PJM power grid auction hits price limit, falls short of reliability goal

Power prices in PJM Interconnection's latest annual capacity auction on Tuesday held near record highs at about $325 per megawatt-day, the maximum allowed under a temporary price cap by the largest U.S. grid operator to curb rising bills for households and businesses. Prices in the auction, which is aimed at securing enough electricity supplies to cover the highest-demand days on the PJM grid that covers 13 states in the Mid-Atlantic and Midwest regions, have soared in recent years largely because demand driven by data centers has outstripped supplies. For the second auction in a row, PJM fell short of its reliability requirement, meaning it is at higher risk of electricity shortfalls that could lead to blackouts during times of high demand. Since 2024, so-called capacity prices determined by the auction have jumped by more than 1,000% due to that supply-and-demand imbalance. That's raised energy bills for those living in the regions covered by PJM, or about one in five Americans. PJM, under pressure from a consortium of governors in the region, temporarily capped prices in its auction as consumers struggle with high utility and energy costs. Because the price cap was in effect during last year's auction, prices were roughly unchanged and will take effect beginning in 2028. Without the cap, prices would have surged to $554.72 per megawatt-day for most of the regional grid, PJM said in a release. In the region covered by electric utility ComEd, which includes parts of Illinois, prices would have cleared at more than $775 per megawatt-day. “These auction results show that demand for electricity continues to grow faster than electricity supply,” said David Mills, PJM President and CEO. “At the same time, PJM recognizes how this supply-and-demand imbalance impacts the reliability of the system and costs for consumers.” Capacity prices, which are factored into power bills for homes and businesses in the PJM region, are paid to power plant operators to guarantee that they provide electricity during the highest-demand days and hours on the grid. They are also aimed at incentivizing the construction of new power plants. After nearly two decades of flat power consumption growth in PJM, the region experienced net losses of electricity supplies just as demand from energy-intensive data centers began to emerge. In its capacity auction in December, PJM fell about 6.5 gigawatts short of securing the power supply cushion needed to meet its own reliability standard. One gigawatt of electricity, for reference, is enough to power about 750,000 homes. In the most recent auction, PJM slipped farther into the shortfall, landing about 6.8 gigawatts below its target. PJM Chief Operating Officer Stu Bressler said that does not mean PJM will fail to meet demand, but that it will have less of a cushion during extreme stress on the grid. PJM is adding new rules and policies to accommodate new electricity demand from large energy users like data centers, which the grid operator says are the main driver of additional new demand. In an effort to fill the recent shortfalls, PJM has proposed holding a separate type of "backstop" auction. Details about how that process will work, however, are still being sorted out. Rising prices in PJM follow roughly two decades of flat electricity growth and the long-term retirement of power plants without the addition of comparable new supplies. "Today's auction results continue to reflect a power system rapidly adapting to a new era of electricity demand," the Electric Power Supply Association, which represents independent power producers in PJM, said in a statement, adding that its members were working to build more power plants in the region.

PJM power grid auction hits price limit, falls short of reliability goal

Auction prices hit cap as demand outpaces supply

Reliability shortfall widens and backstop auction is proposed

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