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US Electricity Generation Rises Substantially: Who Benefits?

Electricity generation rises

The EEI (Edison Electric Institute) publishes electricity generation data weekly with a one-week lag. The current report is for the week ended June 12. Electricity generation in the United States increased to 83.9 million MWh (megawatt-hours) in the week ended June 12 compared to 74.8 million MWh for the week ended June 5—a 12% rise.

Last week’s electricity generation was also higher than the 78.3 million MWh recorded for the corresponding week last year.

Why is this indicator important?

Over 90% of the coal produced in the United States is used for electricity generation . The utilities segment is coal’s largest end user. As a result, coal and utility investors should watch for a trend in electricity generation.

Electricity storage is expensive. So most of the produced electricity is consumed right away. As a result, electricity generation mirrors consumption.
What does this mean?

Thermal coal is mainly used for electricity generation. An increase in electricity generation is positive for coal producers (KOL) like Peabody Energy (BTU) and Alpha Natural Resources (ANR), everything else being equal. However, in the current weak natural gas pricing environment, the increase in electricity generation might not benefit coal producers as much since natural gas could take away coal’s market share.

Historically, the eastern United States was served by coal producers in the Appalachian and Illinois basins, while the western United States was Powder River Basin, or PRB, territory. Since PRB coal is the cheapest, there might be some movement of PRB coal to eastern states. However, the historic equation largely remains the same. A rise in electricity generation across the United States is good for eastern producers such as Alliance Resource Partners (ARLP) as well as western producers like Cloud Peak Energy (CLD).

source: http://marketrealist.com