Strengthening Market Signals and Investor Confidence Is Essential to Meet Rising Demand
At a Glance
- Policy clarity and timely permitting are now pivotal to moving stalled projects forward and maintaining grid reliability.
- Capacity prices hit the ceiling, signaling it’s time to build as PJM braces for rising demand and tighter margins in the 2026/2027 delivery year.
- Developers are responding, aided by PJM’s Reliability Resource Initiative, but new and retained capacity still falls short of what’s needed.
PJM Interconnection has released the results of its latest Reliability Pricing Model (RPM) capacity market auction – or the 2026/2027 Base Residual Auction (BRA) – and the message is clear: investment in new and existing power generation remains critical to ensuring reliability for the 67 million customers in PJM’s footprint which spans 13 states and DC. Clearing prices reached the auction cap, as established by FERC for the 2026/2027 BRA, reflecting a tightening supply-demand balance and reinforcing the urgency for stable, market-driven investment signals.
Despite early indications of a market response, including new generation additions and some reversed retirement decisions, the region’s resource adequacy remains at risk without continued and accelerated development of dispatchable and flexible capacity.
Importantly, PJM remains on a compressed auction schedule, a significant shift from its established three-year forward planning cycle. The 2026/2027 delivery year begins in less than a year, on June 1, 2026. This abbreviated runway increases the pressure on market participants, developers, and policymakers to act quickly in addressing reliability challenges and advancing new investment.
Key Takeaways: Market Pressures and Investment Signals
1. Prices Cleared at the Cap Across the RTO:
The 2026/2027 BRA cleared at $329/MW-day across the entire PJM RTO, the maximum allowable price, as established in FERC Docket No. ER25-1357, up from $270/MW-day in the previous auction for 2025/2026. This is a direct result of sustained supply-demand tightness and rising load forecasts.
While local zones like BGE and DOM saw price decreases from the 2025/2026 BRA where these zones cleared at their capped prices ($466/MW-day and $444/MW-day, respectively), this reflects the application of the lower price ceiling and inclusion of the Brandon Shores and Wagner Reliability-Must-Run (RMR) units in BGE that previously were not included in RPM BRA clearing (FERC Docket No. ER25-682). The lower price is not a signal of improved reliability conditions in BGE and DOM.
2. Investment Signals Are Having Some Effect:
Competitive suppliers have begun to respond, even amid uncertainty and although PJM remains on a compressed auction cycle. The 2026/2027 BRA marked the first increase in new capacity in four auction cycles:
- 2,669 MW UCAP of new generation and uprates cleared the auction.
- Additionally, 1,100 MW of previously announced retirements were reversed, preserving resources that might otherwise have exited the system.
Encouragingly, competitive suppliers have begun announcing new generation projects over the past year, following the investment signal from the 2025/2026 BRA and spurred in part by PJM initiatives—particularly the Reliability Resource Initiative (RRI). These developments demonstrate that clear, durable market signals can drive private investment when paired with forward-looking system planning.
Read more on the RRI, PJM’s Market-Based Approach to Bolstering Reliability Amid AI Surge
Still, these additions remain well below the pace needed to match demand growth, and underscore the need for stable, long-term price signals to attract sustained investment.
3. Supply-Demand Conditions Continue to Tighten:
A total of 134,311 MW UCAP of generation and demand response cleared the auction, a slight decrease from the previous year. Demand response remained flat, and nearly all MWs offered into the auction cleared.
PJM’s forecasted peak load for the 2026/2027 delivery year increased by over 5,400 MW—driven by accelerating energy demand from data centers, electrification, and economic growth.
The auction cleared only 139 MW UCAP over the projected reliability requirement—reflecting a narrow margin of capacity above PJM’s target and emphasizing the urgency of bringing new resources online (this total includes RPM capacity resources and Fixed Resource Requirement (FRR) MWs in excess of plan obligations).
Retail Impacts: Modest Customer Bill Implications Amid Growing Concern
The total auction cost was $16.1 billion, a 9.5% increase from the $14.7 billion cleared in the 2025/2026 BRA. However, this figure does not reflect the total cost to load, as many Load Serving Entities (LSEs) hedge through self-supply or bilateral agreements and are not fully exposed to auction clearing prices.
