TheChek News Flow

US slows plans to retire coal-fired plants as power demand from AI surges

New technologies are straining power supplies and forcing a shift in plans to reduce use of the fuel source

The staggering electricity demand needed to power next-generation technology is forcing the US to rely on yesterday’s fuel source: coal.

Retirement dates for the country’s ageing fleet of coal-fired power plants are being pushed back as concerns over grid reliability and expectations of soaring electricity demand force operators to keep capacity online.

The shift in phasing out these facilities underscores a growing dilemma facing the Biden administration as the US race to lead in artificial intelligence and manufacturing drives an unprecedented growth in power demand that clashes with its decarbonisation targets. The International Energy Agency estimates the AI application ChatGPT uses nearly 10 times as much electricity as Google Search.

An estimated 54 gigawatts of US coal powered generation assets, about 4 per cent of the country’s total electricity capacity, is expected to be retired by the end of the decade, a 40 per cent downward revision from last year, according to S&P Global Commodity Insights, citing reliability concerns.

“You can’t replace the fossil plants fast enough to meet the demand,” said Joe Craft, chief executive of Alliance Resource Partners, one of the largest US coal producers. “In order to be a first mover on AI, we’re going to need to embrace maintaining what we have.”

Operators slowing down retirements include Alliant Energy, which last week delayed plans to convert its Wisconsin coal-fired plant to gas from 2025 to 2028. Earlier this year, FirstEnergy announced it was scrapping its 2030 target to phase out coal, citing “resource adequacy concerns”.

Grid Strategies, a consultancy, forecasts US electricity demand growth of 4.7 per cent over the next five years, nearly doubling its projection from a year earlier, citing new manufacturing and industrial capacity and data centres used to power everything from AI to crypto mining to the cloud. A study released on Wednesday by the Electric Power Research Institute found that data centres would make up 9 per cent of US power demand by 2030, more than double current levels.

The White House has set a target to reach a carbon pollution-free power sector by 2035. Last month, the Environmental Protection Agency finalised controversial rules to phase out coal-fired plants starting in 2032 unless they install expensive carbon capture systems.

The EPA found in its analyses that the power sector can meet demand while reducing pollution and providing reliable, affordable electricity under these rules, said a spokesperson, adding that the agency “believes the rules are on firm legal ground”.

Indiana is leading a group of 25 states in a lawsuit to stop the EPA rules.

“We need more energy, not less,” Indiana’s Republican governor, Eric Holcomb, told the Financial Times. “We absolutely as Americans can’t afford to lose the AI war.”

US coal-fired power generation is in long-term decline, making up 16 per cent of the country’s electricity supply last year, down from nearly 40 per cent in 2014, according to the US Energy Information Administration.

Seth Feaster, a data analyst at the Institute for Energy Economics and Financial Analysis, cautioned against equating reports of retirement delays to higher generation. The EIA projects that US coal power generation will fall another 4 per cent this year and utilisation rates at coal-fired plants remain low.

“Simply pushing back a retirement date does not mean that those plants will be used,” Feaster said. “The trajectory of coal hasn’t really moved.”

Where the crunch on property funds could be felt in Europe

Illiquid property assets in liquid funds seems a fine idea until the market sours and investors want their cash

Property investor Sam Zell once said that there is no value without liquidity. A growing queue of US investors are waking up to that reality in commercial real estate. Unlisted Starwood Real Estate Income Trust, with $10bn of assets, was forced to limit redemptions during the first quarter.

On the other side of the Atlantic, hard-learned lessons offer some comfort if the turmoil travels.

Illiquid property assets in liquid fund structures seem a fine idea while prices are stable or rising. Cash from new investors means plenty is available for anyone who wants out. When markets sour that equilibrium evaporates. Buildings can take years to sell while investors can ask for cash on demand. Funds in that situation have three unpalatable choices: sell assets quickly into falling markets, raise debt or halt redemptions. 

After multiple UK property funds were forced to stop withdrawals following the 2016 Brexit vote and in the pandemic, the open-ended sector is much diminished. Assets under management have fallen by around half to €13bn today, according to Morningstar.

That figure is dwarfed by the sums sitting in open-ended funds in Germany — where property markets are among the most troubled in Europe. About €120bn of retail property investment sits in similar open-ended fund structures in the country. Some €0.5bn of money on a net basis was pulled in the first two months of this year, according to Scope Fund Analysis. With the sector experiencing its first meaningful net withdrawals since 2006, protections put in place back in 2014 may be tested.

Those regulations meant that new investors had a 24-month holding period. Funds also have a 12-month grace period to meet redemptions from those investing since 2014. One disincentive to withdrawing money is that valuations are taken at the redemption date, not when it is requested. This is supposed to make liquidity management easier. Nonetheless, outflows are expected to rise, peaking in the third quarter of this year, thinks Scope’s Sonja Knorr.

Liquidity remains robust with €17.3bn or 14 per cent on aggregate — well above the 5 per cent minimum. Average loan to value of 16 per cent is also half regulatory requirements. 

Open-ended property funds for institutional investors could pose a greater risk. They are less regulated, more opaque and contain €180bn of property assets owned by German pension and insurance assets. Redemptions are rising too. Liquidity and LTVs are largely undisclosed but exposure to offices is substantial.

This is a waiting game. Investors who are short of cash are holding out for interest rate cuts. But sharp declines are not a given. The selling pressure could intensify this year.

Experts are warning of one more potential side effect to popular weight loss drugs: reckless behavior.

According to two experts, the drugs could cause people to act out of character, engaging in risky behavior, like gambling, or making huge life changes, like getting a divorce, reports the Daily Mail.

Collectively, such behavior is called impulse control disorder — an umbrella term that encompasses conditions that make it tough to control your actions. This could include everything from angry outbursts to more serious disorders like pyromania, according to the Cleveland Clinic.

The researchers wrote a journal article published earlier this month in the QJM stating that “effects on cognition [have] received scant attention.”

Most studies focus only on the rapid weight loss phase of using these drugs, with very few studies focusing on longer-term outcomes, they argue.

The co-authors, who include a gastroenterologist and psychiatrist, go on to say they have become aware of individuals who have started the blockbuster GLP-1 medications and made major life changes — such as divorce or house moves — within months of beginning their treatment.

“Without knowing the details underlying these events, the rationale for some of them appears reckless,” the authors conclude.

The researchers said they don’t know why the drugs could cause people to make such decisions, but this wouldn’t be the first time a drug has been associated with an odd or risky behavioral change.

“It is well established that hypersexuality and excessive gambling is associated with taking Levodopa,” Dr. Raymond Playford, one of the paper’s authors, told the Daily Mail. Levodopa, a drug used to treat Parkinson’s disease, has been shown to increase the risk for pathological gambling. Patients who receive the drug are also counseled on this potential side effect.

“We are advising that doctors also warn patients to look out for urges that are ‘out of character’ or unusual with cost or personal repercussions — for instance divorce — and to ‘step back’ and think whether this is a sensible decision,” Playford explained to the Mail.

“’This warning should allow patients and doctors to reflect and consider whether the decisions some patients have been making are out of character and riskier than one would expect,” the doctor added.

Ozempic, along with other semaglutide or tirzepatide drugs, has been associated with myriad side effects — from so-called Ozempic butt and boobs, to impotence, personality changes and uncomfortable GI issues.

The paper’s authors acknowledge they haven’t seen evidence of gambling or reckless sexual behavior, but don’t want to rule out the possibility.

“We have not seen excessive gambling or sexual activity in patients to date but we wouldn’t be surprised if this was happening,” Playford noted.

The inside story on the Asia tech trends that matter, from Nikkei Asia and the Financial Times

It has been a super-humid week here. Mushrooms have even started to sprout from the damp floor in our office. Thankfully the wind finally arrived today, otherwise I might have to continue suffering the smell of mould in a lot of indoor places I go.

In other damp news about the city, Hong Kong this week made its first known arrests for alleged sedition under the new local security law passed two months ago. Authorities have accused seven people of inciting hatred against the Chinese central government, the Hong Kong government and the judiciary by commemorating the 35th anniversary of the Tiananmen Square crackdown on social media.

The anniversary is next Tuesday. Before Beijing imposed a national security law on Hong Kong in 2020, the city used to be a centre for people to mourn those killed and pass on memories of the tragedy to the next generation. Some Chinese people would even make special trips from the mainland to join the candlelight vigil at Victoria Park.

