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Coal stocks are paying a price for environmental regulations

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Declining coal stocks

As a source, coal is losing its share in total electricity generation in the US. However, coal is still the largest source of electricity production. Coal stocks for power generation fell by 18.4% in the last 12 months ending in September 2014. Coal stocks for power generation decreased quickly this year.

Until September 2014, no coal-based capacity has been added in the US. Next year, the enforcement of MATS (Mercury and Air Toxics Standards) for coal-based power plants will cause many inefficient coal power plants in the US to shut down. Coal stocks are expected to decline more in the coming months.

Coal stocks’ trends

There’s a difference in the year-over-year, or YoY, change in coal stocks among electric utilities and independent power producers, or IPPs. The coal stock for power generation with IPPs saw a YoY increase in the last three months. Among utilities, coal stocks continue to decrease.

In September 2014, coal stocks decreased by 23.7% among utilities. They increased by 6.3% among IPPs on a YoY basis.

Some of the companies that depend on power generated by coal 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).

Power producers’ stock coal

Coal-fired power plants require a continuous supply of coal to produce electricity. To avoid disruptions in power production, power producers need to stock coal. This is because extracting and transporting coal takes time.

New orders are placed when the stock reaches a minimum threshold level. Coal stocked up for electricity indicates the near-term demand of electricity from coal-fired power plants.

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