By: Tim Puko |
The EPA announced a plan for curbing carbon emissions from power plants, which analysts say has the potential to sway electricity, coal and natural gas markets for decades.
Investors found the rules tough to play as much will depend on state-by-state regulations rolled out over a period of years.
“All we know is the headline. What will matter is the state level targets which we don’t know yet,” said Jonathan Arnold, a utilities and power-sector analyst at Deutsche Bank Securities in New York.
Here’s a look at how investors are viewing the impact on those markets currently:
Investors see coal as a sure loser, even at this early stage. The target of cutting emissions 30% by 2030 from the level set in 2005 would cut coal consumption in the power sector by 267 to 285 million tons between 2013 and 2030, according to FBR Capital Markets.
Shares of Walter Energy, Inc., Alpha Natural Resources Inc. and Arch Coal Inc. all fell more than 3% Monday. The damage was limited because investors have spent years bracing for coal’s downfall, selling out in favor of the cheaper, cleaner gas that’s been taking coal’s market share.
Exposure to coal is the biggest risk for utilities, putting companies like American Electric Power Co. Inc., FirstEnergy Corp. and NRG Energy Inc. at the biggest risk, according to UBS Securities LLC. Utilities were hardly hit by the EPA’s announcement Monday. American Electric Power actually gained 0.2%, while other utilities’ declines were less than 1%.
Gas, with half the emissions of coal, is likely to get the biggest immediate bump, gaining share from coal in the U.S. power mix. The power sector’s use of gas should grow by as much as 3.29 billion cubic feet a day by 2020 with these rules in place, according to FBR Capital Markets. That growth would then taper off as renewable energy gains more traction and greater efficiency limits demand, FBR Capital Markets added.
Gas futures rose 7 cents, or 1.5%, to $4.612 a million British thermal units on the New York Mercantile Exchange Monday.
Teri Viswanath, a natural-gas strategist at BNP Paribas, warned that the market shouldn’t overreact to the EPA’s announcement.
There will likely be years of court fights and other legal wrangling over the rules. Even in the best-case scenario, the EPA is giving the state several years to develop their plans for curbing emissions and won’t demand to see any progress until 2022.
“Until we have an idea of what the real enforcement plan will actually be and how this will unfold, it’s hard for it to have an impact on the market,” Ms. Viswanath said.