Artificial Intelligence May Generate Real Demand for Coal in the U.S.

As the United States looks to take the lead in the development and deployment of artificial intelligence (AI), it may be forced to turn to an unexpected source for the energy required to fuel its growth: coal-fired power plants. Already, many utilities are scaling back plans to close coal-fired power plants. 

Artificial Intelligence Requires Real Energy

AI requires the processing of large amounts of data. The data centers that power AI are larger and far more energy-intensive than those of current generation facilities. The International Energy Agency (IEA) estimates that ChatGPT uses nearly ten times as much electricity as Google Search. As a result, estimates of electricity demand are being revised upwards.[1]

Electricity demand in the U.S. is projected to grow 4.7% annually over the next five years. This is double the estimate from one year ago. Data centers are projected to account for 9% of U.S. power demand by 2030, more than double current levels.

Coal’s Phaseout is Being Delayed

Renewable energy sources are not being built fast enough to accommodate this growth and facilitate the elimination of coal-fired power plants. As a result, the retirement dates for U.S. coal-fired plants are being pushed back. 

For example:

• FirstEnergy announced in early 2024 it was scrapping its 2030 target to phase out coal, citing ‘resource adequacy concerns'
• Alliant Energy delayed plans to convert its Wisconsin coal-fired plant to gas from 2025 to 2028
• Grid operator PJM requested that Talen Energy's Maryland coal unit be kept running longer

54 gigawatts (GW) of U.S. coal capacity are expected to be shuttered by the end of the decade, a 40% reduction from last year’s forecast. Annually, 7.5 GW are expected to be retired over the next decade, down from the 10 GW amount of the previous decade.

States Fighting the EPA’s Rules

The Environmental Protection Agency (EPA) is enacting rules to phase out coal-fired plants by 2032 unless they install expensive carbon capture rules. Indiana is leading a group of 25 states in a lawsuit to stop the EPA rules.

Indiana’s governor stated, “We need more energy, not less.”

Renewables are Unable to Keep Up

Renewables likely won’t be able to keep up with increasing demand for power. Shortages of equipment, lack of transmission, and bureaucratic hurdles for grid connection are creating multi-year wait times for renewable projects to replace existing fossil fuel capacity.

How May Investors Gain Exposure to Companies in the Coal Industry?

The Range Global Coal Index ETF

The Range Global Coal Index ETF (COAL) seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the Range Global Coal Index. The Index is designed to track the performance of companies that are involved in the met and thermal coal industry.

[1] All data sourced from: Chu, Amanda, US Slows Plans to Retire Coal-Fired Plants As Power Demand from AI Surges, Financial Times, 5/30/24 & Chu, Amanda, AI’s Thirst for Electricity Risks Slowing US Coal Phaseout, Financial Times, 5/30/24

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