Peabody-China's Go Green Mission - Analyst Blog

U.S. coal miner Peabody Energy Corporation (BTU) has been shouldering the carbon control initiatives over the years. The company continues to play an important role as the founder as well as executive committee member of the U.S. Energy Cooperation Program (ECP). Recently, Peabody got into two Chinese agreements taking the alliance between China and the United States for clean energy a step forward and materialize the carbon initiatives.

Peabody Energy's newly entered ventures in China include – development of the Wucaiwan Energy Center in Xinjiang in association with Yankuang Group Co. Ltd. and putting up a green coal energy campus in the Xilinguole Region in partnership with China Huaneng Group and Calera Corp.

As a part of the Wucaiwan Energy Center, Peabody and Yankuang plan to develop a 20 million ton-per-year surface coal mine, a 2,000 megawatt supercritical power plant and a substitute natural gas (SNG) facility with a capacity to produce 4 billion-cubic-meters of gas annually. The coal produced at the surface mine will help fuel the power plant and the SNG facility.

Peabody will provide its expertise in surface mining, advanced technologies and management skills for the joint development of the mine while Yankuang will take the lead in developing the SNG facility and power plant.

Located in the Zhundong Region of Xinjiang in Northwestern China the Wucaiwan Energy Center is expected to have excellent connectivity with the Xinjiang electricity transmission corridor. The center will also have access to a new under-construction rail line that will serve electricity customers and other industrial users in Central and Eastern China.

Peabody's second clean energy venture in China comprises of the development of 1,200 megawatt supercritical power plant in the Xilinguole region of Inner Mongolia. The planned location has good access to electricity customers and industrial users in the Xilinguole Region. The companies expect the power plant to have an operating life of at least 30 years.

The companies plan to fuel the plant with supplies from a 12 million ton-per-year surface mine operated by Peabody. China Huaneng Group, the largest generator in China and second largest in the world, is expected to act as the operator of the plant.

Apart from power generation, the plant will also acquire advanced carbon-capture technology from Calera that will capture carbon dioxide (CO2) and convert it into solid carbonates that can be used as building materials. The company expects every ton of captured CO2 to produce two tons of cement construction material.

While evaluations for both the projects are expected to begin shortly, we note that both the projects are subject to customary permits and regulatory approvals. 

Globally, coal has been the fastest-growing fuel in the past decade. China has recently emerged as the world's largest and fastest-growing coal market, using coal to fuel roughly 80% of its electricity. Looking ahead, the China National Energy Administration estimates the Chinese coal demand to increase by 1 billion metric tons in less than five years, bringing annual use to 4.3 billion metric tons.

Given the projected rise in the coal demand we expect Peabody to benefit from its increasing operations in China, going forward. Being the world's largest private-sector coal company and a global leader in clean coal solutions, Peabody Energy continues to head for more than a dozen near-zero emissions, low-carbon partnerships globally.

This includes participation in China's GreenGen near-zero emissions power project and carbon research center where Peabody is the only non-Chinese partner.  The first phase of GreenGen operations is expected to be online in 2011. 

Based in St. Louis, Missouri, Peabody Energy is involved in the exploration, mining and production of coal for its global consumers. With 2009 sales of 244 million tons and $6 billion in revenues, Peabody fuels 10% of U.S. power and 2% of worldwide electricity. The company primarily competes with Arch Coal Inc. (ACI) and CONSOL Energy Inc. (CNX).

Peabody Energy currently retains a Zacks #3 Rank (short-term Hold rating). We maintain our long-term Neutral rating on the stock.

 
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