By Kayleigh Yerdon, Summer Intern 2015, Cornell University As you may have heard, April 2015 marked the first time in history that the United States got the “largest share of its power from anything other than coal”. Wait what?! Yeah, let that sink in. April 2015 was the first time ever that coal was not America’s largest source of power. For one month this year, natural gas overtook coal as the nation’s leading source of power. Although coal has since reclaimed its number one rank, this news showed a drastic change for the direction of the energy industry.
In fact, let’s put some numbers to it. In the year-to-year stats released with this news in April, coal supplies 34.8 percent of the nation’s electricity yearly, while gas supplies around 29.2 percent. However, their market shares in April showed that natural gas represented about 31.5 percent of the electricity market compared to 30.2 percent for coal at the time. These numbers (even with the market’s current correction back in favor of coal) indicate a gradually closing gap in the total amount of electricity supplied by each source over time.
Although the news of natural gas’s April takeover came in hot, does anyone really believe that the shift was unprecedented? Research regarding the shift cites lower natural gas prices and stricter environmental regulations as logical factors contributing to America’s shift away from coal. However, it is evident that coal production has been declining for years. Who can we thank for that? Millennials.
With improving technology (and, of course, increasing environmental outcries) recent trends have shown people’s desire to turn towards energy sources that can provide the most power for the least environmental and monetary costs. Interestingly enough, many millennials have reported that they are willing to pay more for energy sources that do not contribute significantly to pollution. While nobody is sure yet which energy source has the best combination between low cost, environmental safety, and high energy output; it seems that coal, with its high pollution levels and relatively low energy output, ranks pretty far down the list. And, as millennials age and make more of the energy purchasing decisions, a higher price tag may be ignored in favor of less pollution. Thus – we are beginning to see a decline in the use of coal for electric energy.
To further illustrate this trend, the world saw Arch Coal, one of America’s largest coal mining and processing companies, file for bankruptcy on Monday morning. The corporation made this move in hopes of reducing its more than $4.5 billion long-term debt. Furthermore, holders of the Arch Coal stock lost nearly 67% of their investments in the company by the closing bell on Tuesday. With those numbers, in addition to the company’s long-term debt, it is reasonable to say that Arch Coal and other coal companies have some issues to grapple with if they want to have long-term viability.
Lastly, what does all of this mean for your stock portfolio? As we always say, it is good to stay as updated as possible on news that could affect your holdings. At this point, it seems very possible that we could be looking at the beginning of a shift away from the use of coal as an energy source. So, you might consider looking out for news articles related to the energy industry or even think about how a shift towards natural gas and renewable energy will affect the companies you’re invested in.