The PJM Interconnection LLC's capacity market auction for the 2025/2026 delivery year cleared at record high prices of $269.92/MW-day for much of the PJM footprint, compared to $28.92/MW-day for the 2024/2025 auction, due to tighter supply, higher demand and market rule changes, the grid operator said July 30.
"The significantly higher prices in this auction confirm our concerns that the supply/demand balance is tightening across the [regional transmission organization]," Manu Asthana, PJM's president and CEO, said in a statement. "The market is sending a price signal that should incent investment in resources."
The highest base residual auction clearing price was previously $174.29/MW-day for the 2010/2011 delivery year, according to PJM data.
"We saw a reduction of about 6,600 MW of generation that either offered into the [base residual auction] ... from resources that had already retired or were granted must-offer exceptions signaling their intent to retire, so supply was down in the auction," Stu Bresler, PJM's executive vice president of market services and strategy, said during a conference call with reporters.
PJM's peak load forecast increased from 150,640 MW in the last auction to 153,883 MW in this auction, Bresler noted.
PJM said Federal Energy Regulatory Commission-approved market reforms, "including improved reliability risk modeling for extreme weather and [capacity] accreditation that more accurately values each resource's contribution to reliability," played a role in the higher capacity prices.
Steve Piper, director of energy research at S&P Global Commodity Insights, said his team had forecast clearing prices at nearly $200/MW-day, largely due to the factors cited by PJM.
Regarding the prospect of increasing power supplies, PJM said it "remains concerned with the slow pace of new generation construction," as roughly 38,000 MW of resources have "already cleared PJM's interconnection queue but have not been built due to external challenges, including financing, supply chain and siting/permitting issues."
Insufficient generation resources and transmission constraints caused prices in Dominion Energy Virginia's datacenter-heavy capacity zone to clear near the auction cap at $444.26/MW-day. The Dominion Energy Inc. subsidiary operates legally as Virginia Electric and Power Co.
Exelon Corp. subsidiary Baltimore Gas and Electric Co.'s capacity zone, where Talen Energy Corp.'s 1,273-MW Brandon Shores coal plant and 828-MW gas- and oil-fired Herbert A Wagner plant are being retained under must-run contracts for reliability reasons, cleared at $466.35/MW-day.
Bresler noted that capacity prices account for roughly 8% of total wholesale energy prices in PJM.
PJM's procured capacity for the 2025/2026 commitment period is 48% gas-fired, 21% nuclear, 18% coal-fired, 5% demand response, 4% hydro, 1% solar and 1% wind, with 2% coming from "other resources."
Bresler said the results reflect ongoing trends in PJM as gas generation's share of the resource mix continues to grow and coal-fired capacity declines. Comparing resource mixes across the two most recent auctions is challenging due to PJM's new resource accreditation values, he added.
PJM's new capacity market rules, approved by FERC in October 2023, are designed to more accurately account for the variability in PJM energy demand and associated reliability risks following record levels of generator outages during a severe December 2022 winter storm. The package of changes aligns performance hours with hours of the highest risk, Bresler said.
"Certainly, that whole package of changes did have an impact on the results of the auction and therefore the prices that came out," he said. "I just don't think they were probably quite as big as the more fundamental demand increase and supply reduction that we saw."