Most of the world’s largest economies are seeing a significant recovery and an increase in demand for electricity, as spending to counter the impact of Covid-19 and related lockdowns begins to bear fruit. Despite massive spending on renewable-power capacity, many of the world’s industrialized countries, including the U.S., are, of necessity, turning to coal to meet the increased demand in electricity. Solar and wind projects can’t be ramped up when demand rises and, until storage and other technologies advance, society will remain dependent on other energy sources. Coal, while probably the dirtiest fossil fuel, is readily available and, in the real world, when it comes to a choice between environmental objectives and freezing in the dark, coal wins.
It is clear, according to various sources, that coal consumption in the U.S. for electricity generation is up significantly during the first half of 2021, largely due to increasing economic activity and the limited availability of renewables. While the long term outlook for coal remains negative, in the near term, coal powered electricity generation is likely to grow.
Investors should consider that, with increasing demand and supply issues, energy prices are probably going to continue to increase. A more difficult problem relates to the aggressive move, through mandates and subsidies, to an acceleration of the shift from internal combustion engines (ICE) to electric vehicles (EVs). In parts of the world, any increase in electricity demand translates into an increase in coal powered electric generation. It doesn’t matter if you plug in a toaster or a Tesla, the net effect is an increase in coal emissions. Longer term, improvements in storage technology may allow for a more efficient use of renewable electric generation capacity. But in the interim, while EVs may provide zero emissions at the tailpipe, through the full cycle of battery charging they may be part of the problem rather than part of the solution. This does not even begin to address the whole issue of the environmental impact from the manufacture and eventual disposal of batteries.
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA®