Dive Brief:
- Data center load drove up revenue in the PJM Interconnection’s last capacity auction by $7.3 billion, or 82%, to $16.1 billion, according to the grid operator’s market monitor.
- Combined with PJM’s previous capacity auction, existing and forecast data center load resulted in $16.6 billion in capacity auction revenue, or about half of the $30.8 billion in revenue from the two auctions, Monitoring Analytics said in a report released Wednesday.
- “Data center load growth is the primary reason for recent and expected capacity market conditions, including total forecast load growth, the tight supply and demand balance, and high prices,” the market monitor said.
Dive Insight:
Capacity prices — a cost that is ultimately paid for by electricity consumers — surged in PJM’s last two July capacity auctions.
The 2024 auction results led to double-digit electric bill increases for some utility customers in PJM’s footprint, which covers parts of 13 Mid-Atlantic and Midwest states and the District of Columbia.
PJM holds capacity auctions to help ensure that it has adequate power supplies to meet future needs. In the last auction, PJM bought capacity for a one-year period that starts on June 1. The grid operator is preparing to hold its next auction in early December to buy capacity for a year beginning on June 1, 2027.
Monitoring Analytics contends it is “misleading” to say that PJM’s recent capacity market results simply reflect tightening supply and demand.
“The current conditions are not the result of organic load growth,” it stated. “The current conditions in the capacity market are almost entirely the result of large load additions from data centers, both actual historical and forecast.”
Also, the “extreme uncertainty” in data center load forecasts is unprecedented and “raises questions about the meaning of clearing a capacity auction based on those forecasts,” Monitoring Analytics said.
In June, the market monitor recommended requiring new data centers to supply their own generation instead of tapping into existing power supplies in PJM.
“The impact of the uncertain forecast of data center load on other customers would be limited or eliminated” by the requirement, Monitoring Analytics said in the report.
PJM is in the middle of a fast-track stakeholder process to develop new rules for adding large data centers to its system with a goal of filing a proposal before the end of the year at the Federal Energy Regulatory Commission.
As part of the process, PJM is proposing to bolster its load forecasting for data centers and other large loads, according to an Oct. 1 presentation from PJM staff. Under the proposal, state utility commissions could review and provide feedback on large load adjustments before they are included in PJM’s load forecast.
Utilities would also have to ask if any data center proposals in their service territory are duplicative proposals. Staff suggested requiring large load customers to post financial security for the capacity they plan to buy in an auction.
PJM has dropped a proposal for “non-capacity-backed load” that was widely opposed by its stakeholders, according to the presentation.
On the issue of a price cap and floor for PJM’s capacity auctions, the last auction would have been $3.2 billion, or 20%, higher except for a cost cap that grew out of an agreement between the grid operator and Pennsylvania Gov. Josh Shapiro, a Democrat, according to the market monitor’s report.
The impact of data center development on PJM’s auction results will increase sharply in the 2028/2029 base capacity auction scheduled for June, when the maximum and minimum price caps in the agreement expire, Monitoring Analytics said.
Separately, the Union of Concerned Scientists this week found that utility ratepayers in PJM will pay about $4.4 billion for data center-related transmission projects that were approved in 2024 with similar results expected this year.