Based on how wholesale costs are passed through to end users, PJM projects a retail rate impact of approximately 1.5–5% on customer electricity bills. In zones where prices fell due to the cap (such as BGE and DOM), retail customers may actually see rate reductions.
Understandably, there are growing concerns about the impact of higher wholesale capacity prices on retail electricity consumers, but it is important to contextualize these costs. Wholesale capacity typically makes up less than 10% of a retail electricity bill. Retail rate increases are more significantly driven by utility transmission and distribution investments and state policy mandates, as highlighted in a recent report from Energy Tariff Experts.These are often outside of transparent market mechanisms and oversight.
What is more, there will continue to be investments in the hundreds of billions of dollars annually in the next several years by utilities to support the transmission and distribution of electricity.
In the broader context, it must be recognized that a reliable grid requires sufficient investment to ensure resource adequacy on the system, including dispatchable, flexible generation needed to balance the system. This investment comes at a cost – and must be supported by market-based compensation. EPSA has repeatedly urged a realistic, durable approach to planning for and maintaining a reliable grid.
Obstacles to Resource Development: Regulatory and External Barriers Persist
While the auction sent a strong signal for investment, and despite PJM’s progress on interconnection reforms and market enhancements, significant non-market challenges continue to limit the speed and scale of generation development:
- Stalled Projects: Nearly 46,000 MW of generation with signed interconnection agreements remain unbuilt due to delays in permitting, siting, supply chains, and other jurisdictional constraints beyond PJM’s control. These delays are often erroneously attributed to PJM or its process.
- Regulatory Uncertainty and Political Interference: Unresolved complaints, shifting policies, and political intervention continue to undermine investor confidence—risking disincentives for both new builds and asset retention.
What Policymakers and Market Stakeholders Should Do Next for Reliability
To strengthen investment signals, reinforce market confidence, and ensure reliability at the lowest cost to consumers, EPSA encourages and supports PJM, FERC, and state policymakers in efforts to:
- Modernize Market Design to Reflect Evolving System Needs by Refining Market Inputs and Transparency Mechanisms:
Ensure capacity market rules and modeling inputs reflect today’s reliability challenges, including large-scale load growth, evolving resource attributes, and the operational demands of a changing grid.
- Consider targeted, incremental reforms that may be required to provide further market transparency to accurately reflect supply/ demand conditions and maintain reliability. This could include:
- Refinements to load forecasting methodologies to reflect large load interconnection trends (e.g., AI/data centers) in the region.
- Enhancements to capacity accreditation to better account for performance reliability of different resource types.
- Consideration of rules to accommodate an array of co-located load arrangements to allow for timely and effective integration of large loads.
- Advance Timely Integration of New Resources by Accelerating Interconnection Reform Implementation:
Continue to streamline interconnection queue processes to bring replacement capacity online expeditiously, thereby ensuring supply can meet accelerating demand.
- Engage with Developers to Overcome External Barriers to Growth and Unlock Investment:
Work with generation developers on solutions to permitting/siting or other challenges they are experiencing in constructing projects that have completed the PJM interconnection process.
- Avoid Premature Retirements of Essential Resources:
Avoid regulatory actions or policies that drive premature retirements of existing generation before adequate, reliable replacement generation with equivalent or necessary attributes is online and operational, with a focus on safeguarding reliability.
Meeting the Moment: Restoring Market Confidence and Advancing Grid Reliability
The 2026/2027 BRA results reflect a power system at an inflection point. Competitive markets are beginning to respond, but real progress depends on restoring investor certainty and enabling capital deployment at scale.
To meet the moment, it is critical that PJM, along with regulators, policymakers, and industry stakeholders, work together to establish and support a policy landscape that maintains the viability of existing capacity and creates a predictable and stable environment to attract new investment.
EPSA remains committed to ensuring efficient, innovative, and least-cost solutions – and we continue to believe that using competitive electricity markets is the best approach to meeting these goals and facilitating the sustainable, reliable grid of the future.
That requires:
- A stable policy and regulatory environment,
- Competitive structures that value essential reliability attributes, and
- A clear path forward for developers to bring projects from approval to operation.
We urge policymakers to resist short-term interventions that distort markets and to instead focus on long-term reliability and consumer affordability through competition.
See EPSA’s Statement on the 2026/2027 BRA for additional details.
