Concentration of the Energy Generation Sector

For class I had to look at market concentration, which is a numerical expression of how much a few big players control a given market. I decided to look at energy generation. The utilities industry is categorized by huge economies of scale and huge barriers to entry. I figured I would drill down on electricity generation, since that is so relevant to carbon emissions.

Electric power generation:



$ 79 431 678 000

4 Firm: 31.1%
8 Firm: 45.8%
20 Firm: 66.6%
50 Firm: 87.5%


(Strangely, they don’t like the total number of firms. I can’t seem to find it on the census website.)

$ 73 375 323 000

4 Firm: 23.8%
8 Firm: 35.7%
20 Firm: 57.0%
50 Firm: 79.7%

Will you look at that. Steady growth in revenue combined with almost a 10% growth in concentration across the sector. What’s interesting to me is the concentration based on the TYPE of power. Predictably, things like Large Hyrdo and Nuclear are the most concentrated, where the top 4 firms control 65.6% and 62.8% of the market respectively. Fossil fuels, with their lower capital costs and regulatory barriers, are a bit more democratic: the top 4 firms only control about 33.9% of the market. (I wonder how deregulation impacted this since 2002?)

Personally I pull my hair out every time I hear Obama and McCain tripping over themselves to tout nuclear as the solution. Nuclear takes a long time to ramp up and it’s never been economically feasible without massive subsidies. So why are people thrilled about nukes and making only hand-waving gestures towards renewables? Part of the answer might be in the numbers above. A nuclear energy infrastructure concentrates the industry, since only a few massive companies will be in a position to build and operate nukes. Renewables would probably have a drastically different effect. Things like wind and solar have much lower barriers to entry and are harder to concentrate (since both require land, and land is pretty broadly distributed.) Switching to nukes would mean more market share for the big players, while switching to renewables could mean drastically less. IMHO this is the one of the reasons why we shouldn’t necessarily trust big companies to maximize their renewable energy mix. It often takes government intervention to force big utilities into a green energy future where they own less of the pie. (*cough* Prop H *cough*)


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