The growth of the renewable energy industry in the US is participating in the decline of the country’s coal industry, with a recent report by the Carbon Tracker Initiative revealing a sector that is in terminal decline.
According to the report, the US coal industry has lost 76 per cent of its value in the past five years, with 26 leading companies going bust since 2012 and 264 mines closing between 2011 and 2013. Peabody Energy, the world’s largest private coal company, has lost 80 per cent of its share price since 2011.
Faced with a one-two punch of stricter environmental regulations and the plunging costs of shale gas (prices of shale have fallen by 80per cent since 2008), the coal industry has been further injured by the rise of the renewable energy sector, which now accounts for 4.1 per cent of US electricity generation. Gas, powered by the shale revolution, is now 8.1per cent of the US grid.
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The roof has fallen in on US coal, and alarm bells should be ringing for investors in related sectors around the world.
Andrew Grant, co-author of the Carbon Tracker report
“Gas took the legs out from the sector and regulations from the Environmental Protection Agency (EPA) really held it down,” said Luke Sussams, co-author of the report.
Last year, as part of the EPA regulations, President Barack Obama announced that carbon emissions from coal power plants must fall by 30per cent by 2030 in a ruling that is likely to further diminish coal’s influence on the US’s energy market.
The concept of “stranded assets” – whereby companies hold increasingly worthless reserves of fossil fuels as governments and international bodies pour greater environmental regulations into their energy mix – was raised by Carbon Tracker in its report, with Sussams adding that Obama’s ruling “proves that the stranded assets concept doesn’t rely on international regulations”.
The US coal industry had been banking on a future that involved large-scale coal exports to the markets of China and Australia, partly as a means of guarding against domestic regulation and a growing hostility in the US to dirty fossil fuels.
However, Australia’s own coal supply chain – as well as those from South Africa and Indonesia – has upset these plans, with US coal more expensive than many rival producing nations.
In turn, both China and India have lowered their coal consumption in recent years (China’s consumption fell 3 per cent in 2014) as both of these nations have increasingly embraced solar PV and other forms of renewable, further undermining the US coal industry’s strategy for survival.
“The roof has fallen in on US coal, and alarm bells should be ringing for investors in related sectors around the world,” added Andrew Grant, the report’s other co-author. “These first tremors are among the clearest signs yet of a seismic shift in energy markets, as high carbon fuels are set to be increasingly outperformed by lower carbon alternatives.”
In contrast, figures from the US Energy Information Administration (EIA) reveal that the amount of large-scale solar PV deployed in the US doubled in 2014, growing by 102 per cent between 2013 and 2014.
The entire US solar industry – including residential and commercial scale PV – grew by 30 per cent last year, with GTM Research confirming that around 6.2 GW of additional capacity was added – a figure that accounted for 32 per cent of all new generating capacity in 2014.
