The power needs of data centers will temporarily prolong the demand for coal, maintaining the reliability of the electric grid but delaying the nation's decarbonization goals, according to Moody's Ratings. The electricity demand from data centers could more than double to 35 gigawatts by 2030 compared to 17 gigawatts in 2022, according to a Moody's report published Monday. Existing natural gas and coal-fired plants will likely bridge the supply gap to meet this load as the power industry builds new capacity. "The near-term rise in U.S. power generation will delay forecast declines in domestic demand for thermal coal, delaying decarbonization but still a near-term step necessary to keep the grid reliable," Elena Nadtotchi, senior vice president at Moody's, told clients in the report. Coal producers in central and southern Appalachia such as Alliance Resource Partners , Arch Resources and Consol Energy stand to benefit the most due to their proximity to the world's largest data center market in northern Virginia, according to Moody's. "That is obviously in close proximity to the Appalachia basin for coal, which is a pretty big basin and there is also a lot of coal-fired generation capacity in close proximity," Sandeep Sama, a coal analyst at Moody's, told CNBC. "It can be cost effective for them to supply coal to those power plants, and those power plants can, in turn, meet the incremental demand coming in from the new data centers," Sama said. Merger set to close Arch Resources and Consol agreed to merge in August with the deal expected to close in the first quarter of 2025. The new company, Core Natural Resources, would have a market value of about $5.2 billion as of August. Arch Resources senior vice president of strategy, Deck Slone, told investors on an August call discussing the Consol merger that the company's coal is "increasingly sought after" in industrial markets and to serve "resurging power generation demand in many economies, which is being driven in part by AI, data centers and [electrical vehicle] expansion." The benefit to U.S. coal producers, however, will be temporary as data center developers transition to cleaner sources of power, according to Moody's. Power companies are unlikely to build new coal plants due to environmental and sustainability goals as well funding challenges, according to the report. But sustained coal demand in the U.S. due to data centers could briefly lift prices before coal resumes its decline after a few years, according to Moody's. "The average utilization of a coal-fired power plant was only around 43% so there's a bit of a slack in the system," Sama said. "You can run these existing incumbent assets a little harder, while in the background the solar and wind generation sources can continue to get built." Coal is forecast to represent about 16% of U.S. power generation in 2024 and 2025, according to the Energy Information Administration, the statistical unit within the Department of Energy. Coal transported to power plants declined 55% from 2010 to 2023, largely due to displacement by natural gas, according to a July report from the EIA. While overall coal production will decline in 2025, coal consumption by the electric power sector will increase from this year due to increased demand from data centers and other sources, according to the EIA's short-term energy outlook published this month. Supply decreasing The largest grid operator in the U.S., PJM Interconnection, warned in July that power supply is decreasing due to plant retirements at the same time demand is increasing, raising reliability concerns. About 17% of the U.S. coal fleet has been retired since 2021, according to the EIA . The PJM area includes northern Virginia, the largest data center market in the world. Alliance Resource CEO Joseph Craft told investors on the company's second-quarter earnings call in late July that regulators and industry have increasingly recognized that "forced early retirements of coal plants, if implemented, will increase risk to the grid" as power demand surges from data centers used in artificial intelligence and other applications, and from manufacturing. Arch Resource's stock has declined about 12% this year, through Monday. Consol has gained about 10% and Alliance has advanced about 18%. The stocks are sparsely covered by Wall Street. The three analysts who cover Alliance and Consol rate them both a buy, while four of the six analysts who cover Arch rate it a buy, according to FactSet data.
