Policy & Regulation

Oh, that’s not good: Energy prices at PJM capacity auction skyrocket 9x

Insufficient future transmission planning, the retirement of fossil-fired generation, long interconnection queues and the implementation of FERC market reforms are all contributing to the price hikes.
Oh, that’s not good: Energy prices at PJM capacity auction skyrocket 9x

And you thought the cost of a Big Mac was putting a damper on your finances?

PJM Interconnection, the largest electrical grid operator in the United States, held its annual power market auction Tuesday, and the results are staggering.

The auction produced a price of $269.92/MW-day for most of the PJM footprint, compared to $28.92/MW-day for the 2024/2025 auction. Capacity auction prices fluctuate annually based on the need for investment in generation resources, but a more than 800% increase will have a massive ripple effect across PJM’s 13-state footprint.

“PJM’s capacity auction has competitively secured resources to meet the RTO reliability requirement for the 2025/2026 Delivery Year,” reads PJM’s press release. That is a true statement, I suppose.

The auction secured 135,684 megawatts for the period from June 1, 2025, through May 31, 2026. The power mix from generators included 48% gas, 21% nuclear, 18% of coal, 1% of solar, 1% of wind, 4% of hydro, 5% of demand response, and 2% from other resources, PJM said. The total Fixed Resource Requirement (FRR) obligation is an additional 10,886 MW for a total of 146,570 MW. The total procured capacity in the auction and resource commitments under FRR represents an 18.5% reserve margin, compared to a 20.4% reserve margin for the 2024/2025 Delivery Year.

“The significantly higher prices in this auction confirm our concerns that the supply/demand balance is tightening,” PJM CEO Manu Asthana said. “The market is sending a price signal that should incent investment in resources.”

2025/2026 Capacity Prices
2025-26 prices from Tuesday’s capacity auction. Prices are higher (at the zonal cap) in the BGE zone in Maryland and the Dominion zone in Virginia and North Carolina due to insufficient resources inside those regions and constraints on the transmission system that limit the ability to import capacity. This indicates those regions would benefit from additional resources, additional transmission to allow increased imports into those regions, or a combination of the two. (courtesy: PJM)

How did we get here?

The short explanation behind the price hikes: supply and demand. A longer line of reasoning includes insufficient future transmission planning, the retirement of fossil fuel generation, long interconnection queues, and the implementation of FERC-approved market reforms.

According to PJM, the drivers of higher prices in this auction include:

  • Decreased supply offers into the auction due mainly to generator retirements
  • Increase in projected peak load
  • FERC-approved market reforms, including improved reliability risk modeling for extreme weather and accreditation that more accurately values each resource’s contribution to reliability

National trade association Advanced Energy United points out PJM scored a “D-” in a recent scorecard of how all grid operators are managing “generator interconnection,” the process of connecting energy projects to the power grid. PJM’s interconnection process was going so poorly it shut down its interconnection queue until sometime in 2025. Hundreds of projects are still stuck waiting in line. A 2023 report from Americans for a Clean Energy Grid graded PJM a “D” for its process of building new transmission lines, which are needed to connect energy projects to population centers.

“Electricity prices are skyrocketing because the grid operator PJM is failing to plan for the kind of energy infrastructure we need to affordably keep the lights on,” said Jon Gordon, Director at Advanced Energy United. “PJM didn’t prepare for an energy transition we all saw coming, and now consumers are going to pay the price.”

“PJM fell behind on interconnection and long-term transmission planning years ago, and now the problems are just cascading and piling up,” added Gordon, who leads United’s engagement with PJM. “With transmission planning improvements on the docket and further interconnection reforms urgently needed, these auction results should send a clear message that change can’t come too soon.”

Is change coming?

The price increase within PJM’s service territory is set to take effect in June 2025. Capacity prices are one component of wholesale costs that ultimately get factored into the price paid by end-use customers; electric bills also reflect the cost of other wholesale services like energy and transmission, as well as distribution services, state programs, and other fees.

The total amount of supply resources in the auction decreased again this year, continuing a trend across recent auctions and underlining PJM’s stated concerns about generation resources facing pressure to retire without replacement capacity being built quickly enough to replace them. About 6,600 MW of generation have retired or have must-offer exceptions (signaling intent to retire), compared to generators which offered in the 2024/2025 Base Residual Auction (BRA).

Meanwhile, the peak load forecast for the 2025/2026 Delivery Year has increased from 150,640 MW for the 2024/2025 BRA to 153,883 MW for the 2025/2026 Delivery Year. Additionally, FERC-approved market reforms contributed to tightening the supply and demand balance by better estimating the impact of extreme weather on load and more accurately determining resource reliability value.

These reliability concerns associated with reducing supply and increasing demand are not limited to PJM; the North American Electric Reliability Corporation has identified elevated risk to the reliability of the electrical grid for much of the country outside of PJM.

To facilitate the entry of new resources, PJM is implementing its FERC-approved generation interconnection reform, with approximately 72,000 MW of resources expected to be processed in 2024 and 2025. However, PJM remains concerned with the slow pace of new generation construction. Approximately 38,000 MW of resources currently have already cleared PJM’s interconnection queue but have not been built due to external challenges, including financing, supply chain, and siting/permitting issues.

“Interconnection process reform is proceeding, but hurdles remain for many projects outside of our process,” said Stu Bresler, executive vice president of market services and strategy. “We are considering ways to accelerate those who can successfully overcome those challenges and build.”

Auctions are usually held three years in advance of the delivery year. The 2025/2026 auction was originally scheduled to be held in May 2022, but auctions had been suspended while FERC considered approval of new capacity market rules. PJM has compressed its auction calendar to return to a three-year-forward basis. The next BRA, for the 2026/2027 Delivery Year, is currently scheduled for December 2024.

A detailed report of the auction is available on PJM’s capacity market page.