Dive Brief:
- Capacity prices in the PJM Interconnection’s latest capacity auction hit a $333.44/MW-day price cap across its region, setting a record-high price for the third auction in a row, the grid operator said Wednesday.
- PJM procured 145,777 MW in the auction, about 6,625 MW below the grid operator’s 20% installed reserve margin target — an estimate of how much capacity is needed to prevent more than one unexpected power outage every 10 years.
- PJM estimates that without a temporary price cap that was established in an agreement with Pennsylvania Gov. Josh Shapiro, D, the capacity price for the 2027-28 delivery year would have been nearly $530/MW-day, or about 60% higher. Currently, PJM’s next capacity auction, set to be held in July, won’t include the price cap — but some industry observers expect a price cap will be reinstated.
Dive Insight:
The auction results were nearly the same as PJM’s last auction, which cleared at $329.17/MW-day. As a result, ratepayers will see little change in their electric bills because of the auction, Stu Bresler, executive vice president for market services and strategy at PJM, said during a media briefing.
The cost of the auction climbed to $16.4 billion from $16.1 billion in the previous auction, up 1.9%. Capacity costs make up a relatively small part of electric bills.
PJM capacity costs hit a record high
Gas-fired generation accounted for 43% of the cleared capacity, followed by nuclear at 21%, coal at 20%, demand response at 5%, hydroelectric at 4%, wind at 2%, oil at 2% and solar at 1%, according to PJM.
The auction cleared 774 MW of “unforced capacity” — a measure of a resource’s accredited value — of new generation and power plant uprates.
“It’s unsurprising that almost no new capacity showed up because projects in PJM are still struggling to get built,” Julia Hoos, head of USA East at Aurora Energy Research, said in an email Thursday.
Some of the backlog is caused by permitting challenges, a difficult financing and regulatory environment, and gas turbine shortages, she said.
In part, the latest auction results were driven by a 5,250-MW increase in PJM’s demand forecast — almost entirely driven by data centers — and a roughly 370-MW increase in cleared “unforced capacity” compared to the previous auction, Bresler said.
While PJM failed to buy enough capacity to meet its installed reliability margin, there are signs the shortfall will shrink by the time the delivery year begins on June 1, 2027, according to Bresler.
PJM’s demand forecast for the auction was based on an estimate released in January. However, PJM is set to release a new load forecast next month that could be significantly lower, partly based on stricter vetting of potential large loads and a reduced economic outlook, Bresler said.
“We expect it to be appreciable, so it will make a meaningful difference leading into the delivery year,” he said.
Also, planned power plant retirements may be delayed and wind generation that was unable to participate in the capacity auction will still be delivering electricity in the winter when the PJM system has the most reliability risk, according to Bresler.
PJM could acquire additional capacity if needed in its “incremental auctions” that are held to address supply-demand changes before a capacity year takes effect, Bresler noted.
The auction results don’t reflect a wave of recent investment announcements because generating projects take years to build and PJM’s auction calendar has been compressed over multiple auction cycles, according to the PJM Power Providers Group and the Electric Power Supply Association.
“Arguments in support of dramatic policy reversals,” such as permitting utilities to rate base generation, “would do nothing to speed construction and would further exacerbate concerns about affordability,” the trade groups said.
Reliability backstop procurement?
PJM’s rules require it to launch an investigation when it fails to meet its reliability reserve target by more than one percentage point, the grid operator said in its auction report. It missed the 20% target by 5.2 percentage points.
That could trigger a never-used procurement process for backstop capacity, according to Jefferies equity analysts.
“We increasingly see an accelerated backstop procurement as the 'default' immediate fix with a FERC filing to request this coming from the board in '26,” the analysts said. “If PJM proceeds with this, expect a special RFP process to procure capacity-only resources at potentially elevated costs at term (15-years?).”
The auction results increase pressure on state utility regulators to create new tariff structures to ease concerns about shifting costs from data centers to other utility customers, analysts with research firm Capstone said.
The analysts doubt PJM’s board will propose major changes to the grid operator’s rules for adding large loads to its system, the analysts said. PJM’s board is developing a proposal based on suggestions made during a fast-track stakeholder process that failed to reach a consensus on large loads. The board aims to file a proposal for review by the Federal Energy Regulatory Commission next month, Bresler said.
“Instead, we expect the upcoming filing to focus on high-consensus items that will receive FERC approval and align with Department of Energy … principles concerning expedited interconnection for generators paired with data centers,” the Capstone analysts said.
Consumer groups call for reforms
PJM is “mired in bureaucracy” while other regional grid operators are moving faster to bring new power online, according to the Ohio Manufacturers' Association.
“Customers should be paying to bring new generation online, not overpaying the same legacy plants,” Ryan Augsburger, OMA president, said in a statement. “If PJM’s auctions continue to deliver results like this, the system must be rebuilt from the ground up.”
Chicago-based Citizens Utility Board echoed OMA’s concerns while calling on PJM to extend the capacity auction’s price cap and eliminate the price floor.
“Our capacity market is breaking under the weight of data center demand and a dysfunctional interconnection queue,” CUB Executive Director Sarah Moskowitz said in a statement. “Even worse, since the auction results fell below the reliability requirement, consumers are getting the worst of all worlds: paying more money for reduced electric reliability, while existing generators get a windfall.”
Constellation Energy cleared 17,950 MW in the auction, the power producer said in a U.S. Securities and Exchange filing. As a result, it should garner about $2.2 billion in revenue for the 2027/28 capacity year.
Vistra cleared 10,566 MW and Talen Energy cleared 8,745 MW, they said in SEC filings. That will generate $1.3 billion and $1.1 billion in capacity revenue for the companies.
