Skyrocketing PJM capacity prices post a new high, leaping by 22%
Record High Capacity Prices in PJM Interconnection's 2026 Capacity Auction
In a significant development, PJM Interconnection, the Mid-Atlantic grid operator, has purchased 134,311 MW of capacity for the coming year, with the auction prices hitting a regulatory cap of $329.17/MW-day. This marks a 21.9% increase from the previous year's price of $269.92/MW-day.
The high capacity prices are primarily driven by tight supply and demand conditions in the 13-state region, as well as growing peak load forecasts. The auction cleared 134,311 MW of capacity, but forecast peak load grew by about 5,500 MW, largely due to increased demand from data centers. Despite PJM procuring new generation and uprates totaling 2,669 MW, the overall supply remains tight relative to rising demand.
Nuclear accounted for 21% of the cleared capacity, with gas-fired generation accounting for 45%. Coal and solar each accounted for 22% and 1% of the cleared capacity, respectively, while hydroelectric and wind accounted for 4% and 3% respectively.
The capacity price is what ratepayers pay to ensure electricity availability, especially during high-demand periods like heatwaves. PJM's auction price affects electricity bills for more than 67 million people across Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia, and D.C.
PJM expects that this surge in capacity prices will translate to an increase in electricity bills by approximately 1.5% to 5%, varying by state and utility area. Without a price cap arranged with Pennsylvania’s governor, prices would have been about 18% higher still, indicating significant upward cost pressure that ratepayers would face without regulatory intervention.
The ongoing consolidation in the power sector in PJM includes Constellation Energy's plan to buy Calpine, NRG Energy's pending deal to buy a fleet of LS Power power plants, and Talen Energy's proposed transaction to buy two gas-fired power plants in PJM.
Demand response offered in the auction was essentially flat at 8,010 MW. Ratepayer advocates believe that PJM's policies too often favor outdated, expensive power plants and needlessly block low-cost clean energy resources and battery projects from connecting to the grid and bringing down prices.
The latest auction included new generation and uprates of existing power plants totaling 2,669 MW. PJM plans to hold a base capacity auction for the 2027-28 delivery year in December.
Sarah Moskowitz, executive director of Chicago-based Citizens Utility Board, sees the auction results as a sign of flawed PJM policies. Vistra said it cleared 10,314 MW compared to 10,255 MW in the previous auction. Exelon and its utilities are considering "all options" for getting more power supplies into PJM, including getting back into rate-regulated generation.
Power plant developers are facing challenges due to supply chains being "out of whack", partly because of import tariffs. Molly Jerrard, head of flexibility at Enel North America, expects more demand response participants to "come off the sidelines" to take advantage of high capacity prices.
ClearView Energy Partners analysts expect the market operator to face persistent scrutiny from state policymakers that are considering options to reduce or eliminate their reliance on the PJM capacity market. Jefferies analysts predict that clearing at the cap is probable for the next auction, but political intervention could affect the pricing.
17 generating units with about 1,100 MW in interconnection rights have withdrawn retirement notices since the previous auction. The Trump administration is likely to use the auction results to justify measures aimed at keeping thermal power plants, namely coal, in PJM from retiring.
In summary, rising demand driven by load growth (notably data centers), supply constraints including delayed clean energy deployment, and tight reserve margins are the key factors pushing PJM capacity prices to record highs. This results in noticeable electricity bill increases for residents and businesses throughout the PJM footprint. Regulatory price caps have softened but not eliminated the impact on ratepayers.
Finance and energy industries will closely watch the ongoing regulatory interventions in PJM's capacity market, as the high capacity prices and subsequent electricity bill increases pose significant business implications for consumers. The business community in the 13-state PJM region may also be impacted by the tight supply and demand conditions in the energy sector, leading to possible fluctuations in the industry's financial landscapes.
