The PJM Interconnection—the largest power grid operator in the U.S.—just sent another shockwave through the electricity markets. In its most recent capacity auction for the 2026–2027 planning year, prices reached the maximum cap across all zones, signaling tight conditions for supply and growing pressure on end-user costs.
From surging demand fueled by AI to stalled renewable projects and aging fossil fuel infrastructure, there’s a lot to unpack. Here’s what commercial, industrial, and public-sector energy buyers need to know—and how to prepare.
What Just Happened?
In July 2025, PJM conducted its 2026/2027 Base Residual Auction (BRA) to secure enough capacity to meet future demand across its 13-state footprint, which includes parts of Ohio, Pennsylvania, New Jersey, Maryland, Illinois, and more. The auction cleared at $329.17 per megawatt-day (MW-day)—the maximum price allowed by the Federal Energy Regulatory Commission (FERC).
This marked the second consecutive year that PJM’s capacity prices hit their ceiling, and it’s more than double the prices seen just two years ago. In total, PJM procured over 146,000 MW of capacity to meet regional demand and ensure reliability for 67 million people.
What This Means for Costs
These record-high capacity prices are more than just a market signal—they’re already translating into real costs for consumers. Wholesale market costs jumped from $14.7 billion to an estimated $16.1 billion. Retail electric rates are expected to increase 1.5% to 5% in affected states, depending on the utility and local cost-recovery structures. Large commercial and industrial users should brace for capacity charge increases on future supply contracts, especially if those contracts extend into mid-2026 or beyond.
For many buyers, capacity makes up 20–30% of the all-in rate on electricity supply, meaning that even small increases here can significantly impact budgets.
Why Are Prices Surging?
- AI and Data Center Growth
The explosive rise of artificial intelligence, cloud services, and data storage is dramatically increasing electricity demand—especially in Northern Virginia (the world’s largest data hub), Ohio, and Pennsylvania. These facilities run 24/7 and require enormous, stable energy loads. - Delayed Clean Energy Projects
While 97% of PJM’s interconnection queue is made up of renewables and battery storage, most of these projects remain stuck in regulatory limbo. Without enough new generation coming online, the grid is relying heavily on aging fossil fuel plants that are more expensive to maintain and operate. - Plant Retirements
Older coal and nuclear facilities are being retired faster than they can be replaced. Meanwhile, gas plant reliability issues and permitting delays further squeeze available capacity. - Market Design Reforms
PJM has updated its auction model with new risk-based reliability rules and stricter must-offer provisions, designed to ensure sufficient supply. But these changes have also created pricing pressure and reduced flexibility in how resources can participate.
States and Advocates Push Back
Not everyone is happy with how this played out. Environmental and consumer advocacy groups like the NRDC and Citizens Utility Board (CUB) argue that PJM’s auction design disproportionately favors traditional fossil fuel resources—driving up prices and slowing the transition to clean energy. Some regulators have also criticized PJM’s “first come, first served” interconnection process for creating long backlogs and inefficiencies.
Several states are exploring ways to exit the centralized auction or reform their participation, including proposals for more localized, transparent procurement models.
PJM’s Response and What’s Next
In an effort to balance market reliability with affordability, PJM and FERC have agreed on a “price collar” for upcoming auctions: a cap of $329.17/MW-day and a floor of approximately $175–177/MW-day. This new range is designed to stabilize extreme price swings—but it also means that high capacity costs are likely here to stay through at least 2028 unless new generation accelerates significantly.
PJM claims that it has enough capacity to meet future reliability needs, citing 2,669 MW of new upgrades and resources. Still, that’s only half the projected load growth for 2026–2027, which is being driven by AI, electrification, and broader digital transformation across industries.
What Smart Energy Buyers Should Do Now
If your organization is in PJM territory, the message is clear: the cost of capacity is climbing, and future supply contracts will reflect that. Here are steps to take now:
- Review contract expiration dates: Know when your current supply ends and what capacity obligations will apply next.
- Go to market early: Prices for 2026–2027 will likely be priced in soon—locking in a fixed rate ahead of time may offer protection.
- Consider multi-year terms: Spreading exposure across a longer contract can hedge against volatility.
- Evaluate peak load management or demand response: Reducing usage during grid peaks can cut your capacity obligations significantly.
- Explore on-site or virtual generation options: Solar, storage, and behind-the-meter solutions may help lower long-term exposure.
Final Thoughts: The Future Is Expensive—and Digital
The PJM auction results aren’t just about price—they’re about how quickly our grid infrastructure can adapt to new forms of demand. AI, electric vehicles, and distributed tech are reshaping the energy landscape faster than most systems can handle.
If you’re a facility operator, energy manager, or procurement officer, now is the time to re-evaluate your strategy. Understanding the mechanics of capacity pricing—and how to mitigate its impact—can be a powerful competitive advantage in the years ahead.
Need help navigating PJM’s changing market?
Our advisors specialize in strategic procurement, capacity cost mitigation, and renewables integration. Contact us to schedule a free review of your energy portfolio.