In the past three years, the park has been blanketed by heavy security forces on the night of June 4, with police arresting or detaining anyone who tried to commemorate the anniversary. Police would also check the bags of passers-by and warn residents who stopped to linger. Events to mark the anniversary have increasingly been held in Taiwan since 2020, though on a smaller scale.

Heavy security is expected at Victoria Park this year, too, and like last year, the venue will also host a food festival organised by pro-Beijing community groups starting on June 1. Organisers have vowed to make the festival an annual event.

Hong Kong still bills itself as a centre of business and innovation, but this really says a lot about how much the city has changed.

The art of discipline

In a recent interview with Nikkei Asia’s Lauly Li and Cheng Ting-Fang, former TSMC executive Konrad Young put forth an interesting theory that Asia’s “Confucian culture”, with its emphasis on discipline and respect for authority, is a perfect fit for modern chipmaking. That, he argued, is one reason Taiwan, South Korea and Japan are ideal places for developing semiconductor manufacturing — as long as they also have enough skilled engineers.

“The hardest thing about semiconductor manufacturing is that it has more than 1,500 manufacturing steps and every step requires a lot of precision measurements, human wisdom, experience and knowledge to get them right,” said Young, who currently serves as a professor at the National Taiwan University Graduate School of Advanced Technology.

Young said that while the creativity, innovation and independent thinking valued in western cultures are vital for forging new industries, sophisticated semiconductor manufacturing requires a different approach and has little room for argument and debate.

But concerns are also growing that Taiwan — home to 90 per cent of the world’s advanced chipmaking capacity — will not have enough engineers to carry on this tradition as the island’s birth rate continues to decline.

Ready to spend

SoftBank is prepared to commit close to $9bn a year to artificial intelligence investments, even as the Japanese tech group holds back firepower for bigger deals aimed at accelerating what could be its most radical transformation to date.

One year after founder Masayoshi Son said the group was ready to go back on the offensive, SoftBank is hunting for deals that can support the group’s crown jewel, UK-based chip designer Arm, writes David Keohane for the Financial Times.

SoftBank’s chief financial officer Yoshimitsu Goto told the Financial Times that the group was prepared to maintain its newly achieved investment pace of about $9bn a year and that its balance sheet was strong enough to allow for even bigger moves.

The problem for Son is that competition for AI deals is already fierce and large ambitions — including rumoured chip production, something Goto refused to comment on — could mean the kind of outlay to make even SoftBank wince.

Japan’s animation industry, already known for high pressure, intense competition, low wages and gruelling hours, now has a new concern: unintentionally outsourcing work to North Korea via Chinese subcontractors, write Nikkei Asia’s Ryohtaroh Satoh and Cissy Zhou.

In late April, a US think-tank reported finding animation data for Japanese, Chinese and western shows, most of which were still in the middle of production, on a cloud storage server with a North Korean IP address. The files appeared to be related to shows including the Japanese anime Dahlia in Bloom, Amazon Prime Video show Invincible and a Chinese production backed by Tencent.

The founder of a Chinese animation company told Nikkei that it was no secret in the industry that North Korea was part of the global animation supply chain. Because the animation industry is globally interconnected, anyone who can offer the best quality at the lowest price usually wins the contracts — even if they are from North Korea.

For companies wanting to avoid falling foul of sanctions by working with North Korea, even indirectly, there is more bad news. Detecting the involvement of North Korean workers in digital supply chains is becoming increasingly difficult as ever more projects, such as animation or software development, are handled globally and by remote workers.

The Bigger Fund

Beijing has launched its biggest ever state-backed semiconductor fund to bolster the domestic chip sector, a move aimed at countering US efforts to limit China’s access to advanced technology, writes Nikkei’s Shunsuke Tabeta.

The third and latest phase of the China Integrated Circuit Industry Investment Fund — a financing scheme to promote Beijing’s “Made in China 2025” high-tech industrial development plan — is by far the biggest. The previous two phases of the “Big Fund,” as it is commonly known, were set up in 2014 and 2019, with capital of $19bn and $27bn, respectively.

While the exact investment targets remain undisclosed, the focus is expected to be on artificial intelligence-related semiconductors and manufacturing equipment, aiming to help major Chinese semiconductor companies swiftly shift from international to domestic suppliers for essential components.

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