US electricity generation
The EEI (Edison Electric Institute) publishes electricity generation data weekly. The current report for the week ended October 28, 2016, shows that US electricity generation fell to 69.0 million MWh (megawatt-hours) from 72.6 million MWh the previous week. It was a five-month low.
However, the week’s electricity generation was higher than 68.3 million MWh reported during the comparable week in 2015.
Why is this indicator important?
More than 90.0% of the coal produced in the United States is used for electricity generation. 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.
What does this mean for coal producers?
Thermal coal is used mainly for the generation of electricity. Everything else being equal, an increase in electricity generation is generally positive for coal producers (KOL) such as Peabody Energy (BTUUQ) and Cloud Peak Energy (CLD). However, 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 with electricity generation across the United States.