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Where Have All the Coal Companies Gone? 

Posted on June 1, 2020

By: Caesar Silvestro

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A little more than 5 years ago, there were twelve coal companies with high yield rated debt. Now there are two and both companies have been reorganized. Power generation switching by utility companies from coal to renewables and natural gas has put the high yield coal sector into Chapter 11.

Coal is primarily used in the United States to generate electricity. About 90% of U.S. coal consumption is in the electric power sector. The Energy Information Administration (EIA) recently reported that the U.S. consumed more renewable energy than coal last year for the first time since 1885.

This outcome mainly reflects the continued decline in the amount of coal used for electricity generation as well as growth in renewable energy, predominately from wind and solar. Compared with 2018, coal consumption in the United States decreased by nearly 15% and total renewable energy consumption grew by 1%.

Meanwhile, natural gas consumption in the electric power sector has significantly increased in recent years and has displaced much of the electricity generation from retired coal plants. Electricity generation from coal dropped in 2019 to its lowest level in 42 years.

Since 2015, the growth in U.S. renewable energy is almost entirely attributable to the use of wind and solar. In 2019, electricity generation from wind surpassed hydro for the first time and is currently the most used source of renewable energy for electricity generation. Renewable energy is now cheaper than coal across much of the country.

The outlook for coal companies is gloomy. The EIA forecasts that total U.S. electric power sector generation will fall by 5% in 2020 largely as a result of the pandemic. Most of the power decline will likely come from lower fossil fuel generation, especially at coal-fired power plants. EIA expects that coal generation will drop by 25% in 2020.

Good news for the environment. Utilities appear committed to addressing climate change. The improved economics of renewables are providing an additional reason to switch from coal. The Utility companies’  actions have helped put coal companies into bankruptcy.

Coal Sector Yield Drops as the Number of Issuers Decline

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Caesar Silvestro has nearly 20 years of buy-side and sell-side research experience in the High Yield and Distressed markets. He was an Executive Director at BBVA Securities focused on the Energy Sector and an Executive Director at MF Global overseeing the Distressed/High Yield research effort. He holds a MBA in Finance from NYU Stern School of Business and is a graduate of Franklin and Marshall College.

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