Dive Brief:

• Prices in the PJM Interconnection’s just-held capacity auction for the 2028-2029 delivery year hit a $325/MW-day price cap across its region, as expected, the nation’s largest grid operator said Tuesday.
• The auction left PJM with a roughly 6.8 GW shortfall below the grid operator’s 20% installed reserve margin target — an increase from the last auction’s shortfall of 6.5 GW, its first ever. It also drew only about 525 MW in new resources, including 208 MW of uprates to existing generation, down from 774 MW of new resources in the previous auction, held in December.
• Looking ahead, PJM’s board is preparing to file proposals with the Federal Energy Regulatory Commission for a backstop capacity auction and a “connect and manage” framework for data centers, according to Stu Bresler, PJM’s chief operating officer. A filing needs to occur this month for the auction to be held in September as planned, he said Tuesday during a media briefing.

Dive Insight:

The auction results are the latest sign that supply and demand remains extremely tight in the PJM’s footprint across 13 Mid-Atlantic and Midwestern states plus the District of Columbia.

“We knew that the shortfall was coming, but the outcome demonstrates that the current system doesn’t work to bring online new capacity or stimulate demand response, the two things we need the most,” Julia Hoos, head of USA East at Aurora Energy Research, said in an email to Utility Dive Tuesday.

New generation needs “significantly more” than the $325/MW-day price cap to be financially viable, according to Hoos.

PJM buys capacity through auctions to meet its future supply needs, typically three years ahead of time. However, after various delays, the grid operator is running the auctions on an accelerated schedule, giving power plant developers little time to respond to the recent surge in capacity prices.

Without a price collar, the auction would have cleared at nearly $555/MW-day across PJM’s footprint and $777/MW-day in PJM’s Commonwealth Edison zone in northern Illinois, according to the grid operator. The auction’s cost would have been $29.7 billion, up from its actual cost of $16.4 billion, PJM said.

In addition, the amount of demand response that was offered into and cleared the auction fell by 277 MW to 7,365 MW of “unforced capacity” — a measure of a resource’s accredited value.

The auction results were also affected by a roughly 2 GW increase in forecast demand, largely caused by data center development, according to Bresler.

With the auction clearing at close to the same price as the last one, ratepayers should see little change in their electric bills starting June 1, 2028, when the delivery year begins.

However, compared with 2024, the monthly capacity charge for a 10-MW industrial customer will likely jump from around $6,000 to roughly $70,000 in 2028, according to Peter Cavan, head of strategy for Unison Energy.

“Do not expect this to materially change in 2029/30,” he said on social media. 

Changes ahead for PJM

Analysts and market observers expect major changes ahead for PJM.

“The [planned] backstop auction was intended to be a one-off, but it’s hard to see how we can return to normal after this,” Hoos said. “Lowering prices [with the price collar] was definitely politically attractive in the short term, but now we’re well on our way to facing an intervention doom loop.”

Jefferies equity analysts expect reforms aimed at lowering capacity prices.

“We continue to expect long-term structural reforms in the [base residual auction] toward a continuing operating cost model with materially lower prices,” the analysts said Wednesday. “Reforming the PJM capacity auction for lower prices is among the single most impactful potential drivers of affordability.”

The results of PJM’s simulated auction without the price cap will likely spark reactions in Illinois, including fueling calls from Chicago-based Exelon for allowing utilities to build their own power plants, according to the Jefferies analysts.

The price separation between the PJM region and northern Illinois shows the need for better transmission planning, according to Clara Summers, director of the Citizens Utility Board’s Consumers for a Better Grid Campaign. 

Last winter, energy prices in the ComEd zone went negative because the energy had nowhere to go due to transmission constraints, Summers said in an email to Utility Dive. “The flipside is also true, that transmission is needed to access capacity elsewhere when prices are high,” she said.

It’s concerning that demand response isn’t showing up in the auction, according to Summers. “It’s clear that something isn’t working when you see less of a low-cost and quick-to-deploy resource like DR showing up despite a high price environment,” she said.

PJM’s markets are incapable of addressing the resource adequacy challenges the grid operator faces, according to the Edison Electric Institute, a trade group for investor-owned utilities like Exelon.

“The status quo benefits generation owners and fails to attract sufficient new supply,” EEI President and CEO Drew Maloney said in a statement. “PJM customers are left to pay high capacity costs while also facing the risks of undersupply.”

Competitive power suppliers have responded with “tens of gigawatts of generation projects” since capacity prices in PJM jumped in a mid-2024 auction, but they face barriers to building projects, according to the Electric Power Supply Association, which represents independent producers.

“Continued progress on improving and accelerating permitting and siting processes, interconnection, load forecasting, policies that encourage investor certainty and development, and market reforms will help bring new resources online faster,” Todd Snitchler, EPSA president and CEO, said in a press release.

PJM can address its near-term issues by focusing on weeding out some data centers and requiring others to pay for their own infrastructure, according to the Natural Resources Defense Council.

“PJM can solve this problem in the near term by removing large loads — like data centers — that have not brought their own new supply from the capacity auction, implementing a strong ‘Connect and Manage’ construct to triage reliability risks, and working with states to make sure data centers pay for power plants and transmission built to serve them without risking public dollars,” Claire Lang-Ree, an NRDC advocate for climate and energy, said in a press release.

Several power producers reported higher revenue from the latest auction.

Constellation Energy cleared 18,875 MW in the auction, up from 17,950 MW in the last auction, the independent power producer said in a U.S. Securities and Exchange Commission filing. As a result, it should garner about $2.2 billion in revenue for the 2028/29 capacity year.

Vistra cleared 10,924 MW, up from 10,566 MW, and Talen Energy cleared 10,180 MW, up from 8,745 MW, they said in SEC filings. That will generate $1.3 billion and $1.2 billion in capacity revenue for the companies.