3.1.2. Economic Segment

The economic segment of a general environment of an industry includes various factors that can affect the economic/financial condition of the various companies and businesses operating in that industry. Major economic factors include various elements such as interest rates, gross domestic products, and inflation rates, level of disposable income, unemployment rates, GDP, exchange rate and general growth and decline of the economy.

The economic situation is effective enough because the interest rate in the US economy is at its low. Despite the recent decrease in the prices of various energy related commodities, the inflation rate in the economy is also low, which is recorded at 0.80 in December 2014. In this regard, the geothermal energy industry and natural gas fueled power producing industry have reported certain good economic conditions. The investment opportunities are high and both the cost of capital and cost of debt are low, which will automatically increase the chances of employment in the industry (Fernald & Jones, 2014). Due to these factors, the level of disposable income is reported with certain high values and the consumption power of the people is also high. The unemployment rate is 5.6%, which has also decreased as compared to the previous years. The GDP rate is increased in 2014 as compared to that of 2013, which is indicating that the domestic economy is boosting and the economic conditions are favorable for business. The trade balance of the US has significantly increased because a major decrease in the imports has been observed in 2014 as well as the exports of the country are increased. The most influential economic factors for the growth of the geothermal energy industry and natural gas fueled power producer are the increase in level of disposable income, GDP, and the decrease in unemployment, cost of capital and inflation (Fernald & Jones, 2014). Comment by Ehsan Fakharizadi: Please keep in mind (at all times) that these six-segments are macro-level environmental analyses. Never narrow it down to the industry level. Comment by Ehsan Fakharizadi: In the last four sentences you have discussed four economic factors. Please follow the instructions and pick one or two that are more influential and discuss only them. By discussing, I mean show their past trend, predict their future changes, and discuss their potential future impact on the industry.

3.1.6. Physical Segment

The physical environment or the general environment of a particular industry is concerned with the impacts of its operations and existence on the physical environment of the world. The physical environment is referred to the changes resulted in the physical environment and the industry practices and are intended to deal and respond to those changes in a positive manner. The elements of physical environment include energy consumption, renewable energy resources, methods used to develop various energy sources, reducing the impact of the industry on the environment, availability of natural resources such as water and air, pollution rate, and the level of energy consumption and reserves. The overall energy consumption of the US for the production of retail and industrial items is high, which is making it the 7th largest energy consumer per capita. Various energy resources that are commonly used in the United States include fossil fuel, natural gas, oil, petroleum, geothermal, solar energy, nuclear power and other sources of renewable energy. An analysis of the last four or five decades showed that the consumption of energy has been increased in the US as compared to its production capabilities (Payne, 2012). This factor can greatly influence the industry of geothermal energy and natural gas fueled power producers in a positive way because the demand for renewable energy is growing rapidly. Currently, in the US the available renewable energy resources include biomass, hydroelectric dams, solar energy, geothermal and wind power. The renewable energy (geothermal energy industry) is contributing about 8% to the overall energy supply, which means the industry is currently in its growth phase. Various methods are used for the generation of energy sources; however, the advancement of technology has improved the production due to continuous innovation and the development of new equipment’s. The natural gas fueled power producer industry is well established and is one of the active contributors of the energy to the US. The geothermal energy is frequently available because it takes less time in replenishing as compared to natural gas and other renewable resources. The environmental effect of geothermal energy is minimal in terms of greenhouse gases, however, it has some other environmental impacts such as acid rain production, ecosystem destruction, ozone depletion and carcinogen release. The impact of natural gas fueled power production on the environment is a little high because the natural gas itself is a potential greenhouse gas, which is causing global warming. On the other hand, the use of natural gas can fix several environmental issues such as smog formation (Payne, 2012). The level of energy consumption in the US is high and it is mostly dependent upon non-renewable energy sources such as fossil fuel, natural gas, petroleum and nuclear energy. As compared to the reserves of the energy resources, the consumption is very high and if it continues growing with the same rate in the future, the reserves will soon reach to an end. The new energy sources, especially renewable energy reserves are higher than its consumption and its impact on the environment is also low, which can create opportunities in the future. The general physical environment has been polluted due to various non-renewable energy resources, however; the use of natural gas and geothermal energy resources for power production can help in minimizing the pollution (Hung, 2010). Comment by Ehsan Fakharizadi: This is accurate! Comment by Ehsan Fakharizadi: But natural gas is not renewable! Comment by Ehsan Fakharizadi: Please show some data to support this. And your other claims in this section.

