Coal’s Accelerating Collapse

March 29, 2016

If coal giant Peabody goes down, as seems increasingly likely, the investment community’s orderly retreat from Coal may turn into a rout.

New York Times:

The grave environmental damage from coal-fired power plants has done nothing to deter the Senate majority leader, Mitch McConnell, from decrying a “war on coal” and orchestrating his own war against the Obama administration’s climate change agenda. But he and other coal-state Republicans would be foolish to ignore the growing consensus on Wall Street that King Coal, for all its legendary political power, has turned into a decidedly bad investment.

JPMorgan Chase announced this month that it would no longer finance new coal-fired power plants in the United States or other advanced nations, joining Bank of America, Citigroup and Morgan Stanley in retreating from a fuel that provides about one-third of the nation’s electricity and accounts for about one-quarter of the carbon emissions that feed global warming.

Cleaner and cheaper natural gas is fast becoming the preferred investment, a blunt marketplace reality that is sure to weaken coal’s grip on the planet as much as moral and environmental concerns. Last week’s announcement by Peabody Energy, the world’s largest private-sector coal company, that it may have to seek bankruptcy protection, just as three other major coal producers have done recently, provided a dramatic confirmation of this trend.

Main Street also seems to be getting the message. Two weeks ago, Gov. Kate Brown of Oregon signed ambitious legislation — agreed to by environmentalists, consumer groups and power producers — that requires the state’s two largest utilities to stop importing out-of-state coal-generated power by 2030 and to use renewable energy to meet half of the demand of their customers by 2040. Oregon’s only in-state coal-fired plant will close by 2020.

Mashable:

The campaign to convince investors to divest from fossil fuels has picked up steam in the past two weeks, thanks to the imminent bankruptcy of one major old-line energy company.

Peabody Energy, the world’s largest privately-held coal company, signaled on March 15 that it may seek bankruptcy protection in order to restructure its skyrocketing debt.

Peabody is not just your ordinary coal company — it is one that has steadfastly refused to incorporate the findings of mainstream climate scientists into its business planning, and may now be suffering as a result.

A Peabody bankruptcy would follow the bankruptcy of several other large coal companies, including Alpha Natural Resources and Arch Coal.

Coal is facing one of the worst downturns in its history, as coal-fired power plants have been idled or converted around the country due to the increased domestic production of natural gas.

In addition, public policies have favored a shift to lower carbon fuels.

Plus, China’s demand for U.S. coal for use in steel manufacturing has fallen significantly as its economic growth has sputtered.

Peabody’s plight is being used as a case study by climate activists who are seeking the removal of fossil fuel companies from the investment portfolios of universities, religious institutions and state pension funds, among others.

The potential bankruptcy, activists argue, demonstrates that fossil fuel investments are a risky bet.

“A Peabody bankruptcy will be like rocket fuel for the divestment campaign,” said Jamie Henn, a spokesman for the environmental group 350.org, in an interview.

“It gives students and pension holders a new reason to go back to their boards and ask, ‘Are you holding this stock? What about other fossil fuel companies?'”

A recent report from the consulting firm the Rhodium Group backs up the contention that investing in fossil fuel companies may be more risky than ever before, at least when it comes to coal.

A Rhodium report released in February, for example, found that the four largest American coal miners by output, Peabody Energy, Arch Coal, Cloud Peak Energy and Alpha Natural Resources, which account for nearly half of US production, were worth a combined $34 billion in 2011.

Today they are worth just $150 million, which is less than the value of the online marketplace Etsy, which is worth on the order of about $900 million.

Peabody has informed the U.S. Securities and Exchange Commission that its ability to operate as a “going concern” is now in question, which is accounting-speak that means it may not be possible for the company to continue to operate as currently structured.

New Republic:

“To me saying this is a war on coal is saying the Internet is a war on typewriters,” said Bob Keefe, executive director for E2, a partner of the Natural Resources Defense Council. “The fact of the matter is that the energy business … is in transition. The good news is that like any major industry transition, we’re seeing a lot of progress”—specifically, the addition of 250,000 clean energy jobs in the last four years.

Renewable energy is also getting cheaper, leading to an expected 8 percent increase in renewables this year. “The ‘war on coal’ is being driven by lots of different dynamics including a huge drop in the cost of renewables and then obviously to an extent the drop in price in natural gas in the United States,” said Jake Schmidt of the NRDC. It has become economically rational “to shift away from coal to one of these sources and a lot of companies are choosing natural gas.”

