PJM Capacity Auction Secures Resources Amid Tightening Supply and Demand

3 min read

At the end of July, PJM Interconnection successfully conducted its capacity auction for the 2025/2026 Delivery Year, ensuring sufficient resources to meet the Regional Transmission Organization (RTO) reliability requirements. This year’s auction saw significantly higher prices across the region, driven by a tighter supply/demand balance due to generator retirements, increased electricity demand, and market reforms approved by the Federal Energy Regulatory Commission (FERC).

Key Highlights from the Auction 

1. Higher Auction Prices: The auction prices surged to $269.92/MW-day for much of the PJM footprint, a stark increase from $28.92/MW-day in the previous auction. This rise reflects the decreased supply and increased demand, signaling a need for investment in new generation resources and transmission infrastructure.
2. Diverse Resource Mix: The auction cleared a diverse mix of resources, including:

• • 48% natural gas
  • 21% nuclear
  • 18% coal
  • 1% solar
  • 1% wind
  • 4% hydro
  • 5% demand response
  • 2% other resources

3. Regional Price Variations: Certain zones, such as the BGE zone in Maryland and the Dominion zone in Virginia and North Carolina, experienced prices at the zonal cap due to insufficient local resources and transmission constraints. These areas would benefit from additional resources or enhanced transmission capabilities.

Drivers of Higher Prices 

1. Decreased Supply: The auction saw a reduction in supply offers, primarily due to generator retirements. Approximately 6,600 MW of generation have retired or signaled intent to retire compared to the previous auction.
2. 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.
3. Market Reforms: FERC-approved market reforms have improved reliability risk modeling for extreme weather and more accurately valued each resource’s contribution to reliability, further tightening the supply/demand balance.

Future Projections and Concerns 

PJM is implementing generation interconnection reforms to facilitate the entry of new resources, with approximately 72,000 MW of potential projects expected to be studied processed in 2024 and 2025. However, PJM remains concerned about the slow pace of new generation construction due to external challenges such as financing, supply chain issues, and siting/permitting hurdles.

Steps to Manage Rising Costs 

AEP Energy’s dedicated energy consultants can provide strategies to navigate the challenges posed by rising auction prices.

1. Hedging – AEP Energy has custom products that allow you to reduce exposure to price volatility.
2. Fixed-Price Contracts – Our fixed-priced contracts provide price stability and predictability so you can budget effectively.
3. Demand Management Programs – We encourage clients to participate in demand response programs to reduce peak demand charges by shifting usage to off-peak times.
4. Transparency – AEP Energy Sales Representatives keep our clients informed about market conditions and price changes to manage expectations and build trust.

Conclusion  

The PJM capacity auction for the 2025/2026 Delivery Year highlights the critical need for investment in new generation resources and transmission infrastructure to maintain grid reliability. The significantly higher prices serve as a clear signal to the market, underscoring the importance of addressing the tightening of supply/demand balance.  Learn more, contact your AEP Energy Sales Representative or visit: PJM’s Capacity Market Page.

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