If you still harbor any doubt that coal is a very bad investment, this week has told the tale. Coal companies are going bankrupt left and right, and any stocks or bonds you still hold are losing value by the hour. Let’s hope CalPERS and CalSTRS have escaped most of the carnage.
The latest disaster is coal producer Walter Energy. The company has lost money every year since 2011 and currently carries a debt of more than $3 billion. On Wednesday, CEO Walt Scheller announced Walter is filing for Chapter 11 bankruptcy: “In the face of ongoing depressed conditions in the market for met coal, we must do what is necessary to adapt to the new reality in our industry [emphasis added].”
This new reality is affecting some of the largest coal companies, too. Patriot Coal went bust in May, just 18 months after emerging from a previous bankruptcy. Alpha Natural Resources is seeking financing for a potential bankruptcy filing (though the phrase “financing for bankruptcy” seems a self-canceling oxymoron to me).
And the coal industry’s multiemployer pension fund has sued Peabody Energy and Arch Coal in an effort to ensure they assume nearly $800 million of liabilities that Patriot Coal may try to escape in its bankruptcy. Patriot, in fact, was formed in a series of complex financial deals a few years ago from portions of Peabody and Arch. Having dumped their most problematic assets, those companies are now trying to escape responsibility for the pensions they promised to pay—as Patriot goes under.
Plunging share prices reflect this new reality:
Arch Coal has seen its share price crash from over $4 per share in 2014 down to just 88 cents this month. The trajectory of Alpha Natural Resources’ stock looks similar. Peabody’s has fallen from $19 to just $4.55 per share over the past 12 months.
There are many reasons for the flight from coal. Renewables are booming: last year half of the new generating capacity in the US was renewables, while only one new coal plant came on line. Wind and solar, as well as natural gas, are now competitive with coal, especially as new regulations are imposed for health, safety, and greenhouse-gas reduction.
Tom Randall of Bloomberg outlines the daunting landscape for coal:
- The US grid is changing, with dozens of coal plants closing by 2020 and many more shifting to gas.
- China is moving away from coal, as unsupportable pollution and cheap wind and solar accelerate the process.
- Financial distress snowballs, as bond prices plunge along with stocks.
- Renewable energy is increasingly competitive.
Randall sums up the energy future, and it does not include coal:
In the past year, global stock prices for coal companies are down almost 50 percent, but it’s in the bond market that coal is really getting hammered. The focus of energy finance has shifted from coal to renewables, and it’s not likely to turn back.
Coal is on the way out. It’s time for CalPERS and CalSTRS to recognize that, and begin the process of full divestment by purging their portfolios of coal companies.
What can you do? Send a strong message to your Assembly Member to support SB 185. Sign our petition, and let’s all join the flight from coal.