining power over Xcel Energy. They can charge higher prices, which would reduce the inflow of profits. Oil and gas need a specialized contract to continue uninterrupted business performance. This uniqueness limits the flexibility of the buyer power of the customers because of the legal business contract, which is imputable to the specialization of the business, materials, and tools needed to run essential oil and gas operations (6).
Furthermore, wind turbine, solar, wind, hydro, fossil fuel, and nuclear technology all need raw materials, such as metal iron, special metal molding, and prefabricated casting material and equipment. Suppliers control price flow due to excess crude materials, specialization, and licensing and are able to overcome the achievement gap and master product development and production. In the long run, suppliers usually discount wholesale purchases and offer other incentives to draw in their loyal clients, which is helpful to cut down prices, particularly of wind and solar technology production (6).
Customers who receive their energy through utility, hydro, fossil fuel, coal, oil, and nuclear plants hold little to no bargaining power to drive down prices. Only a few, such as business, university, and other that employed large daily energy usage might affect the price elastic curve.
Government restriction of entry due to regulations, public safety and insurance cost, and other works factors reduce competition in the business. These sets of restriction perpetuate a monopolistic industry to dominate the local market. Customers in these markets are at a disadvantage in these industries due to lack of competition. The large customer base holds few bargaining power due to existing long-term contract, and some of the effects are possible future price inflation (3).
Xcel alternative energy sector provided services to customers who wish to be self-reliant energy producers and who reduce energy cost or going green. The company profiles show that Xcel Energy offers discount and technical service expertise to ease the shift.
From product substitution aspect, Xcel Energy retains a market share by proving license services, proven track record, experience, and ease of location access to customer to remain competitive in the domestic market. The customer can substitute solar and wind turbine to cut energy cost. Complex projects that required multiple arrays of solar panel and wind turbines require licensed professionals to execute. The company profile shows that Xcel provides peace of mind with diversification of service, ease of access, warranty, and support to this marketplace (3).
The wind turbine and solar panel markets are not exclusive to the U.S company. Chinese, European, and other providers can significantly reduce Xcel's market share due to dumping, innovation of products, and other methods. The threat of substitution of products will always be present due to innovation of product, design, cost, and other factors.
The alternative energy industry has many competitors. The market is relatively stagnant at present. Xcel has to constantly monitor its competitors' brands and make appropriate adjustments to keep its brand up to date and competitive. The alternative energy market requires high-volume product development in order to remain relevant and reduce fixed production costs for standard business operations.
Xcel Energy utilized economy of scale to lower its prices and force its U.S. competitors' prices to be more elastic to the market demand. Xcel benefits by being among many in the United States that produce solar panels and provide professional services and expertise to the marketplace. Xcel differentiates their brand by focusing on brand establishment, reliability, warranty, low prices, and accessibility (13).
Tim Nelson showed that lawmakers look forward to establishing an Xcel Energy Center rivalry, which can lead to price wars or reductions. Price reductions, lower production, and production cuts reduce the supplies of the company (Katusa). Marin Katusa indicates that coal and shale gas suppliers are locked in rivalry. Coal, which is responsible for most of the electricity in the U.S., is the leader of the pack. He went on to show that coal and nuclear plants help the nation with its power requirements. Natural gas and renewable sources help businesses meet customer demand (Katusa).
Xcel wants to improve the loyalty of its customers, decrease its costs, and provide better information for its business and products (Xcel Energy Success Story). As stated in the article "Brand Management | XCEL Brands | Differentiate by Design," Xcel differentiates their products by the way they design them, as well as their qualities. The idea of providing more information for its products can reduce the price competition level. Customers’ loyalty can lead to a less intense competition and increase the degree of competitive rivalry. A large firm like Xcel Energy has a huge volume of competition among competing firms, according to an article titled Xcel Energy Inc. Strategic Analysis by Brian Filip, Charles Anderson & Jason Standing, Nicholas Lemmer. Xcel Energy is selective in terms of choosing their partners, and it excites them to work hard to support the company to compete (Xcel Energy Success Story).
Accessing the international market is beneficial to Xcel but delivers the potential for a price war. Xcel and other businesses can benefit from the international market with the backing of the United States government resources. Xcel can expand by researching new solar technology and can develop revolutionary advanced battery, solar tech system, and others to gain access to the new market share.
FOUR CORNER'S ANALYSIS
The fourth analysis is the four corner's analyses. This analysis help understand Xcel Energy's competitor behavior. Since Xcel is expanding toward the energy company, they have to account for Chinese wind and solar companies.
The valuation of the Chinese solar company from the Bloomberg energy finance report shows an adaptation of competitive pricing to limit entry to the solar market and to thrust the remaining firm to operate at a lower net income margin. The Chinese solar company is utilizing effective marketing strategies to gain the upper hand and dominate the international market for solar and alternative energy (11).
