ETF Trends
ETF Trends

As more switch away from dirtier energy sources to promote a cleaner environment, coal-related exchange traded funds are steadily falling off.

Over the past three months, the Market Vectors-Coal ETF (NYSEArca: KOL), which tracks the coal industry, plunged 23.6% and the GreenHaven Coal Fund (NYSEArca: TONS), which is designed to offer investors with exposure to daily changes in the price of coal futures contracts, dipped 1.8%.

The coal industry is weakening as U.S. power plants switch to natural gas, environmental restrictions take hold and the world makes a stink eye at heavy greenhouse gas energy sources, reports Tom Randall for Bloomberg.

The ongoing shale oil boom has pressured natural gas prices and made natgas a cheap alternative to coal. Additionally, new environmental regulations have forced coal-fired power plants to close, and many are being replaced with natural gas.

Natural gas is starting to take over. According to the Energy Information Administration, natural gas represented 32% of U.S. electricity generation in April, compared to 30% from coal. Electricity generation from natgas has jumped 20% since  year-over-year while coal experienced a similar percentage plunge.

Consequently, over the next few years, Bloomberg New Energy Finance analysts anticipate 17% of U.S. coal-fired power generation will go offline.

Moreover, China, the world’s largest consumer of coal, is beginning to diminish its reliance on coal in favor of alternative renewable energy sources as pollution becomes a major concern and clean energy becomes cheaper.

According to Bloomberg analysts, about two-thirds of money spent on adding new electricity capacity worldwide will go to renewable between now and 2040.

The more pessimistic coal outlook has also diminished the sector’s ability to access loans. Consequently, coal bond prices have tumbled 17% in the second quarter, their fourth consecutive quarter of price declines. Since bond prices and yields have an inverse relationship, the falling prices have resulted in much higher borrowing costs.

Market Vectors-Coal ETF

For more information on the coal market, visit our coal category.