Coal-Fired Plants’ Capacity Factors Impact Coal Producers

EIA’s latest report

On November 29, 2016, the EIA (U.S. Energy Information Administration) published its latest report on capacity factors for power plants based on data for September 2016. The capacity factors for coal and natural gas decreased.

Coal-Fired Plants’ Capacity Factors Impact Coal Producers

According to the EIA, the capacity factors for coal-fired power plants came in at 59.7% in September 2016—compared to 68.5% in August 2016. During the same period, the utilization rate for natural gas plants fell to 61.3% from 71.1%.

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

Impact on coal

Capacity factors for coal-fired plants continued to fall after surpassing natural gas-fired power plants in July 2016. Notably, it was the first time that capacity factors of coal-fired plants surpassed natural gas–fired plants in 2016.

The 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, visit Market Realist’s Energy and Power page.