PJM’s capacity market auction for the 2025/2026 delivery year cleared at a record high price of $269.92/MW-day, up from $28.92/MW-day in the previous auction. Here’s what you need to know and what your business can do to mitigate risk.
What is PJM?
PJM is a regional transmission organization (RTO) that maintains reliability and manages the electricity grid and wholesale electricity market for parts of 13 states and Washington, D.C., serving over 65 million people.
Rates are set annually by RTOs like PJM, based on your organization’s Peak Load Contribution (PLC), which reflects your energy usage during peak hours. In many PJM utilities, the PLC is calculated from your average demand during the system’s five highest demand hours. Capacity prices, which can vary yearly, may account for up to 1/3 of your total electricity costs.
PJM’s capacity charges are determined through an annual auction process to secure capacity three years in advance. The capacity auction for the 2025/2026 delivery period resulted in a record high price of $269.62/MW-day, up from $28.92/MW-day in the previous auction.
This is an 833% increase.
PJM’s capacity auctions are designed to assure grid stability and future availability of energy resources by encouraging investment in generation infrastructure. For 2025/26 auction, three factors drove the prices higher:
Decreased Supply
The auction saw a reduction in supply offers, primarily due to power plant and generation retirements. Approximately 6,600 MW of generation have retired or signaled intent to retire compared to the previous auction.
Increased Demand
The peak load forecast for the 2025/2026 Delivery Year increased to 153,883 MW, up from 150,640 MW for the 2024/2025 auction.
Market Reforms
FERC-approved market reforms have improved reliability risk modeling for extreme weather and can more accurately value each resource’s contribution to reliability, further tightening the supply/demand balance.
What can you do to protect your business?
While you can’t avoid the higher rates for capacity, you can lower the amount of capacity you need by reducing your peak usage hours, or by shifting your peak usage hours to a different time of day. AEP Energy offers several solutions to help you mitigate the impact of rising capacity rates to your business.
Our fixed-priced contracts provide price stability and predictability so you can budget effectively.
Utilize our demand management programs to shift or reduce energy usage during peak times or receive payments for curtailing usage during specific periods.
Utilize AEP Energy’s energy audits to identify and implement energy efficiency measures that can significantly impact your budget.
Explore AEP Energy’s onsite solutions, such as solar panels or battery storage, to reduce reliance on the grid and ensure continuous business operations.
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Brandi Nye, Managing Director of Business SolutionsBrandi is an expert in her field with professional experience in the sustainability industry. Not only does Brandi have solid base knowledge, but she continues to grow her acumen through various learning and development experiences. Brandi is a creative and thoughtful utility professional with expertise in regulatory and utility operations. |
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