The Edison Electric Institute (or EEI) publishes electricity generation data weekly. The current report available to us is for the week ended September 4. Electricity generation in the United States increased again to 86.8 million megawatt-hours (or MWh) for the week ended September 4, a 4% increase from the previous week’s 83.5 million MWh.
The week’s electricity generation was also higher than the 85.9 million MWh reported during the corresponding week in 2014.
Why is this indicator important?
More than 90% of the coal produced in the United States is used for electricity generation. The power utility segment is coal’s largest end user. As a result, coal and utility investors should watch electricity generation trends.
Electricity storage is expensive, so most produced electricity is consumed right away. So, electricity generation mirrors consumption.
What does this mean for coal producers?
Thermal coal is used mainly for electricity generation. Everything else being equal, a rise in electricity generation is positive for coal producers (KOL) such as Peabody Energy (BTU) and Cloud Peak Energy (CLD). However, coal is losing market share to natural gas in the current low natural gas price environment.
Weekly generation levels are subject to seasonal deviations. The impact on utilities (XLU) such as NextEra Energy (NEE) and Southern Company (SO) depends on the regional breakdown of electricity generation. We’ll take a look at this in the next part of this series.