ST. LOUIS — Coal giant Peabody surprised the industry last week with its announcement that it was getting into renewable energy. But as the shock faded, analysts said the move made a lot of sense.
The St. Louis-based company — the world’s largest private-sector coal producer — has acres of land, willing investors and electrical lines already in place for the job.
But it’s a sea change for the fossil fuel titan, long a fierce defender of the coal industry.
“That’s one of the reasons it gets attention and raises eyebrows,” said Rob Godby, an associate dean and professor at the University of Wyoming’s Department of Economics. “It’s twice as shocking that it’s Peabody.”
Peabody did not respond to a request for comment for this story. In its launch last Tuesday of the renewable energy development company R3 Renewables, it touted its financial backing and “extensive” land holdings, and said it would start with the development of six sites on or near old coal mines in Indiana and Illinois.
“It’s not just a metaphor, it’s truly an example,” said Godby. “This is what’s happening on the power grid. Coal is getting replaced by renewables for economic reasons.”
Experts said the coal-to-renewables swap checks multiple boxes that make it an appealing and cost-effective conversion.
“They may be turning lemons into lemonade here,” said Seth Feaster, an energy data analyst with the Institute for Energy Economics and Financial Analysis, which advocates for a sustainable energy economy. “It seems like a pretty good way for them to monetize the land that they already have for mining purposes.”
‘Wow’
Old coal mines offer the land and available space that’s critical for renewable energy projects.
And they’re already wired for heavy electrical use, with built-in access to the wider power grid, which could make it far cheaper to rewire them for solar. And grid access is so important some renewable energy developers value it even over especially sunny or windy sites.
“You don’t build your shopping center in the middle of nowhere,” said Godby. “You build it next to a busy road.”
Additionally, repurposing existing mines might provide Peabody with a way to alter reclamation obligations — hefty costs tied to the restoration of land after mines close down. Keeping the land in use, albeit for a different purpose, might change when and how the bills come due.
The change in direction might also be a sign — or result — of investor pressure, with at least one of Peabody’s main creditors involved in the joint venture.
“It may be the case that the creditor is asking for this,” said Godby. “Maybe the tail is wagging the dog.”
Riverstone Credit Partners — one of the investor partners in the joint venture — has experience developing renewable facilities, as well as “the deep pockets to see these projects through, especially at this scale,” said Feaster.
And the scale of Peabody’s proposed projects is one of the most striking aspects of its announcement, he said. Over the next five years, R3 aims to develop more than 3.3 gigawatts of solar power and 1.6 gigawatts of battery storage capacity at the sites in Indiana and Illinois.
That’s about three times the existing solar generation in the two states combined, Feaster said, and nine times their storage capacity.
“I think all of us have kind of commented, ‘Wow, that’s a lot of solar,’” said Feaster.
A toe in water
Peabody is not the only major coal company to recently reshuffle its hand and take its business in a new direction, after years of significant economic struggles for the fossil fuel.
Its closest peer, Arch Coal, changed its name to Arch Resources in 2020 as it launched a self-described pivot away from thermal coal used for electricity generation. The Creve Coeur-based coal heavyweight opted to focus, instead, on the smaller but more promising market for coal used in steelmaking. Amid the switch, Arch’s leaders spoke very clearly about the vanishing future for thermal coal.
“We believe that a careful and well-communicated exit strategy is the most responsible way forward for a range of essential stakeholders, including our employees, the communities in which we operate, our longstanding customer base, and the many consumers who continue to rely on coal-based electricity,” said Paul Lang, Arch’s CEO, more than a year ago.
Peabody, however, has until now remained resolute in its focus, a juggernaut in an environment of declining competition.
Godby thinks that hasn’t changed. He said Peabody’s renewables business would need to grow far bigger to mark a pivot like the one made by Arch. Instead, he thinks Peabody’s move is more akin to “dipping a toe in the water” — an initial foray that might expand, over time.
Still, it could signal a change in long-term thinking.
“It seems like a tacit admission of the reality that they will have to move to something else,” said Godby. “Or at least diversify.”