To keep that edge, Keefe says the Clean Power Plan will have to move forward. Obama’s decision this week to limit methane leaks on existing oil and gas wells will also be key. For natural gas to provide a bridge to renewables, drilling practices will have to be regulated and standardized to avoid flack from critics who say natural gas is nearly as destructive to the environment as traditional sources of energy.

In the presidential election, the candidates’ stances on coal and diversifying energy have been important on both sides of the race. Bernie Sanders has been able to maintain his anti-coal stance while drawing support from coal country. Hillary Clinton, for her part, has had a tougher time. This week, the Democratic frontrunner said she’s going to “put a lot of coal companies and coal miners out of business.” In the same breath, she clarified that she wanted to buoy coal miners who have worked to power the country. Still, Republicans like Mitch McConnell seized on the comments, calling them “callous.” Politicians in coal-dependent West Virginia were appalled. Clinton walked back her comments, saying, “Coal will remain a part of the energy mix for years to come.” Days later, she was able to pull out a victory in Ohio coal country.

Republicans coined the phrase “war on coal” as a pejorative way to describe Obama’s regulatory policies. This year’s presidential race has continued that belligerently pro-coal approach. Trump has been particularly outspoken, calling Obama’s war a job killer, and he has raked in coal country votes and support for his efforts.

But according to Keefe, rhetorical assaults designed to boost coal are a waste of time. “If I’m a coal state politician, instead of harping about some other party’s ‘war on coal’ I would be trying my best to help those workers,” he said. “Getting them some worker retraining programs and more importantly getting more clean energy … in my state.” Clearing the way for budding renewables programs will help to ease the absence of coal across the country. Nevada has faced what Keefe calls a “solar debacle,” thanks to regulators dumping extra electricity costs on solar users, and North Carolina and Florida have seen similar struggles. Sorting out these regulations will take some pressure off natural gas.

International markets are also catching on. Though coal is still the world’s largest fuel source, 2014 showed the first decline in its consumption since the 1990s. The International Energy Agency expects consumption growth to continue, but it will be more measured.

 

 

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19 Responses to “Coal’s Accelerating Collapse”

  1. Mark White Says:

    Sorry for being picky, but I think you mean “rout”, rather than “route” at the end of the first sentence.

  2. Gingerbaker Says:

    “If coal giant Peabody goes down, as seems increasingly likely, the investment community’s orderly retreat from Coal may turn into a route.”

    Route should be rout?

    • grindupbaker Says:

      A route to change. His subtlety is completely lost on you guys.

      • dumboldguy Says:

        Another Gubbie from the GUBster, whose level of self delusion about the powers of his intellect has him foolishly chastising “us guys” rather than listening to Lincoln—–“Better to remain silent and be thought a fool than to speak out and remove all doubt.”

        Unless Peter tells us he was trying to use “route” in the rather strange and convoluted sense the GUBster suggests, “us guys” will have to rely on the unsubtle thought that the possibility of the investment community’s “ORDERLY RETREAT from coal” turning into a “ROUT” is exactly what Peter meant and that “route” was an early-AM keyboard brain fart.

        Go away, GUB—-you bring nothing to the discussion.

      • Ron Benenati Says:

        as natural gas infrastructure snakes and pops up, from LNG ports off NY, to storage at Seneca lake, to new gas powered plant on Long Island, with its vast opportunities for offshore wind and solar….
        And reports showing natural gas lobby money flowing into the state like never before….I find subtlety to be somewhat lost on me.
        And the “You Guys” thing? I wish I could be so prescient as to be able to make such broad judgements about invisible groups of people.

    • greenman3610 Says:

      rout. got it.

  3. Ron Benenati Says:

    Although, there is no shortage of recent studies showing that “cleaner and cheaper natural gas” is of any benefit to us. Though it burns emitting less carbon than coal…the entire gas extraction, processing, transport and storage leaks such enormous quantities of mega-warming methane as to not only negate any advances in GHG pollution…but very likely to be more damaging.

    As has been said, the rise of natural gas is a hollow victory.

