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June 1, 2014 4:32 pm
It cannot get much worse for US coal miners. So the incremental damage from President Barack Obama’s carbon emission reduction plan, to be announced on Monday, may be muted. The fallout for power producers, which rely on coal as well as natural gas, nuclear and renewables, is trickier to predict.
US coal producers have two problems already. Utilities have shifted away from coal to cheap natural gas for electricity generation. And compliance with the Mercury and Air Toxins Act, which has a 2015 deadline, requires investments in controlling acid and metal emissions. These are so expensive that several coal-fired plants have already been shuttered. The US Energy Information Administration has projected that 60,000 megawatts of coal-fired production, about a fifth of the total, will be retired by 2020.
Coal still accounts for about 40 per cent of US power production. That is down from about half since a decade ago. Shares in public coal companies Alpha Resources, Peabody Energy, Arch Coal are all down 70 per cent or more during the past three years.
The situation is less grim at utilities. Take AEP, whose market capitalisation is $26bn and whose shares have rallied 38 per cent over three years. It generates three-fifths of its power from coal. It says that proportion though will drop to 45 per cent by 2026.
Coal production is not headed for extinction, though. According to the EIA’s base case forecast, production in 2040 will be a tenth higher than the 2012 level – suggesting that new, cleaner plants could be built or old plants refitted and run harder.
That projection may be trimmed. It does not include the new carbon emission restrictions. The good news for power producers is that the rules will probably be the flexible “cap-and-trade” framework that they prefer. Coal companies, in the meantime, can consolidate further – and pray for higher gas prices.
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