Louisville Gas and Electric Company and Kentucky Utilities Company, subsidiaries of Allentown, PA-based PPL Corporation PPL, have executed an agreement with energy provider Paringa Resources Limited for the future purchase of coal from the proposed Buck Creek No.1 mine, beginning from 2018. The contract is worth $220 million.
The contract, spanning over seven years, is subject to meeting certain construction milestones in the development of the Buck Creek mine in the first two years that is in 2016 and 2017. Failure to meet the conditions will result in termination of the contract.
Per the terms, Paringa Resources will deliver 750,000 tons in 2018 and 1,000,000 tons each year from 2019 to 2022 at a fixed sales price based on FOB (Free-on-Board). The mine’s direct barge connectivity to the Green and Ohio River System provides a substantial transportation benefit.
The contract comes as a surprise at a time coal producers are idling their mines, lowering headcount, delaying capital expenditure plans and even resorting to selling their coal mines in response to the anti-carbon drive. A release from the U.S. Chamber of Commerce also has a bearish stance on thermal coal, going forward. The report quoted that during 2011 to 2030, more than 150 gigawatts (GW) of power plants will be taken out of production process and more than 50% will be coal-fired units. The release also predicts nearly 360 GW to be added from 2011 through 2030, with the majority of units using natural gas, wind and solar photovoltaics to generate electricity.
Despite this fact, coal still holds an advantageous position due to its wide availability and lower cost compared to other fossil fuels and renewable sources of energy. The importance of coal in the fuel source chain is far from over. For the aggressively growing and energy hungry Asian economies, coal seems to be the most popular source of power generation in spite of the inroads being made by renewables (read: Is Coal as Easily Replaceable as You Think?).
CONSOL Energy CNX with its thermal coal marketing strategy continues to see success by contracting additional volumes and building a portfolio that targets power plants expected to not only survive but increase electricity generation in spite of the stringent regulatory environment.
As for the utility companies, they are taking due measures to cut down on the carbon footprint. Xcel Energy Inc. XEL has already reduced carbon dioxide emissions during power generation by around 22% since 2005 and American Electric Power Co., Inc. AEP has eliminated over 5,500 megawatt (MW) of coal-fired capacity.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment