Time for Coal to Retire?

Coal-fired power plants are retiring at a faster rate, according to the EIA, with 2014 projections showing a 50% increase in megawatt retirement vs 2013.

Mar 4, 2014 at 11:49AM

In its 2014 Annual Energy Outlook (AEO2014) the EIA increased the number of expected coal-fired electricity plant retirements significantly. Approximately 60,000 megawatts (MW) are expected to go offline by 2020, which is up 50% from 2013 numbers of 40,000 MW. With approximately 300,000 MW generated from coal in the U.S., these retirements represent approximately 20% of total capacity.

Coal Plant Retirement

Courtesy of EIA

The reason for the rapid rise in retirements is two-fold. First, low natural gas prices and increasing accessibility to the fuel are providing a cheaper and cleaner alternative to coal for electricity generation. Second, the Mercury and Air Toxics Standards (MATS) is set to go into effect in April of 2015 and will require power plants to limit their emissions of toxic air pollutants like mercury, arsenic, and metals. Emissions that were previously unregulated. As a result, costly scrubbers and other emission reduction technologies must be employed to meet the new standards. Simple cost/benefit analysis has led to the decision to close many coal-fired plants, usually those of smaller scale.

Full-year statistics for 2012 show that 37% of all electricity in the U.S. was produced from coal-fired plants. The magnitude of this retirement will therefore impact everyone. Consumers will potentially pay more for electricity, alternatives to coal-fired production will see more demand, and coal producers will be be hurt.

Major coal producers, represented as a whole through the Market Vectors-Coal ETF (NYSEMKT:KOL), will suffer demand declines as a result of these retirements. These demand declines will in turn increase the available supply of coal, thus reducing overall price. This is bad news to coal producers like Peabody Energy (NYSE:BTU), Arch Coal (NYSE:ACI), and Alpha Natural Resources (NYSE:ANR), who are already struggling with profit margins.

Fiscal year 2014 estimates for those companies forecast a very dismal year ahead. Peabody Energy is projected to see its profit of $0.34 per share in 2013 fall to just $0.05 in 2014.

Arch Coal's estimates for 2014 are even worse. Analysts are looking for a loss of $1.43 per share vs a loss of $1.08 in 2013 -- a 32% decline in growth for an already struggling company.

Finally, Alpha Natural Resources, which over the last three years has lost over 90% of its market cap, seems to be in the worst shape. It is projected to maintain significant losses for 2014 with a loss of $2.10 per share for vs. a loss of $2.15 for 2013.

The extent of these declines will become more clear as regional reports are released by the IEA this spring, showing projected closings. This information should be coupled with the access to Montana and Wyoming's sub-bituminous coal fields. While producing less Btu's per pound than Eastern bituminous coal, the much cleaner coal will produce less pollution per Btu generated making this the preferred coal for the future.

While many investors may be looking at coal stocks, believing they present a potential value investment, it is still too soon to get a firm grasp on just how badly these positions will be hit. Therefore, it would be prudent to wait for 2016 to pass given that extensions issued by states could delay the implementation of MATS for up to one year. At that point real future demand can be more accurately predicted.

Invest in the future of American energy
Imagine a company that rents a very specific and valuable piece of machinery for $41,000... per hour (that's almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report reveals the company we're calling OPEC's Worst Nightmare. Just click HERE to uncover the name of this industry-leading stock... and join Buffett in his quest for a veritable LANDSLIDE of profits!


James Catlin has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information