A key indicator for coal industry investors is the monthly electricity output data published by the EIA (U.S. Energy Information Administration). The current report is for May 2015. It was published on July 27. Electricity output in the US came in at 321.9 million mWh (megawatt-hours) in May 2015—compared to 293.6 million mWh in April 2015 and 323.7 million mWh in May 2014. Warmer weather led to higher electricity usage for air conditioning during the month.
Coal’s market share in electricity generation
After losing the top spot to natural gas in April 2015, coal regained its leadership position as a fuel in electricity generation by a narrow margin. Coal’s market share in May 2015 came in at 32.60%—compared to natural gas’ market share of 31.40%. While coal regained the top spot, its market share remains far below the low 50s that it commanded at the start of the century.
As a result, the news definitely isn’t sufficient to cheer US coal producers (KOL) like Peabody Energy (BTU), Cloud Peak Energy (CLD), Arch Coal (ACI), and Alpha Natural Resources (ANRZ). Peabody Energy reported over a $1 billion dollar quarterly loss and suspended dividend payments. We’ll cover Peabody Energy’s earnings in a separate series.
Why is this important?
Since thermal coal is used mainly in electricity generation, electricity output is an important indicator to track thermal coal’s demand outlook. To get more insight, we should also look at how much coal is contributing to the total electricity output.
Electricity output in the US has been stagnant after the crisis in 2008. Consumers were cautious about using electricity. Also, new technologies made appliances more efficient in terms of electricity usage. Stagnant electricity demand and rising competition from natural gas as a fuel for power generation led to a fall in coal’s share in electricity generation.