US data center growth effect on coal may be limited

The US coal industry is pondering ways to respond to the projected boost in domestic power demand linked to planned data centers in the pipeline, but the centers' effect on coal could be mixed or limited.

A number of projects have been announced for coming years. But generators are still grappling with uncertain estimates of which major projects in the US will come to fruition, where they will be located and other criteria that will drive demand.

"Data center companies are shopping around in different utilities' territories and showing up multiple times and being double counted", said Laurie Williams, director of the Sierra Club's Beyond Coal Campaign.

According to the National Telecommunications and Information Administration, there are more than 5,000 data centers currently in the US, and demand for data centers in the country is projected to grow by 9pc annually through 2030. Approximately 8-10 larger data centers could be developed across the US in coming years. A number of large-scale projects, which could include so-called 'big tech' — Apple, Alphabet (Google), Amazon, Facebook (Meta), and Microsoft — are going through the feasibility study phase, Argus sources said.

The Sierra Club is expecting electricity demand from data centers to increase anywhere between 5pc-20pc/yr. Some generators that spoke with Argus said they project growth of 9pc/yr, while an "organic" increase in electricity demand was previously expected to be 2pc-3pc.

The US Energy Information Administration (EIA) earlier this month projected commercial electricity sales would rise by 3pc this year and 1pc in 2025, helping to boost overall electricity generation.

"It is fair to say that the growth of commercial demand for electricity is at least due in part to the effect of data center development," said US Energy Information Administration (EIA) economist Jonathan Church. "We cannot, however, provide a precise estimate of what that effect is or what data center growth is."

So far this year, US coal-fired generation has fallen as lower-cost natural gas, nuclear and renewable generation maintained or expanded their leads over coal in the generation mix. EIA expects coal-fired generation to fall in 2024 and edge higher in 2025.

A number of factors still need to come together before more certain projections of data centers' impact on the US coal industry are released, market participants said. Those include state environmental goals and federal regulations, availability of overall energy infrastructure and different generation types, and the approach that the IT sector will pursue when planning new projects.

At least some IT companies are favoring lower-CO2 emitting generation. For example, Microsoft, Amazon and Alphabet recently have signed agreements to use nuclear or renewable generation for some projects. Other developers have indicated wanting to buy generation from wholesale electricity markets.

In addition, US utilities continue to retire coal units to comply with US Environmental Protection Agency (EPA) rules. The amount of coal-fired generating capacity available in the US is expected to shrink to 163.7GW by the end of 2025 from 177GW in 2023, according to EIA.

Longer life for coal plants?

But some in the electric power industry are concerned about enough generating capacity being available to meet expected load growth because, in some cases, new generating facilities need to be built to provide the amount of power needed.

"With the level of demand increasing, all energy resource consumption will increase," Utah Office of Energy Development acting director Dusty Monks said. "It is not out of the realm of possibility to say these industries (data centers and AI) will surpass the energy use of traditional customers in the next 10-15 years".

Some generators that project increased electricity demand driven by data centers have proposed extending the operation of their coal plants. Limited natural gas pipeline infrastructure in some regions and mine-mouth power plants also support increased coal consumption to some extent.

Alliant Energy delayed the coal-to-gas conversion of a Wisconsin plant by three years to 2028. Duke Energy may put off some coal-fired power plant unit retirements in Indiana, with the intention of burning coal in the state until 2038.

Elsewhere in the US, companies representing up to 15GW of load — mostly data centers — are seeking service from American Electric Power by 2030.

Other utilities are continuing to convert coal-fired facilities to natural gas instead of retiring them. While the EPA has rolled out rules for gas plant emissions, gas units may still be more competitive financially and technologically over coal since gas prices have been lower and new gas units generally are more efficient when used as a backup to intermittent renewable energy. Even power plants in Utah, which traditionally favored coal, generated nearly the same amount of power from gas and coal over the first seven months of 2024 (see chart).

US coal producers are paying close attention to plans for data centers and possible effects on coal demand but are still scaling back output. US coal mines' output totaled 591.5mn st (536.6mn metric tonnes) this year through 12 October, down by nearly 13pc from the same period in 2023, according to EIA data.

Some of the states with the greatest growth in commercial electricity demand still have relatively large amounts of coal-fired generation, the EIA data show. But many of these states are also natural gas generation hubs.

This includes Virginia and Texas, which had an outsized share of commercial generation growth last year.

The fate and plans of data center projects in the pipeline as well as economics, regulation and company preference will determine the outcome for coal generation.

By Elena Vasilyeva