After nearly doubling to rank as one of 2016’s best-performing non-leveraged exchange traded funds, the VanEck Vectors Coal ETF (NYSEArca: KOL) is up nearly 13% year-to-date. However, KOL and the coal industry itself face mounting challenges from increasingly accessible and cheaper sources of alternative energy.
Cheap natural gas has previously weighed on coal demand as electric utilities have switched to that cleaner-burning fuel over coal. 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.
KOL was boosted in significant fashion last year on expectations that President Donald Trump would create more coal-related jobs, but investors should approach that thesis with caution.
“Clean energy installations broke new records worldwide in 2016, and wind and solar are seeing twice as much funding as fossil fuels, according to new data released Tuesday by Bloomberg New Energy Finance (BNEF). That’s largely because prices continue to fall. Solar power, for the first time, is becoming the cheapest form of new electricity in the world,” reports Tom Randall for Bloomberg.