This is the second story in a three-part series exploring the fallout from the PJM Interconnection’s last capacity auction, which delivered historically high prices. This story focuses on how PJM views the auction results and what it's doing to facilitate new supplies. The first story looked at how state lawmakers, utility regulators and utilities are responding. The third story will examine the outlook for generators, demand response and upcoming capacity auctions.
PJM Interconnection staff is considering proposing a process that would give shovel-ready generating projects a quick pathway through the interconnection process, according to Stu Bresler, PJM executive vice president for market services and strategy.
The potential proposal to PJM’s stakeholders comes amid tightening supply-demand conditions in its footprint, and warnings of possible capacity shortfalls later this decade.
Those conditions were made evident when PJM released the results of its most recent capacity auction on July 30, Bresler said in an interview.
For most of the PJM region, capacity prices for the next delivery year that starts on June 1 soared to nearly $270/MW-day, up from almost $29/MW-day in the last auction, the grid operator said in a July 30 auction report. Prices hit zonal caps of about $466/MW-day for the Baltimore Gas and Electric zone in Maryland, and $444/MW-day for the Dominion zone in Virginia and North Carolina.
The result is a financial boon to generators, but will increase electricity bills for some utility customers in PJM’s footprint. It could, for example, drive up electricity bills in Maryland by 2% to 24%, depending on location, according to a mid-August report from the state’s ratepayer advocate.
Under PJM’s capacity framework, the grid operator holds auctions for capacity to be provided in the future. Low prices may lead power plant owners to retire inefficient units while higher prices may keep marginal power plants operating and spur developers to bring new generating units online.
What drove up capacity prices?
A mix of factors — supply, demand and new market rules — contributed to the higher capacity prices in the last auction, according to PJM.
While the prices may have gone higher sooner than expected, the auction reflects trends PJM has been highlighting in the last two years: increasing power plant retirements, a lack of replacement capacity and growing electricity use, according to Bresler.
“What we were trying to put out there was if you take the current trends that we're observing, if you take the policy requirements that [generating] resources are faced with, and you look out into the future, you can very easily project significantly tightening supply and demand conditions in the relatively near term,” Bresler said.
In the last auction, forecast peak load increased 3.2 GW while capacity offers were down about 6.6 GW from the previous one, PJM said in an Aug. 21 presentation. Reflecting the tight supply conditions, only about 500 MW of “unforced” capacity that bid in the last auction didn’t receive an offer, down from about 16 GW in the previous auction.
Also, PJM’s “installed reserve margin” — excess capacity needed to ensure the grid operator has enough power supplies if there are unexpected outages — increased to 17.8% from 14.7%, mainly driven by the risk extreme weather may cause power plant outages, according to the presentation. That change increased needed supply by about 4.3 GW.
Several market rule changes, such as adopting an “effective load carrying capacity” framework for determining how much capacity resources can be expected to deliver, affected the capacity auction results, in part by reducing available capacity by roughly 2.7 GW, according to PJM.
PJM expects responses to price signal
Looking ahead, PJM expects market participants will respond to the auction’s prices, Bresler said. “The market has responded before and there's every reason to believe the market will respond again,” he said.
PJM plans to hold the next capacity auction in early December for the capacity year that starts June 1, 2026, and then one in June for the 2027/28 delivery year.
Demand response providers may be the first group to step up based on the price signal, Bresler said, noting about 1 GW less DR capacity bid in the last auction than in the previous one. That capacity could return with the higher prices.
In addition, power plants slated for retirement may be kept online by their owners while generators that make off-system power sales may decide to participate in PJM’s market, according to Bresler.
And, the owners of generating projects that have cleared PJM’s interconnection queue will have an increased motivation to get their projects online, he said. About 38 GW has completed PJM’s interconnection process, but hasn’t been built.
Getting resources online faster
On the issue of facilitating new power supplies in PJM, the grid operator is in the middle of a transition process for reviewing older interconnection requests before starting to process new requests in 2026 under an interconnection reform plan approved by federal regulators.
PJM is on schedule for completing the transition to clear its backlogged interconnection queue, according to Bresler. “We're working our way through that transition now, and I think it's extremely important to get through it and to maintain it, because that was the bargain that the stakeholders struck,” he said.
PJM expects to process about 72 GW in projects by the third quarter next year and 230 GW over the next three years, the grid operator said in an Aug. 30 letter to members of Maryland's Congressional delegation.
However, PJM staff is considering soon proposing a process that would allow shovel-ready projects to move ahead, according to Bresler.
“We're thinking really hard about whether there might be something we could put in place that could run in parallel with at least the second half of this [interconnection queue] transition we're in, that would accommodate shovel-ready projects,” Bresler said. “They have site control. They can get on the system very quickly. They can benefit system reliability … without perturbing the transition as we go through it.”
Meanwhile, PJM’s planning committee is considering ways that would make it easier to transfer “capacity interconnection rights” from retiring power plants to new resources at the same site, according to Bresler.
“From PJM’s perspective, our goal is to get resources interconnected on the system as fairly and efficiently as possible and so if there's something that can come through that process, that … can be narrow enough not to gum up the works with the [interconnection] transition … we will be very supportive of that,” Bresler said.
Can prices be too high for consumers?
In PJM’s deregulated states, such as Maryland, Illinois and Pennsylvania, utility customers will pay higher rates to cover the increase in capacity costs, which analysts say could go higher in an upcoming capacity auction.
The competitive capacity market has benefited consumers — including by driving innovation, shifting risk away from consumers and lowering overall prices — but it involves some volatility, according to Bresler.
“On a year-to-year basis, volatility is a part of operating competitive markets, but over the long term, competitive markets still have an excellent ability to result in the lowest cost to consumers,” he said. “The price signals that are sent do result in action by market participants, drive innovation and support reliability and resource adequacy, and I think given the opportunity they'll continue to do that.”