The Chinese scored 73.1 out of 100 in the Renewable-Energy Country Attractiveness Index. The Bloomberg New Energy Finance reported that China installed 12 gigawatt solar panels and 14 gigawatts of wind power in 2013. This data shows a huge potential for both China and Xcel in the alternative energy front (11). The Chinese companies sell their affordable solar panels in the U.S. market. Wikipedia data shows that China produces about 63% of the world's solar panels and hopes to further develop with government assistance (12).
THE VALUE CHAIN ANALYSIS
The fifth analysis is the value chain analysis, which will help Xcel to understand its activity structure and add value for their customers.
The Xcel website showed an increase in national customer base from 3.3 million in 2011 to 3.4 million in 2013 for electricity and from 1.8 million to 1.9 million for natural gas in 2011 and 2013 in eight states (6). The company earned $905 million and donated $37.7 million in 2012. The company profile showed revenues of $8.5 billion in electricity for 2012 from 3.4 million customers and $1.5 billion in natural gas operations from 1.9 million customers (3).
The Wiki analysis explains guaranteed profit is possible for this subdivision. Xcel operates in a market that has a high level of entry due to the monetary value of initial investment and high capital cost for oil and natural gas (10).
Wiki analyst analyzed that coal, nuclear, and natural gas have been profitable for Xcel Energy due to price decreases. There is a high cost of entry into the coal and natural gas markets. The Federal government accesses fines and fees for pollution. This business requires a high initial investment to access and transport. Project scale is huge (10).
The solar market has the potential for high profit for new entries into the market with product differentiation, competitive pricing, and product performance. Over time, the supply curve will shift to the right, and the price will decrease.
Xcel's mission statement is: “To provide the highest quality product in partnership with a small but diversified customer base, satisfying the demands of those customers to strengthen their position in the marketplace" (4). The company values safety for the public and its employees, and it is committed to creating a rewarding and productive work environment. The company's vision is to supply power to their customers (3).
Xcel utilized oversight to encourage efficient management, governance, and accountability. The company is an equal opportunity employer; it enforces a non-discrimination policy and encourages employee diversification in the workplace. The company profile shows the encouragement of employees to participate in the different stages of activity, such as councils for diversity and inclusion (6).
Xcel's company profile shows that this domestic energy producer is a highly regulated utility and oil and gas company. Some are due to the scarcity of resources. Competition for oil and gas is not intense and even nonexistent in some cases in this business. These sectors require a high cost of startup and tough regulation from the local, state, and federal governments. The company is a price maker in this market, enjoys a considerable profit margin, and has a monopoly in the gas and utility market. Xcel creates business relationships between producers and consumers with long-term contracts (6).
The company uses the Xcel Energy Renewable Development Fund to encourage opportunities and research. $60 million was invested in the first, second, and third quarters of development, which so far include 29 developed and developing projects. These projects are in the biomass, hydro, solar, and wind energy sectors and are funded by rate payers (6).
The sixth analysis is of an early-warning system. The early-warning system helps Xcel Energy set up scenarios for possible events. These seven guide points include identifying competitors in the market and setting strategies to counter possible future threats. Xcel should be aware of basic market information that may affect its area of business, analyze data with expert help, and allow flexibility in implementing or updating new strategies. Xcel Energy should master market prediction to stay relevant in the marketplace and have a team dedicated to monitoring the system. Understanding the business cycle will reduce surprises and possible future costs.
The last analysis is war gaming. This will help Xcel Energy prepare a strategy to counter and reduce or eliminate competitors. The war games involve all hands on deck and should be done to steer the company in the right direction. This strategizing may be limited to executive and senior level of management to reduce leakage of information. Cost and benefits utilization is ideal to help prevent any drawback.
Xcel Energy has the potential to leverage resources and knowledge to increase profits in free trade, partly due to resource scarcity. To facilitate this changeover and the lack of the information gap of entering new markets to trade and manage a business, Xcel should invest in university initiative, pair up with former President Bill Clinton's global initiative, and break down the marginal cost and benefits of each partner.
Xcel is moving in the right management of alternative energy but should hold its competitive advantage in the diversification of markets, such as petroleum, gas, coal, nuclear, fossil fuel, and more. Xcel should accelerate in the investing advanced portable alternative power to draw up investors, such as the U.S. government, NASA, and the military. Space exploration is the future of mankind. Building up and researching the breakthrough in energy technology would forward this movement and the potential for profit.
