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Capacity Factors Confirmed Continued Shift from Coal to Natural Gas

The latest EIA report

On October 27, the EIA (US Energy Information Administration) published its latest report on capacity factors for power plants based on data for August 2015. Capacity factors for coal dropped and capacity factors for natural gas rose month-over-month as natural gas continued to replace coal in electricity generation.

The capacity factor for coal-fired power plants came in at 64.7% in August 2015 compared to 67.3% in July 2015. During the same period, the utilization rate of natural gas plants rose marginally to 67.5% from 67.3%. The YoY (year-over-year) capacity factor for coal fell and natural gas-fired power plants saw an uptick in the utilization rate during the same period.

Impact on coal

Capacity factors for coal-fired plants fell YoY as well as month-over-month. In contrast, capacity factors for natural-gas-fired power plants rose during both the periods.

This development indicates a continued shift from coal to natural gas as a fuel for electricity generation. This kind of shift is negative for thermal coal producers such as Peabody Energy (BTU), Cloud Peak Energy (CLD), Alliance Resource Partners (ARLP), and Arch Coal (ACI).
Capacity factors

Capacity factors are an important indicator when it comes to understanding power plants’ utilization levels. They measure how often a power plant runs in a given period and also the maximum capacity at which a power plant can run.

For example, if a power plant with a capacity of 600 MW (megawatts) operates at a 50% capacity factor on a given day, it generates electricity equivalent to what a 300-MW power plant would produce if it ran at 100%.

source: http://marketrealist.com