Story by David Zucchino , CNN Written by
So much for coal.
Just over a year after being elected president, Donald Trump signed an executive order to unravel federal regulations protecting people and the environment.
That move eliminated the Clean Power Plan, an Obama-era executive order that limits greenhouse gas emissions from coal-fired power plants, which produce over half of the nation’s power.
But what’s going on behind the scenes?
According to three new reports, the people calling the shots for Big Coal are making a bold announcement: coal is dead.
The battle for the future of coal is being fought, in part, in a battle between local and national companies.
The companies at the heart of that battle include Arch Coal, the fourth-largest coal producer in the United States; Murray Energy, the fourth-largest in the country, and Peabody Energy, the largest in the country.
Smaller coal companies, which are currently losing money, aren’t able to compete.
“The big winners are those coal companies who have access to equity capital that is easy to get. If they can get that money from outside the industry, they are going to invest in coal mining,” said Jake Medlin, an energy analyst at Bloomberg New Energy Finance.
And if they are big companies — with access to external capital — they are unlikely to go bankrupt.
“The question really is who is going to step up and make money. The ones that are seeing profits are generating lots of cash at the corporate level,” said Medlin.
Arch Coal purchased the private coal company Energy Fuels Corporation in July, and Peabody acquired the private Westmoreland Coal Company in June.
Beyond building coal mines, those same companies are also expanding their power generation portfolios.
Through subsidiaries of banks and insurance companies, those companies are poised to become some of the leading technology and energy companies of the future.
And a new report from Carbon Tracker Global Equity Fund shows just how dire the situation is for smaller coal operators.
More than six years ago, hundreds of private equity firms from hedge funds to financial institutions pooled their money to create their own coal company.
“There are 35 companies in the U.S. that have total corporate debt over $3 billion. Of those, 23 are well-capitalized coal companies with high yields,” said Dan Whalen, equity research analyst at Carbon Tracker.
On top of that, only three companies have met the criteria to be rated as “high-yield” financial companies, and the remaining 29 are categorized as “intermediate-yield,” a step below, but slightly above, high-yield status.
Most of the 30 coal-related companies included in the 2016 Carbon Tracker report were private.
“But the capital is still flowing into coal because there is money there to be made,” said Whalen.
And it’s money that the coal companies can’t get anywhere else.
Fossil Fuel Rethink
Since Trump’s election, dozens of coal company bond issues have seen redemptions, and commodity prices for coal have dropped.
Some bankrupt coal companies are rolling back concessions made in bankruptcy courts, while others have refused to pay off hedge funds, who bought distressed assets at bankruptcy auctions.
So why do the banks and investors want to take this big bet on coal?
Because a rethinking of the business model of the fossil fuel industry means it’s also up for grabs.
The credit rating agencies around the world have started slashing their assessments of the banks and corporations that own or operate fossil fuel reserves.
“There is a worldwide trend of downward credit pressure on the world’s oil and gas companies,” said Whalen.
What’s happening in the coal industry is driven by some similarly global forces — the role of coal in global electricity generation, and the rise of renewable energy.
For both of those reasons, coal may be joining oil and gas in its death spiral.