Energy, Materials, and Utilities
The long-term trend in the U.S. power market is clearly toward reduced reliance on coal. The fact that renewable power sources like solar and wind provided more energy to the grid than coal in April is basically just a sign of the times. And it helps explain why coal miner Alliance Resource Partners (NASDAQ:ARLP) has been working to expand into new areas of the energy sector. That said, coal’s outlook isn’t as dire as it sounds, and Alliance still has plenty of time to adjust.
A good headline
The U.S. Energy Information Administration (EIA) sent an email in late June announcing that renewable power had, for the first time ever, provided more power to the U.S. grid than coal. That’s actually a huge statement, since for a very long time coal was, by far, the dominant fuel source in the country. That renewable power, which was once just a tiny player in the mix, had finally surpassed coal could, and probably should, be seen as a huge success for the sector.
Image source: Getty Images.
However, once you dig into the story a little more, the picture isn’t quite as great as it seems. One of the biggest renewable contributors is hydroelectric power. That’s pretty much always been in the mix and isn’t going to be a major growth engine for renewables. In April, hydro benefited from a seasonal peak in water flows, boosting the electricity generated from this source. That helped to tilt the equation in renewable power’s favor.
Solar and wind have continued to grow, for sure. But demand for electricity in April is seasonally weak, so utilities tend to run coal plants at lower utilization rates. So coal’s production was relatively low. Add it all up and renewables were a greater contributor than coal, but it will likely be a temporary victory. Yes, it is a sign that coal’s dominance of the energy grid is long gone. But it is not an indication that coal is dead. In fact, according to the EIA’s long-term estimates, coal will remain an important contributor to the U.S. grid through at least 2050.
This all helps provide a backdrop for Alliance Resource Partners’ decision to use its coal business as the foundation for a slow transition into new areas. In fact, this coal miner operates largely in the Illinois Basin (ILB), which the EIA expects to see stable to increasing demand through 2050. The location and type of coal produced allows ILB coal to