There are “clear warning signs” for the PJM Interconnection’s capacity market and for grid reliability in its footprint largely driven by data center development, the grid operator’s independent market monitor said Thursday.
On the reliability front, PJM’s last two base capacity auctions show a growing shortfall compared to its reserve margin targets. The gap was about 210 MW in the 2026/2027 auction, rising to about 6,520 MW in the 2027/2028 auction, Monitoring Analytics noted in its annual report on PJM’s markets.
At the same time, the price impacts have been large and will continue to grow “until the issues associated with the additions of large data center loads are addressed,” it said.
Last year, wholesale power in PJM cost $67 billion, up 54% from $43.5 billion in 2024, according to the report.
Energy costs, which accounted for 60% of total costs in 2025, were up 51% year over year. Capacity costs increased the most over that period — 262% — and accounted for about 16% of total costs last year, compared to 6.5% in 2024. Transmission costs were up 4.5% and accounted for 22% of total costs in 2025.
Capacity costs surged in 2025
In PJM’s last three capacity auctions, inclusion of existing and forecast data center load growth resulted in a combined total increase in system costs (revenue to suppliers) of $23.1 billion, Monitoring Analytics estimated.
“Large data center load additions have already had a significant and irreversible impact that will be paid through May of 2028 and will have additional significant impacts on other customers as a result of higher transmission costs, higher energy market prices and higher capacity market prices,” the market monitor said.
PJM doesn’t have enough capacity to serve data centers, according to Monitoring Analytics.
As a result, to avoid “wealth transfer issues,” data centers should be required to provide their own new power supplies — with a fast-track load and generation interconnection process — or face curtailment when the grid is stressed, the market monitor said.
“It is essential to have a pragmatic market solution that is consistent with and sustains efficient and competitive PJM markets rather than to create the conditions for a return to cost of service regulation or a variant of cost of service regulation,” Monitoring Analytics said.
Currently, PJM is working with its stakeholders to develop a potential backstop reliability auction to help address load growth.
Monitoring Analytics called for holding a separate capacity auction just for data centers and excluding those loads from its regular base capacity auction. Under the proposal, only new generation could offer in the special data center auction. Once the auction is completed, data centers would enter into long-term contracts with the power plant owners.
Monitoring Analytics sought to distinguish its proposal from others that have been floated in PJM’s stakeholder process.
“Contrary to all the other proposals for addressing the issues, including the other backstop auction proposals, the [market monitor] proposal is designed to ensure that data centers do not shift costs and risks to other customers,” Monitoring Analytics said.
For example, allowing utilities to build generation for data centers under cost of service regulation shifts costs and risks to other utility customers, the market monitor said.
Despite the monitor’s concerns, it said PJM’s markets simply need finetuning.
“The assertion that yet another ‘holistic review’ of PJM markets is required or is a panacea is, for many, merely a euphemism for raising prices,” Monitoring Analytics said. “The core elements of the PJM market design remain robust.”
