# YoY Capacity Factors Indicate Shift from Coal to Natural Gas for Electricity Generation

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## The latest EIA report

On August 26, the EIA (US Energy Information Administration) published its latest report on capacity factors for power plants, based on data for June 2015. Capacity factors for both coal and natural gas plants rose month-over-month due to higher electricity demand for cooling.

Historically, coal has boasted higher utilization. But in April 2015, natural gas surpassed coal in both the utilization rate and market share. In June 2015, the coal-fired power plants’ capacity factor came in marginally higher, however, than that of natural gas-fired power plants.

The capacity factor for coal-fired power plants came in at 62.5% in June 2015, compared to 49.7% in May 2015. During the same period, the utilization rate of natural gas plants rose to 61.4% from 49.4%. However, the YoY (year-over-year) capacity factor for coal fell, while natural gas-fired power plants have seen an uptick in utilization rate during the same period.

## Impact on coal

Capacity factors for coal-fired plants fell YoY. By contrast, capacity factors for natural gas-fired power plants rose substantially during the same period.

This development indicates a shift from coal to natural gas as a fuel for electricity generation, and this kind of shift is negative for thermal coal producers like Peabody Energy Corporation (BTU), Cloud Peak Energy (CLD), Alliance Resource Partners (ARLP), and Arch Coal (ACI).

## Capacity factors

Capacity factors are an important indicator when it comes to understanding power plants’ utilization levels. They measure how often a power plant runs in a given period and also indicate the maximum capacity at which a power plant can run. For example, if a power plant with a capacity of 600 MW (megawatts) operates at a 50% capacity factor on a given day, it generates the electricity equivalent to what a 300 MW power plant would produce if it ran at 100%.

The EIA publishes capacity data for various fuel types every month. For various utility companies’ market exposure, check out the Utilities SPDR ETF (XLU).