Former U.S. vice president Al Gore was on hand late last year for the announcement from Ontario, Canada's premier Kathleen Wynne that the province was going coal free. There were cheers all around, but not in the coal industry. The big question to ask is if Ontario is the future for coal or if it's just a big publicity stunt.
Going, going, gone...
In the early part of this century coal provided about a quarter of Ontario's power needs. Today that's running at about zero. Like other areas, Ontario has been relying more on natural gas and renewable power sources. That's good news for companies like TransCanda which owns natural gas pipelines running across Canada and the United States, including the Canadian Mainline pipeline which runs from Alberta to Vermont.
But this pipeline shows the risks of switching from coal, which is plentiful and generally has stable pricing, to natural gas. In early 2014, TransCanada experienced an explosion on its pipeline system that led to price spikes of more than 50% in some areas. To its credit, TransCanada resolved the problem quickly, but the risk is obvious.
This is why the Independent Grid Operator of New England is warning about its region's "heavy dependance on natural gas." In a little over a decade, natural gas has gone from providing 15% of the region's power to about 50%. Coal and oil were the big losers.
None of this is good news for coal miners on the U.S. East Coast, like Alpha Natural Resources . About 40% of this miner's business is eastern steam coal. It's one of the reasons why the glimmers of hope coming out the strengthening Powder River Basin (PRB) coal region on the West Coast may not do much for Alpha's prospects—The PRB only represents about 10% of its business.
To make matters worse for Alpha, still struggling metallurgical coal makes up the rest of its business. Cloud Peak Energy , which only mines in the PRB, is better positioned to weather the changes taking place in the North American energy market and export to Asia, where there's growing demand for the fuel.
However, Cloud Peak is still subject to the larger trend away from coal and toward other sources like natural gas and renewable energy. For example, mid-west utility Xcel Energy has been moving aggressively to increase its use of wind turbines. It's goal is to increase wind to 22% of its supply by 2020, up from just 3% in 2005.
Use it if you got it
Still, even after that big shift, coal will account for 43% of the company's power. So, clearly, coal isn't dead yet and Cloud Peak and Alpha still have important customers. But the trend is obvious, since wind's gains have come mostly at the expense of coal at Xcel.
What Xcel is doing is taking advantage of its wind-rich location. Ontario, by the way, is right next to Niagara Falls and has been building new hydro power systems. It gets 22% of its power from that source. No, I didn't make that number up, and yes, it exactly matches Xcel's wind goal.
But if Xcel's core is still coal, what's Ontario relying on for most of its power? Gas only accounts for about 10%... The answer is nuclear, which accounts for over 50% of the province's power. Although nuclear is cleaner than coal, some would argue that it's no better in the grand scheme of things. The Fukushima incident in Japan being the most recent real-world example of the dangers.
The real answer
So Ontario's move away from coal is for real, but it's not as big a deal as some would have you believe. In the end, the move is backed by reliable nuclear power. Every region doesn't have or want to have such a heavy reliance on nuclear. Moreover, all regulators aren't comfortable with one power source making up so much of a region's power supply. This is why coal will remain an important part of the energy picture for years to come regardless of Ontario's ban.
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The article Did Ontario put another Nail in Coal's Coffin? originally appeared on Fool.com.Reuben Brewer has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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