  4. Ron Benenati Says:

    “Well, let me tell you something, am I talking to peter Sinclair?
    We are in the early stages of the REV process here in NY and our environmental groups are fighting gas and oil pipelines, storage facilities, Liquid Natural Gas ports and the Caithness II gas fired power plant on a constant basis. Infrastructure is being pushed through at a demons pace. I track those numbers of investments in green energy professionally as well. But what we see on the ground is a very different thing.
    Natural gas infrastructure lobby ramps up spending in New York State
    http://public-accountability.org/2016/03/natural-gas-infrastructure-lobby-ramps-up-spending-in-new-york-state/
    Key findings
    ◾The companies behind major natural gas infrastructure projects spent $1.3 million on lobbying in New York State government in 2015, a nearly 119% increase from the $578,454 spent in 2011.
    ◾Lobbying expenditures have increased nearly 18% from 2014 to 2015.
    ◾Natural gas lobbying firms and their leadership have contributed at least $513,869 to Cuomo since 2006.
    ◾Three top lobbyists at the firms hired by the natural gas industry have ties to Andrew Cuomo through his late father, Mario Cuomo. Another served as the Executive Director of Republicans for Cuomo, and two partners from the same lobbying firm previously served as assistant counsel to Cuomo

  5. Ron Benenati Says:

    I have to assume you have read, at least some of the numerous studies on the increase of methane in the atmosphere since the fracking boom began, largely from natural gas gathering and processing. Studies show facilities venting 8x official estimates…of course, the lower estimates are provided by the industry.
    So…when they talk about coal being displaced, largely by cheaper. cleaner natural gas…how does that happen if they are not switching to natural gas?

    http://www.nytimes.com/2016/03/20/science/earth/environmental-activists-take-to-local-protests-for-global-results.html?_r=0

    Seems to me the touted “Bridge fuel” as one friend says in the times article, has decided it is here to stay.

    Maybe you see more hope in the vanishing clouds of coal smoke…but methane is invisible and its lobby never sleeps.

    I love you work….but when it comes to bringing GHG under control… I do not find the pace of change to be much to cheer about at this point.

    • greenman3610 Says:

      Lots of work to do.

      “All of the new utility-scale generation capacity added in the U.S. in January came from 468 MW of new wind and 145 MW of new solar, according to the latest “Energy Infrastructure Update” from the Federal Energy Regulatory Commission (FERC). There was no new nuclear, coal, natural gas, or oil generation capacity.”

      http://www.utilitydive.com/news/wind-and-solar-provided-all-new-us-electric-capacity-in-january/415195/

      now let’s replicate that.

      Not a slam dunk for new large central generating plants – many of these investments may not pay off, or may be stranded assets.
      As renewables continue to drop, System operators go for “free” fuels ie wind/solar before fossil fuel – which leads to big investments in gas or whatever that will not pencil out. This process is moving rapidly.

      http://www.bloomberg.com/news/articles/2015-10-06/solar-wind-reach-a-big-renewables-turning-point-bnef

      “For the first time, widespread adoption of renewables is effectively lowering the capacity factor for fossil fuels. That’s because once a solar or wind project is built, the marginal cost of the electricity it produces is pretty much zero—free electricity—while coal and gas plants require more fuel for every new watt produced. If you’re a power company with a choice, you choose the free stuff every time.

      It’s a self-reinforcing cycle. As more renewables are installed, coal and natural gas plants are used less. As coal and gas are used less, the cost of using them to generate electricity goes up. As the cost of coal and gas power rises, more renewables will be installed. “

      • Ron Benenati Says:

        “If you’re a power company with a choice, you choose the free stuff every time.”

        I won’t beat this to death, my last comment: The above quote is a beautiful Cliché…it assumes an ideally functioning free market without corrupt politicians, money-slinging lobbyists, utility engineers in positions of influence who have mastered their field of energy generation — but only through now obsolete but long-term standard fossil generation…who are comfortable in their niche and have long developed and lucrative relationships with their fossil fuel providers…
        and lack the motivation which should demand that they retrain or retire.

        And the GHG time-bomb ticks off its last quarter inch of fuse.

  6. Lionel Smith Says:

    My posts don’t seem to be getting through, will this?

    If it does it must have been a link to The Intercept which sent it into the trash.

  7. Lionel Smith Says:

    OK that worked now I’ll strip out the link.

    Now how is poor little Lamar Smith going to get by when Bob Murray declares bankruptcy? Search on “Coal CEO Thanks Lamar Smith, Asks Him to Expand Probe of Climate Scientists”, should pull up The Intercept.


  8. […] included a clip from Murray Energy CEO Robert Murray in my recent explainer on coal’s big crash, and some folks remarked on it. Here’s […]

  9. Karl Wirth Says:

    Following along the the ‘War On Typewriters’ analogy, ‘clean coal’ would be then like the ‘word processor’. Nice try, but blown away by far more advanced technology before it ever really had a chance. Those who took the early plunge and hitched their horses to that wagon soon looked over to Apple owners wistfully…


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