What Lower Electricity Generation Means for Coal Producers

The EEI (Edison Electric Institute) publishes electricity generation data weekly. The current report for the week ended October 14, 2016, shows that US electricity generation fell yet again to about 70.0 million MWh (megawatt-hours) from 72.7 million MWh in the previous week.

Moreover, the week’s electricity generation was lower than the 71.6 million MWh reported during the comparable week in 2015.

More than 90% of the coal produced in the United States is used for the generation of electricity. This means the power utility segment is coal’s largest end user.

As a result, coal and utility investors watch electricity generation trends. Because electricity storage is expensive, most produced electricity is consumed right away. As a result, electricity generation mirrors consumption.

Thermal coal is used mainly for the generation of electricity. Everything else being equal, a fall in electricity generation is generally negative for coal producers (KOL) such as Peabody Energy (BTUUQ) and Cloud Peak Energy (CLD). Moreover, coal has been 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.

In the next part of this series, we’ll take a closer look at what’s happening across the United States in terms of electricity generation.