Peabody Energy Corporation (BTU), Alpha Natural Resources, Inc. (ANR): Take a Second Look at the EIA’s Estimates

Don’t Forget the Capacity Factor

The EIA’s capacity factor number estimates how much electricity can really be produced from a power plant relative to its theoretical maximum. A higher capacity factor is better. The EIA gives solar PV systems a capacity factor of just 25%, helping to make it the third most expensive energy source. These numbers make it look like solar is dead in the water and completely dependent upon government subsidies, but this isn’t the whole story.

Places with large amounts of sunlight increase solar’s usefulness, drive up its capacity factor and decrease its total costs. Using solar trackers can further increase yields. For these reasons, the cheaper solar photovoltaic systems are less expensive than the average advanced coal system or the average natural gas-fired conventional combustion turbine.

SunPower Corporation (NASDAQ:SPWR) is one the best U.S. solar manufactures. It sells a number of high efficiency panels that can take advantage of Japan’s and California’s high real estate prices. SunPower Corporation (NASDAQ:SPWR) notes in its latest investor presentation that it is able to deliver systems with a $0.14/kWh LCOE. This rate is very competitive for retail customers in expensive markets like California. With a quick ratio of 1.00, a total debt to equity ratio of 0.72 and an EBIT margin of -8.7%, Sunpower should be able to endure the current downturn and come out on top.


The EIA’s cost estimates are a good starting point to for an analysis of the energy industry, but they are not the whole picture. Coal’s negative environmental effects are difficult to include in LCOE calculations, but they have real impacts on policy and coal demand. High cost coal producers like Alpha Natural Resources, Inc. (NYSE:ANR) have a challenging future, but Peabody Energy Corporation (NYSE:BTU) is more diversified and a better contrarian play. By reexamining solar’s capacity factor it become obvious that its cost structure can easily be overestimated. High efficiency solar producers like Sunpower are worth a second look.

The coal industry in the United States has been in a state of flux since the arrival of a cheaper alternative for energy production: natural gas. Exports are becoming a much bigger part of the domestic coal landscape, and Peabody Energy has deals in place to get its cheaper coal from the Powder River and Illinois basins to India, China, and the EU.

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Joshua Bondy has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Joshua is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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