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Long-term prospects for the coal sector become more unfavorable than ever

The long-term prospects for the coal sector become more unfavorable than ever before, just an year after election of Donald Trump for the President of the United States and his promise to revive the weak industry. The coal mining data shows that the industry is experiencing barely modest growth in employment and production this year. Much of this growth is due to a higher foreign demand for American coal and not due to any changes in policy by the administration.

The utilities shut down coal-fired power plants at an accelerated rate and are targeting cheaper natural gas as well as wind and solar power. More than 90% of the US coal market relies on domestic demand.

“We are not planning to build new coal-fired power plants”, said Melissa McHenry, who is the spokesperson for American Electric Power (AEP), one of the largest US utilities companies. “The future of coal is dictated by the economy and you can not make such investments on the basis of the policies of the administration”, added she.

The coal power plants account for up to 47% of AEP’s capacity to generate electricity, and the company plans to shrink this share to 33% in 2030.

The situation highlights the limitations in President’s policy, especially as regards to the large industries and global trends. As some energy experts have pointed out a number of times, the forces on which the state of mining depends are far from the White House Oval Office.

“Trump has probably done everything he can to help the industry”, said Luke Popovich, a spokesman for the National Mining Association. “The government has long been against us. Now we have only the market forces”, added he.

Trump actually adhered to a number of promises made to the coal industry and ultimately helped him to win the election. He began a process of canceling Barack Obama’s plan for clean energy, which had to cut emissions. It also abolished restrictions on discharging coal waste into rivers and launched a US withdrawal procedure from the Paris climate treaty.

US Energy Minister Rick Perry is now making efforts to push through the independent Federal Energy Regulatory Commission a rule under which coal-fired power plants will be subsidized, sufficient for the 90-day operation of the plant. The aim is to extend the life of some coal-fired power plants, and Perry says this will make the power distribution network more reliable.

Although the overall impact of Trump’s policy will be clear in years, the changes will hardly encourage domestic demand.

Trump described the industry as a victim of overly heavy regulations. Within a decade, the industry lost more than 40% of its workforce, and output dropped to its lowest levels since 1978. Its share of electricity generation has fallen to below 33%, from about 50% in 2003.

In August 2016, Trump said that “we will return the industry back to 100%”. So far, however, progress is limited.

The US coal production is expected to grow by more than 8% this year compared to the previous one to 790 million tonnes, according to data from the Energy Information Administration. In 2018, however, a decline in yield is expected.

The number of workers in coal mines also increased to 51,900 in October, but remained 70% below its 1985 peak. Earlier this month, the president welcomed these moderate increases, but largely due to demand from Asian steelmakers because their usual suppliers from Australia were disturbed.

The forecasts of companies and the US government do not give much hope for sustainable growth in coal mining. In 2018, utility companies are expected to close a coal capacity of over 13,600 megawatts. This year there were losses of 8,000 megawatts and in 2016 were closed 13,000 megawatts, according to data from the Energy Information Administration.

By 2025, the capacity of coal-fired power plants will shrink to 226,000 megawatts, which is 30% less than 2011.

But the proposals for tax changes at Trump, presented last week, retain most incentives for solar energy, which have bipartisan support.

About Viliyana Filipova

Viliyana Filipova is 27 year-old girl from Varna, Bulgaria. She is founder and Chief Editor of Finance Apprise Journal, working also as analyzer on the world finance and commodity markets.

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