Two energy giants Peabody and SunEdison have entered Chapter 11 bankruptcy
In the past week we have seen two energy giants enter Chapter 11 bankruptcy; Peabody, the world’s biggest coal miner and SunEdison, one of the most aggressive, fast growth solar businesses.
The FT reports on the travails of the latter here.
Whilst the two events may seem similar - two energy behemoths running out of cash - they are in fact worlds apart and epitomise the way the world’s energy mix is changing. Peabody is the biggest global producer of an energy source that is in terminal decline. Coal prices have fallen sharply and languish at 70% below the peaks hit in 2009. It doesn’t matter how important a producer you are, when no one wants the commodity you produce any more, times are going to get tough. Anyone who bought Peabody stock at $1000.00 in 2010 will now get barely a dollar for their shares.
SunEdison’s plight is not due to a problem with demand for their energy source; solar capacity is growing as a proportion of new electricity generation, some of which will replace coal fired generation which will never return. SunEdison’s problems derive from a hubristic over-expansion coupled with fancy financial engineering which wasn’t perhaps as clever as it was trumpeted to be. The baffling decision to buy the UK’s Mark Group was one of many which went very bad.
This is capitalism working as it should. As with the railways, then oil, people get very excited about new technologies and the investor capital piles in. Some of it gets spent badly and some investors lose out but the technology, in this case, solar, becomes cheaper, more efficient and more widely adopted. Someone else will pick up SunEdison’s solar assets without the associated debt and make very good money from them. The same cannot be said for much of the coal reserves Peabody has on its books.