3.2.2. Industry Dominant Economic Features

The industry dominant economic features include those features that can explain the competitive environment of a particular industry for the companies operating in it. These features help in understanding the landscape of an industry. Various industry dominant economic features include market size, growth rate, buyer needs, point of product differentiation, pace of technology, product innovation, point of vertical/horizontal integration, economies of scales, ease of entry/exit, capacity utilization, impact of experience and industry profitability. The overall market share of the geothermal energy industry is 85MW of the 540MW global industry, which is growing steadily and the increasing demand of the energy will further improve its growth in the future. The industry of natural gas fueled power producer is already well established and as compared to 2013, the industry reported a growth by 7% and according to the analysts, after a decade or two the growth will reach to 16%-18%. The demand of customers is increasing rapidly due to the high need of energy and low availability of replenishing energy generation resources (Ladomerský, Balog & Martinka, 2014). The products of the geothermal energy industry and natural gas fueled power producers are differentiated from other energy generation resources because they are less harmful to the environment and are less destructive. The industry is open to technological changes and product innovations, which can affect the growth and performance of the industry. The competition in the geothermal energy industry is moderate because the industry is in its developing state while the competition in the industry of natural gas fueled power producer is high because of the presence of so many competitors. Due to the high startup costs, the entry is quite high as well as the exit from these industries are also high because of the difficulties in getting the same value at the time of exit that they had made in the beginning. The impact of having individual expertise is higher on the productivity of the industry because experienced producers can find better ways to get economies of scale and can build strong relationship with their customers. The profitability in this industry is high and is expected to increase in the next few years (Ladomerský, Balog & Martinka, 2014). Comment by Ehsan Fakharizadi: Important Note (For this you might lose points all over the report): Please the same industry name throughout your report. Don’t call it “geothermal energy industry” here and “natural gas industry” or “electricity industry” somewhere else. Remain consistent. Comment by Ehsan Fakharizadi: This industry segment is probably the main segment for Calpine, because Calpine produces electricity mainly using natural gas (and some geothermal). However, if you define the industry this way, you will assume that nuclear generated electricity is different from natural-gas-generated electricity. For the consumer, though, there doesn’t seem to be much of a difference. Electricity is electricity. Comment by Ehsan Fakharizadi: Why? I thought your earlier graph (in the demographic segment) showed a slowing growth rate. Don’t contradict yourself and always state the facts. Comment by Ehsan Fakharizadi: Even compared to solar, wind, biomass? Comment by Ehsan Fakharizadi: How many? Comment by Ehsan Fakharizadi: This can be better discussed under threat of new entrants.

3.2.5. Five Forces Analysis

The Porter’s five forces model is a framework designed to analyze the degree of competition in the industry for building strategies and identifying various threats and opportunities. The five forces model is comprised of buyer’s bargaining power, supplier bargaining power, threat of substitute, threat of new entry and industry rivalry. The level of each component of the model shows the attractiveness and the unattractiveness of an industry.

The Porter’s five forces help in analyzing the micro environment of an industry that is closely related to the companies that are operating in an industry. For developing a strategy, a firm needs to analyze its micro environment because the attractiveness of the macro environment cannot determine the profitability of the company over its investment.

3.2.5.2. Power of Substitute Products

Threat of substitute for the geothermal energy industry and natural gas fueled power producer is high because there are a number of other sources available in the world for the generation of power/energy. The key substitute products include solar energy, wind energy, hydroelectric energy, biomass energy, hydrogen energy, ocean energy, petroleum energy, nuclear energy and fossil fuel energy. However, the increasing concerns of the environmental hazards resulted due to the use of various non-renewable natural resources for energy generation has increased the attractiveness of renewable energy sources. Moreover, the geothermal energy industry is currently new therefore; it will take some time to reduce the impact of substitutes. Comment by Ehsan Fakharizadi: This is exactly why I find it more realistic to include nuclear/solar/other sources of electricity generation as part of this industry. They’re not really substitutes, because the end product is essentially the same: electricity. Please redefine the industry accordingly and then you will end up with a different set of substitutes.

3.2.5.3. Power of Buyers

The bargaining power of the buyers in the geothermal energy industry and natural gas fueled power producing industry is low because the energy generated from these sources is rarely available in only some parts of the United States. Moreover, in those regions where the energy generated from these industries is offered to the users having no alternative choice to switching to other sources because the energy generated from the other sources has offered by the companies as per the requirement of a particular region. The energy produced by the natural gas fueled power industry and the geothermal industry is available in only few states of the country, which means that these sources of energy are not available in the rest of the regions or states and consumers in these regions have to arrange energy from other sources, which are less economic and environmental friendly (Golpe, Carmona & Congregado, 2012). The bargaining power of the buyers is also relatively low in these industries due to the fact that energy consumption is one of the basic necessities or commodities used by every household of the country and they are less conscious about shifting to other sources without any significant or major reason. Buyers have usually little concern about the impact of the source of energy over the environment because they are only concerned with the ultimate product, i.e. electricity or power generation, which is almost same for each source of the energy production (Golpe, Carmona & Congregado, 2012). Comment by Ehsan Fakharizadi: How does that have any impact on the power of buyers? Please stick to the underlying factors in the textbook. You don’t need to come up with your own. Comment by Ehsan Fakharizadi: Commodities are by definition non-differentiated products, which means switching cost for them is low. Therefore, the buyers can easily switch between competitors leading to high buyers’ power. An important grading criterion of this project is your logic and critical thinking. Please make sure your arguments make logical sense. Feel free to run them by me whenever you’re in doubt.