Here’s another reason that coal companies have to worry about their long-term financial prospects: they’ll have to keep digging deeper and deeper to get at their coal. And digging deeper means spending more to get coal out of the ground, which can simultaneously raise coal prices and crimp coal company profits.
Even in the Powder River Basin (PRB) of Wyoming and Montana—an area renowned for its inexpensive coal—industry analysts expect production costs to rise steadily over the next few decades. See, for example, this detailed report prepared by the John T. Boyd Company, which projects steady cost increases in every single PRB coal mine currently in production or under consideration.
We’ve summarized that report’s mining cost projections in two different charts: a fancy version and a simple version. First the fancy:
And for those who like their charts a little less metaphorical, and/or with a y axis that’s not reversed, here’s a simpler version:
For the coal industry, there’s an obvious problem here. Basic geology is pushing up their costs, but most analysts believe that coal’s competitors—particularly renewables like solar and wind—will only get cheaper over time. Look, for example, at the following chart taken from a National Renewable Energy Laboratory report, which shows how quickly the cost of solar installations has fallen over the last 15 years:
As you can see, the costs of commercial solar PV installations have fallen quickly, and are expected to fall even further.
And here’s another NREL chart, showing projections for the future cost of wind projects:
These diverging paths—coal costs increasing, wind and solar costs decreasing—offer just one more reason why coal companies face such dismal stock prices and are so desperate to open up new markets for their products.
Comments are closed.