The Coal Industry is facing dual challenges — firstly, rising competition from natural gas and alternate energy as a substitute energy source and secondly, regulatory rulings to lower emission which will inevitably lead to a curtailment of coal power generation.

In Aug 2015, the new Clean Power Plan was unveiled, which calls for CO2 reductions of 28% by 2025 and 32% by 2030, from 2005 levels. This is slightly stricter than the draft proposal wherein the EPA had proposed total CO2 reduction of 29% by 2025 and 30% by 2030.

In response to the anti-carbon drive, utility operators are shutting down coal-based power plants and are directing fresh investments toward constructing natural gas facilities and adding more renewables.

A recent release from Peabody Energy (BTU – Analyst Report) indicates that utility coal demand will decline by nearly 100 million tons in 2015, primarily due to lower natural gas prices, while U.S. coal shipments are projected to decline 90 million tons in 2015 from 2014 levels.The coal major expects demand to deteriorate further in 2016.

A release from the U.S. Chamber of Commerce also has a bearish stance on thermal coal, going forward. The report quoted that over the 2011 to 2030 time frame, more than 150 gigawatts (GW) of power plants will be taken out of production 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 (PV) to generate electricity.

Arch Coal Inc. (ACI – Analyst Report) echoes a similar sentiment. The company believes that natural gas prices and the likely implementation of new environmental regulations this year could actually lower domestic demand for thermal coal by 95 million tons in 2015.

Per a release from U.S. Energy Information Administration (EIA), lower domestic coal consumption and reduced exports will result in an 89 million short ton (MMst) decline in U.S. coal production in 2015. The report also indicates that U.S. coal production will decrease by 28 MMst (3.0%) in 2016. The annual average coal price sold to the electric power sector averaged $2.36/MMBtu in 2014. The EIA expects the delivered coal price to average $2.25/MMBtu in 2015.

Here are some of the severe headwinds that the coal industry is up against:

Environmental Legislations: Coal has been losing its importance as a fuel source over the last few years, particularly in the U.S., vis-à-vis other sources that are much less harmful to the environment. Concerns over the emission of greenhouse gases and global climate change have resulted in the formulation of new legislations and policies which emphasize the use of environment friendly fuel sources, particularly in the power sector.

This has considerably slowed the expansion of coal-fired capacity in the power sector, with utility companies now building new natural gas-fired plants and resorting to alternative sources of energy generation like wind, solar and hydro power.