Why coal stocked with utilities is important

By

Updated

Why power producers stock coal

As seen in the previous article, most of the electricity generation in the U.S. uses coal as a source. Coal-fired power plants require a continuous coal supply to produce electricity. To avoid disruptions in power production, power producers need to stock coal.

This is because the process of extracting and transporting coal takes time. New orders are placed when the stock reaches a minimum threshold level. The coal that’s stocked up for electricity indicates the near-term electricity demand from coal-fired power plants.

Coal Stocks

Coal stocks declining

Article continues below advertisement

In July 2014, the electric power companies’ total coal stocks were 12,389 thousand tons. This was a 21.4% decrease from the stock levels last year. This suggests lower electricity generation from coal in the near term. Coal’s ranking is based on its energy content. Bituminous, sub bituminous, and lignite coal are used for producing power. Out of the three, lignite coal is ranked the lowest. It’s used the least among all the types of coal.

Power companies with large coal assets

Data on coal stocks is published every month by the Energy Information Administration (or EIA). The data helps investors understand the trends in near-term electricity generation for companies that depend on coal-fired power plants.

Some of the companies that depend heavily on coal-generated power are American Electric Power Company (AEP), Ameren Corp. (AEE), First Energy (FE), and Southern Company (SO). All of these companies are part of the Utilities Select Sector SPDR (XLU).

Click here to learn why the electric power utilities industry is important.

Advertisement

More From Market Realist