The indirect effect
The Clean Power Plan will have an indirect effect on coal (KOL) producers. According to the EIA’s (U.S. Energy Information Administration) Annual Energy Outlook Report for 2015, 40 GW (gigawatts) of coal-fired power generation would retire from 2014–2040. However, these retirements would increase to 90 GW if the Clean Power Plan was implemented. The increase in coal-fired power generation retirements will decrease the demand for coal and thus have an indirect impact on coal production.
A stay of the Clean Power Plan will have different short-term and long-term impacts on the coal industry.
Short-term impact of the Stay of the Clean Power Plan
If the Clean Power Plan is implemented according to the EPA’s (U.S. Environmental Protection Agency) plan, power utilities would still have time until 2020 to be in compliance with the policy.
According to EIA projections, taking the Annual Energy Outlook 2015 as a reference case, the Clean Power Plan will not have a significant impact on the quantity of coal produced or coal prices in the short term, until implementation of the plan. In the short term, supply and demand will be determined by natural gas prices, market dynamics, and macro factors. So the stay on the Clean Power Plan may not have a significant impact on the coal industry in the short term.
Long-term impact of the stay on the Clean Power Plan
Uncertainty surrounding implementation of the Clean Power Plan can impact capital expenditure plans in developing alternate energy sources. If all other things remain constant, a projected increase in natural gas prices could increase the demand for coal in the long term. If the stay persists for a prolonged period, it’s possible that there would be an increase in price realization for coal produced by major coal (KOL) miners such as Peabody Energy (BTU), Arch Coal (ACIIQ), Alpha Natural Resources (ANRZQ), and Cloud Peak Energy (CLD).
In the next part of this series, we’ll take a look at the impact of the Clean Power Plan stay in the renewable energy sector.