Capacity auctions are held in advance to secure future energy needs in the Pennsylvania-New Jersey-Maryland (PJM) electric market. PJM covers a broader region than its name suggests, including Pennsylvania, New Jersey, Delaware, Maryland, Virginia, West Virginia, Ohio, and parts of North Carolina, Kentucky, Indiana, Michigan, and Illinois.
The capacity auction for the 2025-2026 period, originally scheduled for 2022 and delayed due to new market regulations, was finally held in July 2023 with results published in August 2024. A significant increase to $8.22/kW-month was observed over the prevailing $1.51/kW-Month and will take effect in June 2025. The next auction for the 2026-2027 period is expected to follow a similar trend with results anticipated in December 2024.
This rise in pricing can be attributed to several factors. Coal-based electric production is declining in the region but the transition to green energy has not kept pace. This loss of generation, spanning beyond coal to aging plants of all types, is at odds with the rising demand from electric vehicle (EV) charging stations, data centers, and restrictions on natural gas usage in new construction.
Capacity charges are a component of every consumer’s total electric cost. Power Management estimates that forward supply pricing is expected to rise by approximately $.01/kWh for a fully-fixed rate. Additionally, some suppliers may choose to implement a “Capacity Pass-Through” model, excluding capacity costs from their fixed rates, for contracts spanning beyond June 2026. The auction delays and unpredictability of the settled cost make this a component suppliers will likely be hesitant to include.
It is important to note that capacity pricing impacts all customers within PJM, regardless of whether they purchase their energy supply from the utility or a third party. Clients of Power Management benefit from regular updates, including alerts about potential peak days, which allow them to take action to reduce their energy demand. A Demand Response program is an excellent opportunity for clients with larger energy loads to manage their costs. If you’re interested in learning more, contact Power Management for further details!