PJM Interconnection, the largest electrical grid operator in the United States, held its annual power auction a week ago. The aim of this “capacity market” is to ensure reliability by securing future resource availability (i.e, construction of new generation) plus a reserve margin.
Capacity prices for most of PJM’s subregions for the 2025-26 delivery year soared to $269.92/MW-day, up from $28.92/MW-day in the previous auction. The table below shows the 10-fold increase year over year.
Prices in the Baltimore Gas & Electric (BGE) and Virginia’s Dominion zones were even higher, up to $466.35/MWd and $444.26/MWd respectively. The price increase will take effect in June 2025. The capacity price increase will undoubtedly be felt in higher energy bills for consumers and businesses across the 13 state PJM footprint.
What was behind the increase? One reason for the price increase is the reduction in supply – 6,000 MW of generation were retired. A second reason is the need for more energy resources. PJM forecasts 40 GW of new demand over the next 15 years in addition to retirements that equal that same amount by 2030. Retirements and new growth pushed overall cost for capacity from $2.2 billion to $14.7 billion. Adding additional capacity resources, especially more energy storage (combined with wind or solar) and offshore wind, to PJM as quickly as possible will be critical.
Seasonality Considerations
The implementation of PJM’s annual capacity market made sense historically when summer had the highest demand and supply needs were the greatest. However, changes in energy resources, and reliability concerns in summer and winter (think Winter Storm Elliott in 2022) means resource adequacy matters in both seasons. Winter peaking has become more and more prevalent across the PJM footprint.
Understandably, there are concerns about resources with different seasonal availabilities to meaningful participate as capacity resources. Seasonal markets can improve reliability and lower costs. Rather than focusing on a narrow peak demand window in the winter, consumers will benefit if PJM considers further market reforms that value both summer and winter peaks as well as average resource contributions over those periods. We’re encouraged that PJM is planning to start discussing seasonal market designs with stakeholders, but implementing this important reform could take years. We urge PJM to fast track the seasonal design stakeholder process.