Dive Brief:
- Data center load accounted for $6.5 billion, or 40%, of the $16.4 billion in costs from the PJM Interconnection’s December capacity auction, according to the grid operator’s independent market monitor.
- About $6.2 billion of those costs is related to data centers that haven’t been built but could come online by PJM’s 2027/28 delivery year that begins on June 1, 2027, Monitoring Analytics, the market monitor, said in a report released Monday.
- In PJM’s last three base capacity auctions, costs related to data center forecasts above existing data center loads totaled $21.3 billion, or 45% of the $47.2 billion in the cost of the cleared capacity, according to the report.
Dive Insight:
The market monitor’s report highlights how data center load forecasts have affected PJM’s last three capacity auctions, which set price records and sparked political backlash in some states.
“The extreme uncertainty in the load forecasts based on uncertainty about the addition of large data center loads is also unique and unprecedented and raises questions about the meaning of clearing a capacity auction based on those forecasts,” Monitoring Analytics said.
Increasingly, utilities, state regulators and grid operators like PJM have been working to develop more accurate data center load forecasts amid concerns they may be overstated.
In its last base capacity auction, PJM fell 6,516.6 MW short of meeting its reliability target. However, PJM’s demand forecast for the auction was based on an estimate released a year ago. The grid operator is set to issue a new load forecast this month that could be significantly lower, partly based on stricter vetting of potential large loads, Stu Bresler, executive vice president for market services and strategy at PJM, said Dec. 17 after the auction results were announced.
Also, PJM’s board is expected to propose reforms, possibly this month, to the way the grid operator interconnects data centers, including changes to its process for considering large load forecasts.
The market monitor’s report echoes previously raised concerns that data center loads are largely responsible for the spike in capacity prices in PJM.
“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, the significant shortfall in cleared capacity, and high prices,” Monitoring Analytics said.
The effect data center loads have on PJM’s capacity auction will continue growing until the grid operator addresses large load interconnection issues in an “effective manner,” the market monitor said.
On the issue of a price cap and floor for PJM’s capacity auctions, the last auction would have been $9.9 billion, or 38%, 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.
In the two auctions the price floor/cap was in effect, it reduced capacity costs by $13.1 billion, according to the market monitor’s estimate. The mechanism has expired and won’t be used in PJM’s capacity auction for the 2028/29 delivery year that is set to be held from June 30 to July 4.
PJM is the largest U.S. grid operator, running the power system and electric wholesale markets in the Mid-Atlantic and Midwest regions where about 67 million people live.
PJM holds capacity auctions to help ensure that it has adequate power supplies to meet future needs.
