Slower Marketing Revenue Growth Expected
Price spikes, volatility, tight margins and stiff competition
have prompted many energy marketers to reconsider their positions
and strategy, and this is causing changes in the energy marketing
arena as a whole, according to a new report by Frost &
The report finds that although energy marketing revenues are
expected to show continued strong growth over the next five years,
that growth will begin to decline this year. In contrast to the 46%
growth in 1997 and 30% growth in 1998, the study predicts that
marketing revenues will grow by 17.2% this year to $196.7 billion
but will show 14.5% growth next year, followed by 10.5% in 2002,
8.4% in 2003, 8.3% in 2004 and only 7.3% in 2005. By 2005, revenues
are expected to reach $313.7 billion.
Three primary issues have been driving market growth: tight
industry competition between top-tier marketers; dramatic growth in
merchant power generation; and online trading, which has increased
efficiency allowing marketers to execute more trades, the Frost
& Sullivan report explains.
However, several other offsetting forces are beginning to
restrain market growth, including increased focus on profitability
rather than larger volumes; increasing need to acquire assets to
support trading, which has erected barriers to entry and forced
some players to exit; and regional transmission constraints, which
have hindered wholesale power market competition.
The report notes that energy marketing has become an extremely
difficult business with low operating margins of only about 0.4% of
revenues, down one-third from 1997 levels of 0.6%. Low margins are
forcing re-evaluations and restructuring. Industry consolidation
and convergence also have resulted in tougher competition, and high
customer acquisition costs have shrunk bottom lines.
These difficulties have led marketers to adopt several new
trends. They are focusing more on profitability than on volume
growth. They also are more actively buying power generation,
transportation and storage assets to protect themselves against
risk. In addition, they are increasingly focusing on regional
markets rather than national markets.
To order a copy of the report visit Frost & Sullivan's web
©Copyright 2000 Intelligence Press, Inc. All rights
reserved. The preceding news report may not be republished or
redistributed in whole or in part without prior written consent of
Intelligence Press, Inc.