The ever-rising environmental concerns in the 21st century have turned coal into an undesirable cold product as far as the energy market is concerned. The combustible rock that has powered the world and driven development for over a century has now been supplanted by other, more efficient sources of energy such as oil, gas and nuclear energy. As a matter of fact, coal is set to decline by over 8% in 2020; the biggest slump in the industry since World War II. The sharp downturn in coal consumption has led to disaster for the world’s largest coal company, Peabody Energy Corporation.
Peabody is a US-based private coal company that has been in the business for over 100 years. Having offices in the US, China, Australia, and the UK, the company mines, markets, and trades coal across the globe in six out of seven continents. Peabody’s fate turned around as nations across the globe began striking off coal from their energy portfolio. Currently holding revenue worth $4.62 billion, the company has observed a fall of about $1 billion in total revenue in a matter of just two years. Stock prices crashed to an all-time low of $1.17 from over $45 in 2018.
After a spate of years reporting losses in excess of $500 million and loss of about $2 billion in 2015, Peabody filed for Chapter 11 (permits reorganization) bankruptcy in 2016 but emerged out of it a year later to restart trading on the NYSE. Four years later, the company is in all but the same situation. As the crackdown rises on energy companies for anti-ecological nature of work and practices, Peabody’s troubles may multiply. In the past, Peabody opposed Obama administration’s Clean Power Plan, designed to control anthropogenic climate change, and in 2019 was ranked the world’s 12th most polluting company by the Guardian. It seems that Peabody’s refusal to adapt to changing energy and sustainability demands has led the company awry.
Earlier this November, Peabody Energy again flagged fresh risks of bankruptcy as it fears the Q4 results won’t be sufficient to meet the minimum required net leverage. Taken altogether along with the kind of demand and supply graph coal has had over the past couple of years, investment in coal is anticipated to plunge deeper in the near future. Top energy-consuming countries such as the US, China, UK, Germany, France, and India have already planned to put coal out of the equation. The UK has set itself apart with one of the most ambitious green goals planning to phase out coal entirely by 2024. The world’s only two Alpha ++ cities, New York and London, are already on the path to be completely coal-free within a year, setting an ideal example for the gamma and beta cities of the world. New York’s last coal-fired plant will be closed for good by the end of winter.
Peabody’s closeness to bankruptcy serves as a warning to investors to move towards more sustainable investment options. As the coal dips down, a string of new energy resources has observed a significant increase in demand. Renewables are expected to be the fastest-growing energy sources until 2050. Per the International Energy Outlook (IEO) an annual energy report published by US Energy Information Administration (EIA), the primary energy consumption the renewables will be the major source besides natural gas and liquid fuels.
The transition in the favour of environment and productivity is taking place at a great pace. Peabody has been left behind in the process as it failed to adapt to the changes. Unlike Peabody, other energy firms such as NextEra Energy and Iberdrola made a decisive shift towards renewables and their finances have benefitted accordingly with both companies showing consistent growth over the past five years and stock prices bouncing back from the Coronavirus Crash to match their pre-crash highs of 69.63 USD/share and 11.18 EUR/share respectively. Orsted has even outperformed its pre-crash high by 34.5%. Other companies such as BP and Shell that have only recently declared their intentions to push renewables have not fared as well. Both oil giants sunk even farther below their Covid Crash lows in October and only began to recover in November upon the announcement of the Pfizer and Moderna vaccines.
It seems that today’s energy companies will have to go green if they are to thrive in our modern economy, and companies that refuse to adapt may face a bleak future such as that of Peabody. Time will tell if traditionally fossil-based companies such as BP and Shell will manage to develop market values as robust as the likes of Orsted, but it is clear that energy companies have no time to waste in their transition to clean power.