The results of one auction do not establish a trend; however, this auction does suggest that the initial market reforms instituted by PJM to address the misalignment of supply and demand had a positive impact. Policymakers and grid operators can take action to secure reliable and cost-effective power to meet rising energy demand.
PJM Interconnection has completed the capacity market auction – or Base Residual Auction (BRA) – for the 2025/2026 Delivery Year (DY) and the results provide the initial price signals to finance reliable power generation for the 65 million customers in the PJM region, which encompasses 13 states and the District of Columbia.
This auction provides important information for policymakers, market participants and other stakeholders on the tightening supply/demand fundamentals in PJM driven by public policies and economics, as well as the effect of recent market reforms.
More broadly, results point to an elevated resource adequacy risk that has already been identified by the North American Electric Reliability Corporation (NERC) and reflects what is occurring across the country as the industry works through the challenges and opportunities presented by the clean energy transition and projected rising electricity demand from electrification, data centers, manufacturing growth, and other factors.
By the Numbers
Price Jump: The auction produced a significantly higher price of $269.92/MW-day for the overall RTO, compared to $28.92/MW-day for the prior 2024/2025 auction. The Baltimore Gas and Electric (BGE) and Dominion (DOM) delivery areas cleared just short of the reserve requirement, resulting in prices being set at the zonal cap of $466.35 and $444.26, respectively.
Supplies Down: While PJM confirmed that sufficient resources were procured to meet the RTO reliability requirement, the RTO emphasized that the amount of supply resources in the auction decreased again this year with 135,684 MW cleared, continuing the downward trend from recent auctions and underscoring PJM’s stated concerns about generation resources facing pressure to retire without replacement capacity being built quickly enough. This trend has exacerbated the supply and demand imbalance that leads to the price results seen in this auction cycle.
Auction Delays Create Confusion
Of note, PJM BRAs are usually held three years in advance of the delivery year. The 2025/2026 auction was originally scheduled to be held in May 2022, but auctions had been suspended while FERC considered approval of new capacity market rules. PJM has compressed its auction calendar to return to a three-year-forward basis. The next BRA, for the 2026/2027 Delivery Year, is currently scheduled for December 2024. Notably, this erratic auction schedule over the last few years has not and does not provide a transparent or smooth price trend to reflect changing conditions.
Let’s take a deeper dive below on key takeaways and potential impacts, as well as action items to consider, from the PJM 2025/2026 BRA results which go into effect next June 1, 2025, through May 31, 2026.
Key Takeaways and Impacts for the Grid, Developers, and Consumers
Price Signals Remain Critical for Investment – The higher price for this auction follows historically low prices (and delayed auctions) that have impacted the wholesale markets for the past several years and is among the critical factors leading to generator retirements and lack of investment. While encouraging, the results of one auction do not establish a trend; however, this auction does suggest that the initial market reforms instituted by PJM to address the supply/demand misalignment issue had a positive impact.
- In particular, PJM explained the following were key drivers of the higher prices for this auction: decreased supply offers, with 6,600 MW of retirements; a 3,000 MW increase in projected load (from 150,640 MW for the 2024/2025 BRA to 153,883 MW for the 2025/2026 DY); and, implementation of market reforms that enhance risk modeling for extreme weather and accreditation measures that more accurately value each resource’s contribution to reliability.
A Well-Functioning Market Will Deliver Cost-Effective Reliability – When working well, competitive electricity markets are the best mechanism to maintain reasonable wholesale power costs while facilitating the entry of new, innovative technologies. Adequate compensation, however, is required for the resources that keep the lights on to be available when they are needed. A reliable system is not free, but competitive electricity markets continue to remain the best means to deliver a reliable power system without unduly burdening customers with unnecessarily higher costs.
External Challenges Remain for Generation Developers – PJM is continuing to implement its generation interconnection reforms to facilitate the entry of new resources, with approximately 72,000 MW of resources to move through the queue in 2024 and 2025.
Importantly, however, PJM emphasized that it is concerned with the slow pace of new generation construction noting that approximately 38,000 MW of resources – including renewables resources – currently have cleared its interconnection queue but have not been built due to external challenges, including financing, supply chain, and siting/permitting issues. EPSA has advocated for meaningful permitting reform legislation to remove some of the barriers to building necessary energy infrastructure.
Consumer Impact: Capacity Costs Are Only One Component of Retail Rates – Importantly, capacity costs are a single component of the generation line item on a consumer’s bill, so the percentage increase for the 2025/2026 DY wholesale price does not result in a corresponding percentage increase to a consumer’s total bill. As explained here, consumer electric bills reflect a number of charges outside the purview of wholesale power markets, including transmission and distribution costs, taxes, and other utility riders and surcharges.
As further context, generation costs include capacity, energy, and ancillary services markets costs (with energy comprising the largest component). If the capacity market BRAs were on the regular annual schedule there would be three years’ worth of data to demonstrate the evolving supply/demand trend. We have not seen a trend with fairly steady price impacts because auctions have been held on a compressed “catch up” schedule. Thus, this auction’s prices are not anomalous but reasonable when averaged over a three-year period, as intended.
Alternative Generation Options – Immediately following the auction, there was an increasing rumble from utilities, which in areas with wholesale power markets largely do not own generation, about getting back into the generation business to address resource adequacy. But this would neither resolve the tightening demand/supply issues nor address potential consumer price impacts — and is not being done for altruistic reasons.
First, utilities in PJM (or other organized markets) may not even have state level regulatory authority to develop generation but, if this were to occur, it would further increase the potential price impacts given the utility rate model of directly passing through all costs to retail consumers (as opposed to independent power producers who bear the costs and risks of such investments).
Utilities pass the costs of new generation resources and an authorized rate of return on to consumer bills reducing to near zero any risk and guaranteeing a profit. Competitive generators, on the other hand, bear the entire risk for costs of development and construction of new generating resources with no guaranteed cost of recovery or charge added to consumers bills.
Additionally, any such utility development would be subject to the same interconnection queue process and supply chain challenges currently facing other developers as noted above, and therefore would not expedite or resolve such issues. The addition of new resources in the queue would simply require them to get in line like every other project developer.
Actions for PJM, Policymakers
In terms of action items to facilitate signals to invest at the least cost to consumers, EPSA encourages and supports PJM and/or policymaker efforts to:
- Continue to evolve the capacity market with incremental reforms to reflect the changing resource mix and ensure correct price signals to incent investment in resources needed for reliability.
- Work with generation developers on any state or local challenges they are experiencing in constructing projects that have completed the PJM interconnection queue process to get replacement capacity on the system.
- Avoid efforts that would result in pushing existing generation to retire until an adequate quantity and comparable services of replacement generation is online and operating.
- Consider constructing transmission infrastructure that could relieve constraints, though these utility transmission charges would have to be paid by customers as well.
Public Policies Impact Energy Costs, Competitive Markets Remain Essential
The bottom line is that public policies are reflected in the prices consumers pay for a reliable system. EPSA has emphasized that there needs to be a realistic approach to ensuring a reliable electric system as we move through the energy evolution – and delivering a cost-effective energy expansion.
We are working with policymakers, industry, and stakeholders to ensure efficient, innovative, and least-cost solutions – and we continue to believe using competitive markets is the best approach to meeting these goals and facilitating the clean and reliable grid of the future.
See EPSA’s Statement on the 2025/2026 BRA for additional details.
