After several years of depressed prices, the recent results from PJM’s latest capacity market auction made headlines across the energy industry, as prices increased by nearly 10x compared to the prior auction. A combination of factors contributed to this dramatic development, most notably load growth, thermal resource retirements, and changes to how PJM models the reliability of generation projects. While several market stakeholders (most notably PJM itself) had been warning of impending supply tightening, the magnitude of the price spike surprised many, and has created new opportunities for renewable and energy storage project developers and owners.
By way of background, PJM is the Regional Transmission Organization (RTO) responsible for operating the electric grid across 13 Mid-Atlantic states plus the District of Columbia. PJM is one of several grid operators that relies on a capacity market construct to ensure resource adequacy – that is, ensuring there is sufficient generation supply to meet forecasted demand during future periods. PJM administers its capacity market, the Reliability Pricing Model (RPM), utilizing an initial Base Residual Auction (BRA), typically held 3 years in advance of a Delivery Year. Generators that participate in these auctions (which can include both existing and planned resources) can secure a capacity commitment, in which they receive a capacity payment in return for committing to delivering energy or reserves during future periods.
On July 30th, PJM released the results of the BRA for the 2025/26 Delivery Year. Prices increased dramatically across the RTO, with prices rising to nearly $270/MW-day across all of PJM (up from $28/MW-day in the 2024/25 BRA) and rising to over $400/MW-day in the Dominion and BGE zones.
PJM identified several key factors that contributed to the significant price increase. First, projected load growth increased by over 3 GW, driven largely by increased demand from data centers and electrification measures. Second, supply contracted by over 6 GW, largely due to announced retirements of thermal resources. Finally, this was the first BRA where PJM’s new Effective Load Carrying Capability (ELCC) rules applied to all resources, which reduced the amount of capacity eligible to participate in the auction from existing generators.
PJM’s new ELCC methodology tossed out the old rule book of accrediting capacity for resources—that is, calculating how much capacity a given resource can take on in an RPM auction—which had been based on a lookback of historical availability and performance. This was replaced with a forward-looking probabilistic model of projected availability during simulated stressed system conditions. While some resource classes took a larger capacity accreditation hit than others under the new ELCC rules, the net result was a significant reduction in accredited capacity across the entire PJM fleet.
The combination of reduced supply and increased demand led to a predictable increase in capacity prices. In fact, PJM had been warning of pending resource adequacy shortages for over a year. In early 2023 PJM released a white paper called “Energy Transition in PJM: Resource Retirements, Replacements & Risks” – commonly referred to as the “4Rs” – where they highlighted their concerns regarding reliability risks over the next decade. With how competitive markets work, this new price signal won’t persist forever. But the trends of increased load growth, environmentally-driven generator retirements, and PJM’s ongoing problems with its clogged interconnection queue mean that high pricing should be expected for several years.
Robust capacity prices in PJM create a valuable revenue opportunity for renewable energy and battery storage developers and asset owners. While participation in the RPM comes with risk associated with delivering energy during grid scarcity conditions, the risk-reward profile for projects has changed substantially due to the revised pricing environment. For existing projects that have opted out of the capacity market, now is the time to reassess whether capacity market participation makes sense for your project. For projects in the development phase looking to secure contracted revenue from the capacity market, understanding how to qualify for upcoming PJM auctions should be a critical development checklist item.
Fortunately, there are several upcoming RPM auctions that will afford projects a chance to enter the PJM capacity market. Over the next two years, PJM will be operating under a compressed timeline in which they will conduct four BRAs (one every six months) for the 2026/27 through 2029/30 Delivery Years. In addition, PJM conducts Incremental Auctions (IAs) in between the BRA and the start of a Delivery Year, affording projects an additional opportunity to secure a capacity commitment.
Информация по комментариям в разработке