Natural Gas and Renewable Energy Continue to Displace Coal

David Fessler By David Fessler
Energy and Infrastructure Strategist

Alternative Energy

One statistic says it all: Clean energy (including hydropower) and natural gas have made up 93% of all new power generationover the last 25 years.

Since 2006, renewables have been the largest source of annual generating capacity buildout…

Coal is one of the obvious laggards. And policy issues have nothing to do with it.

The reason solar and wind are the “new normal” in power generation is purely economic. Utility companies have responsibilities to the public utility commissions that govern them, their boards of directors and their shareholders.

Coal just isn’t making the cut anymore, and it’s a trend I expect will continue as more and more coal plants shut their doors.

Closing Down Coal

Even a president’s promise couldn’t save the industry.

Ending “the war on beautiful, clean coal” has been a top focus of Trump’s presidency. But he’s ended up with more than a little egg on his face.

Because here are the sobering facts…

More coal-fired capacity has closed in 2018 so far than was closed in Obama’s first three years in the White House.

Since 2010, 268 coal plants have closed. There are only 262 left.

And closures are going to continue. In 2018, utilities are set to shutter another 15 gigawatts (GW) of coal capacity.

Some of it won’t be replaced. The rest will be – with solar, wind or natural gas-fired plants.

It’s a secular decline that has no end in sight. Even those utilities with plenty of coal-fired generation are moving away from it. It’s just too dirty.

But you probably won’t hear Trump talk about that.

A Failed Last-Ditch Effort

It’s clear that the coal mining industry is rapidly dying. So coal company executives are shifting their focus toward exports.

But that market peaked at around 125 million tons in 2012. And it’s been volatile ever since…

In 2016, exports dropped to about 60 million tons, then surged to 97 million tons in 2017.

Building a business plan based on a market with that kind of volatility is a recipe for disaster.

Building one with disappearing customers is even worse.

No New Capital, No New Demand

Coal’s biggest problem is its shrinking customer base, which is going the way of the dodo. Demand in the U.S. could drop by 30 million tons in 2018.

That’s primarily because utilities are spending their capital on renewables for new capacity.

Wind is now responsible for 6% of America’s power generation. In particularly windy states like South Dakota, Oklahoma, Iowa and Kansas, wind power makes up at least 30% of overall generation capacity.

Solar is also cutting into coal’s market share. It generates most of its power during peak daytime periods, which have historically been when coal-fired plants earn most of their revenue.

For instance, Texas utilities expect to bring 4.6 GW of new solar capacity online over the next few years. That will compete head to head with what remains of Texas’ coal-fired plants.

The public relations teams of coal companies wax poetic about future possibilities with exports. An investor could get hoodwinked into believing these companies have a bright future.

But they don’t.

The Securities and Exchange Commission rules require companies to disclose real market expectations.

That’s where you’ll find accurate market projections. And they are anything but rosy.

Take Cloud Peak Energy (NYSE: CLD), one of the largest thermal coal producers, which has seen its shares slide from a high of $21.87 in April 2014 to $3.24 today. That’s a decrease of 85.2%.

And Cloud Peak Energy isn’t the only coal producer with those kinds of negative returns. Most – if not all – coal mining companies look like that.

The bad news is that coal just isn’t an economical source of energy anymore.

But the good news is that the clean energy sector is better for the environment AND the economy. In fact, it’s been responsible for the creation of more than 10 million jobs.

And we’re just getting started.

Good investing,

Dave