The shift from coal to cheaper and cleaner fuel sources like natural gas and renewables claimed another victim in the US last week.
Peabody Energy said it will close its Wildcat Hills coal mine and nearby Willow Lake processing facility in southern Illinois before year-end due to “uneconomic mining conditions.”
The announcement — which affects 225 workers — followed news in September that Peabody ended cash tender offers to buy back debt, due to poor market conditions. In June, the pure-play coal company signed a deal with Arch Coal to combine the companies’ assets in the Powder River basin and Colorado into a joint venture to save costs and strengthen their competitiveness against natural gas and renewables.
Five coal companies have filed for bankruptcy already this year: Blackhawk Mining, Blackjewel, Cambrian Holding Co., Cloud Peak Energy and New Trinity Coal
More cutbacks and layoffs are likely, particularly in the Powder River basin of Wyoming and Montana. “We expect that at least a few Powder River basin mines will close in the early 2020s,” Moody’s Investor Services commented in an Oct. 16 research note.
Peabody’s troubles certainly didn’t begin this year. The company filed for bankruptcy in 2016, and billions of dollars in debt were scrubbed from its balance sheet before it came out of court protection in 2017. Three other big U.S. coal producers also filed for bankruptcy between 2015 and 2016 — Alpha Natural Resources, Arch Coal and Patriot Coal.
The wave of Chapter 11 filings seems to be picking up as coal consumption falls, and coal-fired power plants go offline.
Five coal companies have filed for bankruptcy already this year (Blackhawk Mining, Blackjewel, Cambrian Holding Co., Cloud Peak Energy and New Trinity Coal), while Mission Coal and Westmoreland Coal went bust in October 2018.
In August, Moody’s forecast profitability in the coal sector will worsen over the next 12 to 18 months. “A confluence of economic, environmental and social factors also increase our concerns about the industry’s longer-term demand prospects, as pressure on the industry is mounting, which makes numerous coal mines uneconomic in a reduced demand environment, especially smaller, higher-cost mines that are highly vulnerable to retirement of specific coal-fired power plants.”
The U.S. Energy Information Administration (EIA) notes that coal’s share of electricity generation in the U.S. was just 28% last year, down from 48% in 2008, and forecasts it will average 25% this year and 22% in 2020.
The “closures of coal-fired power plants already announced, plus other likely closures such as power plants more than 50 years old, would reduce coal to as little as 11% of total U.S. power generation by 2030,” Moody’s predicted in July. “This drop would represent a substantial reduction from today’s mid-20% contribution to power generation, and the continuation of an ongoing secular decline in thermal coal demand.”
Power companies in the U.S. retired more than 546 coal-fired power units between 2010 and the first quarter of 2019, or 102 gigawatts (GW) of generating capacity, and another 17 GW of coal-fired capacity is expected to be retired by 2025, EIA states. Last year plant owners retired more than 13 GW of coal-fired generation capacity — “the second-highest annual total for U.S. coal retirements in EIA’s data set.” The largest number — 15 GW — was retired in 2015.
U.S. coal consumption has fallen nearly 42% since its peak in 2005, and in 2018 fell to 687 million tons (623 million tonnes) — the fifth straight annual decline, and the lowest level since the 1970s, the EIA says.
Increased competition from natural gas (now the second-largest energy source consumed in the U.S.) and renewables (whose consumption has nearly tripled since 1950) is putting the squeeze on coal.
In April, U.S. electricity generation from renewable sources (23%) exceeded coal (20%) for the first time, according to EIA’s stats. The agency defines renewables as hydropower, wind, solar and geothermal.
While cost competitiveness has played a role in the move away from coal, so too have green-energy mandates and stronger environmental regulations, and a mounting aversion in the financial and debt markets to invest in the commodity.
At least 19 major insurers — mainly in Europe — have divested from coal, and the combined assets covered by divestment policies rose from $4 trillion in 2017 to more than $6 trillion in 2018, or from 13% to 20% of the insurance industry’s global assets, according to a report in December 2018 by the Unfriend Coal network. The group — a global coalition of non-governmental organizations including Greenpeace, Sierra Club and the Rainforest Action Group — is pressuring insurance companies to get out of the coal business.
In July, Chubb became the first major insurance company in the U.S. to stop underwriting the construction and operation of new coal-fired power plants, and said it wouldn’t sell new policies to corporations where more than 30% of revenues come from mining thermal coal.
It won’t be the last.
(This article first appeared in The Northern Miner)