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Capacity at Issue for Natural-Gas-Fired Plants: This Is Why

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The latest EIA report

On October 25, 2016, the EIA (U.S. Energy Information Administration) published its latest report on capacity factors for power plants based on data for August 2016. The capacity factor for natural-gas-fired power plants continued its uptrend. On the other hand, the capacity factor for coal-fired power plants fell for the first time in five months.

According to the EIA, the capacity factor for coal-fired power plants came in at 68.5% in August 2016 compared to 69.3% in July 2016. During the same period, the utilization rate for natural gas plants rose to 71.1% from 68.6%.

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

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Impact on coal

The capacity factors for coal-fired plants improved by nearly 3.8% on a year-over-year basis. In contrast, capacity factors for natural gas plants rose nearly 3.5%. Notably, this is the highest capacity factor of natural-gas-fired power plants reported in the last three years.

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 (ARCH).

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).

For more related analysis, check out Market Realist’s Energy and Power page.

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