NEW YORK (TheStreet) -- Peabody Energy (BTU), the world's largest coal producer, is positioned to benefit as China moves toward cleaner energy, through participation in the development of clean-burning technology. However, according to a report Thursday, that benefit is likely to feel considerable pressure, as China seems headed toward a sharp reduction in coal demand.
Up to $21 billion of investment in Chinese coal reserves each year is running a significant risk of being wasted, according to the report released by activist investor group Carbon Tracker. According to the report, regulatory pressure to limit carbon emissions, a rise in renewable energy sources and a slowdown in China's GDP and energy consumption could cause thermal coal demand in the country to peak between 2015 and 2020. Coal currently counts for 80% of the nation's energy, helping make it the largest coal consumer in the world.
An "early peaking" trajectory would dramatically reduce the countries coal needs, Carbon Tracker said.
By 2020, the difference between a business as usual path and an "early-peaking" trajectory from a combination of these factors is equal to: (i) 56% of China's thermal coal supply in 2012; and (ii) 437GW of coal-fired power capacity - 40% of total capacity in 2020 (Figure 2).
Local companies like China Shenhua Energy (CSUAY) have considerable capital investments in the development of coal reserves that are at risk of becoming "stranded assets," Carbon Tracker said. Peabody is among the U.S. companies that has an extensive presence in China through partnerships with companies like Shenhua and other mining and power operations.