The company can gain huge market share by building tracking and other energy based technology that can grow their market share. Some of these ideas may include display data indicators in every solar panel. Xcel can experiment in light base energy and noise canceling wind turbine with the mobile wheels. This technology would be able to move to capture the maximum sunlight, change direction to capture the best wind speed, special solar high-capacity batteries, and other energy technology; it may include a special antenna to connect wirelessly and provide updates and real-time data to the customers. This design could be advertised as an all-in-one product.
Xcel should continue applying the social marketing concept as a supplement to data collection from potential trade partners to increase any new investment initiatives to allow the company to provide more services and products to a wide array of customers.
The coal plant equipment scheduled to shut down due to pollution guidelines set by the environmental agency should be sold as a whole or partially. This is suitable for a developing country with lax restrictions and constraints within the framework of the NAFTA agreement. Xcel will gain a comparative advantage in trading and selling older technology to maximize potential excessive profits. The countries that deal with Xcel will increase their consumption possibility curves.
Xcel should utilize foreign direct investments to become a multinational energy and technology-based company. The benefits include lower-priced imports, a broader assortment of meanings, more efficient utilization of capital and risk diversification, and increased outputs and employment possibilities through imported inputs. Xcel Energy can increase outputs and lower cost through the economy of scale, increase the company size as well as bargaining ability, and use labor better.
Furthermore, Xcel should apply the prospective development approach, which means that developing countries lacking credit can leverage raw material licensing to increase opportunity and growth. Xcel can help developing countries establish opportunities, commercial enterprises, and energy and non-energy trade hubs for growth since the university is a trade hub of information. Xcel universities in developing countries would guarantee prospective students job opportunities.
Xcel's expertise in hydropower can help developing countries provide stand alone grid power plants to their people for profit. The Hoover Dam is an example of power distribution in the United States and of the success of the industry. Helping other countries produce and charging them would be a huge cost-benefit for any future partnerships.
1) X cell energy 03/08/14
2) Standards of conduct implementing guidelines 03/08/14
3) Company profile 03/08/14
4) Mission statement 03/08/14
5) Overview Xcel Energy 03/08/14
6) Corporate profile 03/08/14
7) Investor data 03/08/14
8) Financial data 03/08/14
9) Xcel Energy Inc. 03/09/1
10) WIKI ANALYSIS 03/23/14
11)China Narrows Gap to U.S. in EY Renewable-Energy Ranking 03/23/14
12) Renewable energy in China 03/23/14
13) Renewable Energy 03/30/14
14) Solar power in the United Sates, 03/30/14
15) Pvtech, "solar beats natural gas in landmark US judicial ruling," accessed on 03/30/14
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18) Lawmakers looking to settle Target Center, Xcel Energy Center rivalry: http://blogs.mprnews.org/stadium-watch/2013/04/01/lawmakers-looking-to-settle-target-center-xcel-energy-center-rivalry/.
19) Coal and Shale Gas: America's Energy Siblings Are Locked in Rivalry: http://www.marketoracle.co.uk/Article34916.html
20) Looking For Your Portfolio To Excel: Find Some Consistency In Xcel Energy : https://encrypted-tbn0.gstatic.com/images?q=tbn:ANd9GcTRP6E59RI-7HnNl9NE0F0OpA_m-6XAzpJnEDV4Zk9DKN0SiUpp
21) Xcel Energy Moves Up In Market Cap Rank, Passing Fidelity National Information Services: http://www.forbes.com/sites/dividendchannel/2013/10/07/xcel-energy-moves-up-in-market-cap-rank-passing-fidelity-national-information-services/
22) Brand Management | XCEL Brands | Differentiate By Design, Xcel differentiate,
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24) CNN MONEY
25) Rhodd Rupert, PhD. Reading in Economic Issues & Public Policy. Economic Department, 2013. Print
About the Author
Roldens Paulynice was born in December 24, 1990 in Gonaives, Haiti. He has published many short stories and essays, especially about relationship or love, literature review, education, and politics. Think before You Act and What Causes Many College Students to Fail or Drop out are two of his works that he likes the most. Fortunately, in February 2009, he had the chance to come to the United States, attended Glade Central High School, and graduated in May 2010 with a 3.08 GPA. In May 8, 2012, he graduated from Palm Beach State College with an Associate in Arts Degree. In May 2014, he graduated from Florida Atlantic University with a Bachelor of Science in Economics. Right now, he is attending Lynn University, pursuing his MBA in international business and commerce. In the near future, he wants to become a CPA. Being a writer is something that he has a certain zeal to become in his life, but right now, he is trying, hoping to become a famous one day. He is the author of Teenage Marriages Are Likely to End Unhappily, Think before You Act, What Causes Many College Students to Fail or Dropout, Many People Get Married for Foolish Reasons, An Essay about the Tell-Tale-Heart and The Black Cat, and many other works.