Coal giant Peabody Energy emerged from a near-death trip through bankruptcy in April 2017, just in time to benefit from President Donald Trump’s efforts to revive coal country.
Trump’s improbable rise to the presidency was made possible in part by his even more improbable promise to save the beleaguered coal industry.
“We’ll start winning, winning, winning, and you are going to be very proud, and for those miners, get ready because you’re going to be working your asses off!” then-candidate Trump told West Virginia in May 2016.
Once in the White House, Trump followed up those promises by gutting Obama-era environmental regulations, withdrawing the United States from the Paris climate accord (to effusive praise from coal execs) and installing a former coal lobbyist to run the EPA. The president even claimed that the noise from wind turbines causes cancer. (FYI: it doesn’t.)
At first, Peabody Energy (BTU) benefited from Trump’s pro-coal agenda. By June 2018, the coal company’s market valuation swelled to $5.9 billion.
But Trump’s coal rescue never stood a chance, because no amount of red tape cutting could overcome the power of market forces. The United States has a glut of cheap natural gas. Plunging solar and wind costs mean renewable energy is on a level playing field with fossil fuels.
Coal simply can’t compete, much to the dismay of Appalachia’s coal communities. If anything, the collapse of coal accelerated during the Trump era, wiping out even more jobs and dashing the hopes of unemployed coal miners.
Dozens of coal-fired power plants closed during Trump’s time in office. In 2019, US coal consumption fell for the sixth straight year, sinking to the weakest level since 1964. And for the first time since the 19th century, the United States consumed more energy from renewable sources like solar than from coal.
Peabody Energy, now the world’s largest private coal mining company, is once again cutting jobs and flirting with bankruptcy. The company’s share price has plummeted 96% since it began trading in April 2017. Peabody’s market valuation has dwindled to just $100 million from its all time high of $5.9 billion two-and-a-half years ago.
“Markets are more powerful than politics,” Jeff McDermott, head of Nomura Greentech, Nomura’s clean energy investment banking department, told CNN Business.
Peabody’s bankruptcy warning speaks volumes
Despite Trump’s efforts to slash regulations, the coal industry is suffering from weak prices, anemic demand and capital flight away from fossil fuels in favor of cleaner alternatives. Solar stocks in particular are booming.
“The market is looking into the future and having greater confidence that renewables are going to be larger and high-carbon will be less valuable,” McDermott said.
Earlier this month, Peabody Energy disclosed its third-straight quarterly loss as revenue tumbled a whopping 39%.
In a November 9 SEC filing, Peabody said that its weak results, “market conditions,” and lender demands “raise substantial doubt” about whether the company can meet its obligations and “its ability to continue as a going concern.”
In other words, Peabody soon could be forced back into bankruptcy for the second time in three-and-a-half years. The company had just $11.5 million remaining on its revolving credit facility as of the end of October, down from nearly $500 million at the end of 2019.
“As coal’s decline continues, it will likely push Peabody Energy, the former standard-bearer for the global coal industry, into financial oblivion,” according to a report by the Institute for Energy Economics and Financial Analysis, a group that aims to accelerate the energy transition.
Weak demand for coal
Trump-appointed regulators dealt Peabody a major blow. In February, the Federal Trade Commission moved to kill an alliance with rival Arch Coal (ARCH), another company trying to recover from a 2016 bankruptcy. A judge sided with the FTC and the companies abandoned their transaction in September.
Peabody is cutting jobs, idling mines and working with its creditors to try to stay afloat.
“While we have made progress, there is still more to do,” Peabody CEO Glenn Kellow said in the company’s earnings report.
A Peabody bankruptcy would follow the October 2019 bankruptcy of Murray Energy, the miner led by Trump backer Robert Murray, who died last month. The company emerged from bankruptcy in September after selling most of its assets.
Like many other industries, coal miners are being hurt by the pandemic, which derailed factory activity. Peabody said demand for metallurgical coal, which is used in steelmaking, has not recovered from pre-crisis levels.
Meanwhile, demand for thermal coal, which fuels power plants, has been in steady decline. A growing number of power companies are ditching coal in favor of natural gas and increasingly affordable solar and wind. Some utilities that once relied on coal, including Xcel Energy and PSEG, are promising to get to net-zero carbon emissions by 2050.
Solar could be king by 2025
These trends are unlikely to reverse, especially after Trump’s projected defeat by Joe Biden, a Democrat promising to aggressively invest in clean energy and return the United States to the Paris climate accord.
Despite an initial slowdown caused by the pandemic, the United States is expected to add more than 23 gigawatts of wind turbine generating capacity this year – blowing away the 2012 record of 13.2 gigawatts, according to the US Energy Information Administration.
Renewables are projected to account for a staggering 95% of the increase in global power capacity through 2025, according to the International Energy Agency. Solar is expected to account for 60% of renewable growth, with wind providing another 30%.
“Demand for solar is as good as it’s ever been,” SunPower CEO Tom Werner said in an interview.
By 2025, renewables will overtake coal to become the largest source of power generation worldwide, accounting for one-third of electricity, the IEA said.
Extreme weather events, including wildfires in California and huge hurricanes in the Gulf Coast, have raised awareness of the climate crisis. Solar rooftops are gaining popularity and major companies including Mondelez (MDLZ), Adobe (ADBE), Facebook (FB) and General Motors have agreed to purchase vast amounts of renewable energy. Even General Electric (GE), one of the world’s largest makers of coal-fired power plants, recently promised not to build new ones.
McDermott, the Normura clean energy banker, is taken aback by how the Trump era has played out for the renewable energy industry.
“When Trump won in 2016, I remember thinking this would be awful for our business,” he said. “Instead, it was the greatest four years of our history.”