Over 90% of the coal produced in the US is used for electricity generation. The Utilities segment is coal’s largest end user. As a result, coal investors should watch for a trend in electricity generation. Coal producers (KOL) include Peabody Energy (BTU), Cloud Peak Energy (CLD), Arch Coal (ACI), and Alpha Natural Resources (ANR).
Electricity storage is expensive. Most of the produced electricity is consumed instantaneously. So, electricity generation mirrors consumption.
Electricity generation falls
Electricity generation fell for the second straight week. According to the Edison Electric Institute, electricity output in the US came in at 71,898 gigawatt hours, or GWh, for the week ending December 26—compared to 77,470 GWh for the week ending December 19. Electricity generation dropped in all census regions in the week ending December 26.
Not a good sign
A fall in electricity demand right at the start of winter isn’t a good sign for utilities and coal producers. While the US economy is growing, efficient appliances and the focus on electricity conservation led to stagnant demand for electricity.
As explained earlier, over 90% of the coal in the US is used for electricity generation. If electricity generation is muted, it will affect demand for coal as well. Also, if natural gas prices remain subdued, it may eat into coal’s market share in electricity generation. Coal’s share already fell from over 50% a decade ago to below 40% now.
The capacity factor is another important indicator that focuses on power plants’ utilization level. In the next part of this series, we’ll discuss capacity factor.