# Can Coal Producers Withstand the Heat from Coal-Fired Plants?

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## The latest EIA report

On August 24, 2016, the EIA (U.S. Energy Information Administration) published its latest report on capacity factors for power plants based on data for June 2016. The capacity factors for both coal and natural gas increased.

According to the EIA, the capacity factor for coal-fired power plants came in at 60.6% in June 2016 compared to 41.1% in May 2016. During the same period, the utilization rate for natural gas plants increased to 64.4% from 52.9%.

The year-over-year capacity factor for coal fell and natural gas–fired power plants saw an uptick in the utilization rate during the same period.

## Impact on coal

Capacity factors for coal-fired plants fell year-over-year. However, capacity factors increased on a month-over-month basis. In contrast, capacity factors for natural gas–fired power plants rose during both periods.

This development indicates a continued shift from coal to natural gas as the preferred fuel for electricity generation. This kind of shift is negative for thermal coal (KOL) producers such as Peabody Energy (BTUUQ), Cloud Peak Energy (CLD), Alliance Resource Partners (ARLP), and Arch Coal (ACIIQ).

## 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, as well as 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 electricity equivalent to what a 300 mW power plant would produce if it ran at 100% capacity.

The EIA publishes capacity data for various fuel types every month. To get exposure to various utility companies, you can consider the Utilities Select Sector SPDR ETF (XLU).