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What Do High-Capacity Factors of Coal-Fired Plants Mean?

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Nov. 20 2020, Updated 5:11 p.m. ET

The latest EIA report

On December 23, 2016, the EIA (U.S. Energy Information Administration) published its latest report on capacity factors for power plants based on data for October 2016. The capacity factors for both coal and natural gas declined. However, the capacity factor of coal-fired power plants surpassed the capacity factor of natural gas–fired plants for October.

According to the EIA, the capacity factor for coal-fired power plants came in at 50.2% in October 2016 compared to 59.7% in September 2016. During the same period, the utilization rate for natural gas plants fell sharply to 48.1% from 61.3%.

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

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Impact on coal

Capacity factors for coal-fired plants rose from 47.0% in October 2015 to 50.2% in October 2016. Capacity factors for natural gas plants fell from 53.6% in October 2015 to 48.1% in October 2016.

That kind of shift is positive 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. The factors 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 50.0% capacity factor on a given day, it generates electricity equivalent to what a 300 MW power plant would produce if it ran at 100.0% 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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