The largest coal companies in the U.S. are collapsing left and right as the value of the coal industry has lost 94% of its value in the last five years begging the question: Does coal power have a future?
A devastating drop in coal prices is partially to blame. The dollar value of a metric ton of coal was nearly cut in half over the last three years as global oversupply and slowing demand from China.
“Enormous energy needs around the world point to the early stages of what we expect to be a long-lived supercycle for coal – a period of sustained market expansion to meet the requirements of an emerging global middle class,” Peabody’s annual report for 2011 said, a prediction that could not have been more wrong as reflected by the company’s recent filing for bankruptcy with its shares trading for less than 1% of their peak. Still, one can hardly blame Peabody for not foreseeing the shale-gas boom or China’s shift away from coal-intensive industry.
“No one’s actually making money from coal-fired power plants in the United States right now,” said David Crane, former CEO of NRG Energy. “The problem with reforming utilities is there’s nothing you have to offer them that is better than what they have now.”
Mr. Crane is not wrong. Building new power plants requires massive amounts of capital and confidence that the end product will still be making money over 20 years into the future. Even if new generation capacity is predominantly solar, wind, and natural gas, using existing coal-fired facilities remains a more profitable option. The next major turning point will come when it becomes cheaper to build new solar farms rather than keep using coal.
Until that time, coal seems to be dying a slow, albeit accelerating, death. Coal production in the US is at its lowest point (173 million short tons) since the 1980’s with much of its decline happening in the last four years.
Coal producers are struggling to adapt to regulations restricting operations on federal lands and requiring costly environmental considerations. In addition, coal-fired generators fighting a losing battle against renewables and natural gas for electricity demand which itself is shrinking with higher efficiency standards. This competition could be a death sentence for coal since more than 90% of domestic coal use goes towards generating electricity.