Energy sector is main key driver of economic growth and industrialization of a country. It provides core fuels for consumption by many other sectors which makes it a very significant part of the economic development. World over, concerns regarding environmental sustainability has triggered slew of regulatory changes, shifting consumer preferences towards clean energy and emergence of new players in the alternate energy space. Incumbent players in traditional sources of energy have been slow in shifting to alternate sources of fuel. Being a volatile and concentrated industry, increased PE investments and M&A activities are expected to meet the increasing demand pressure and move towards energy independence.
Key trends shaping the industry
Increasing global demand: The global energy demand is increasing continuously at a quickened pace especially in developing countries. Higher industrial activity is increasing the demand for energy. This trend will continue in the next few decades presenting a huge opportunity to grow.
Demand for sustainable resources: Limited availability of raw material and infrastructure is leading the search for non-renewable and environmental friendly sources of energy like nuclear, solar, biofuels, wind, hydro energy etc. With increasing demand, the need for sustainable development like carbon reduction will get a larger emphasis.
Price Fluctuations: Energy sector is mostly concentrated into few large units which give it a monopolistic structure. The industry structure along with scarcity of raw material ls and environmental effects lead to huge variation in pricing in the global economy.
Increasing private sector participation: Significant part of this industry is governed by Government units specially oil, power and coal sectors. Private sector is making in-roads into some of the spaces. The participation from private players is encouraging the development of renewable sources on a larger scale.
Challenges facing the players involved in the industry:
Regulatory requirements: The growing pressure on raw materials and environment is an associated consequence in this sector. In an effort to create a sustainable model, regulatory environment keeps on changing frequently. These parameters vary significantly across geographies and over time. It makes this industry highly dependent on government regulations as reforms and subsidy changes can affect the companies both favorably and non- favorably. Getting aligned with these changes and foreseeing the challenges need great deal of understanding of interplay between various factors.
Infrastructure development: The capital investment in this industry is very high. This makes it difficult to meet the infrastructure requirement required to align the demand of the energy sources with the global supply while dealing with fluctuating price levels. This poses a challenge of raising financing for the projects especially in the private sector.
Improving productivity: Higher capacity utilization and efficient use of resources can help in balancing the need for huge capital investment. This will require following an organized approach and dedicated attention towards improving productivity within existing systems.
How BMGI can help?
BMGI has developed competence in last decade helping clients in solving complex business problems related to cost volatility, innovation in alternate sources of energy, strategic shifting of dependence from traditional