As the PJM Interconnection prepares to release the results of its latest capacity auction, attention will once again turn to the future of electricity supply across the nation’s largest wholesale power market. Beyond clearing prices, the results tell a much broader story about the changing needs of the electric grid and the investments required to meet them. Meanwhile, competitive power suppliers are investing billions of dollars in private capital to bring new generation online while also optimizing and expanding existing resources.
A Different Energy Landscape
America is in a new era. For nearly two decades, electricity demand remained relatively flat while competitive wholesale power markets delivered reliable electricity, encouraged private investment, and helped keep wholesale generation costs low. PJM’s competitive markets deliver approximately $5 billion in annual savings to the 67 million customers living in the states it covers. In recent years, capacity market clearing prices responded to supply signals, reaching record lows of just $28/MW-day while utilities not participating in the capacity market saw capacity rates of $464/MW-day. Policy decisions and environmental regulatory action that discouraged investment in dispatchable resources accelerated the premature retirement of power plants needed for reliability – further reducing supply margins.
Today, the landscape has changed. Artificial intelligence, data centers, advanced manufacturing, and electrification are driving the first sustained period of significant demand growth in decades. This once-in-a-generation transformation cannot be overstated. At the same time, new power generation projects face longer development timelines due to permitting, transmission, equipment, workforce, and supply chain challenges. These barriers outside of competitive markets impact developers and market models of all types, including vertically integrated regions and investor-owned utilities.
The result is a power system adapting to fundamentally different conditions than those that existed when many of today’s generation resources were planned.
What the Capacity Auction Does
PJM’s capacity market is designed to secure enough electricity resources to meet future demand while maintaining reliability, with multiple generators investing billions in private capital and competing to provide power at the lowest cost. Prices rise and fall with supply and demand. The auction is one of several forward-looking market tools that signals where additional investment may be needed years before electricity is actually delivered.
Like any market, the auction reflects current conditions—including expected demand, available supply, and the value of maintaining reliable service.
Additional Reliability Insurance
The Base Residual Auction, or capacity auction, is designed to meet PJM’s Reliability Requirement, but as occurred in the previous BRA, shortfalls can occur. While the BRA is an important reflection of market conditions, it is not the final determination of resource adequacy before a delivery year. PJM also conducts Incremental Auctions that serves as an important “safety valve,” ensuring that new projects in the development pipeline can still be leveraged to maintain grid reliability – projects which may not have been ready or allowed to clear the initial auction due to timing. If the BRA clears less capacity than needed for the RTO or a specific constrained area, the Incremental Auction framework kicks in. Learn more.
The Market Response Is Underway
One of the most important developments since the last capacity auction is the continued investment response from competitive power suppliers.
Across the PJM region, developers have announced new generation, expanded existing facilities, invested in nuclear uprates and secured licensing and life extensions, advanced energy storage projects, restarted previously retired plants, and proposed hundreds of additional projects through PJM’s interconnection process.
Recent examples include:
- More than 12 GW of announced, restarted, expanded, or uprated generation projects since mid-2024, spanning natural gas, nuclear uprates, storage, solar, and plant restarts. (An update to this total reflecting significant new additions is forthcoming.)
- More than 55 GW of generation has already completed PJM’s interconnection process and is positioned to move toward construction.
- PJM’s latest interconnection cycle attracted 811 projects totaling roughly 220 GW, demonstrating continued investor confidence and development interest.
- Developers representing more than 130 GW expressed interest in directly serving large electricity customers through market-based arrangements following PJM’s Request for Proposals as part of the ongoing Reliability Backstop Procurement process.
These investments demonstrate that competitive markets continue to attract private capital in response to changing system needs. The next challenge is ensuring those projects can move from announcement to operation as efficiently as possible.
PJM is accelerating new resources.
PJM has also taken important steps to improve how new generation reaches the grid, including:
- Implementing interconnection queue reforms to move from a “first-come, first-served” approach to a readiness-based process.
- Strengthening and accelerating the interconnection process through efforts including a collaboration with Google’s Tapestry leveraging AI to reduce study timelines.
- Advancing the Reliability Resource Initiative and other reliability-focused efforts to identify and accelerate projects capable of addressing near-term resource needs.
- Launching a temporary Expedited Interconnection Track for significant capacity projects to shorten development timelines.
- Continuing stakeholder work on large-load integration and market reforms through its Critical Issue Fast Path process.
- Since 2020, PJM has processed more than 300 GW of projects, resulting in 103 GW of resources with signed interconnection agreements. But approximately 70 GW of those approved projects either withdrew their agreements, paused construction, or are otherwise delayed due to factors beyond the market’s control.
FERC is providing greater certainty.
FERC’s recent orders issued to grid operators in response to the Secretary of Energy’s ANOPR on large load interconnections will help provide greater certainty and transparency for developers and large load customers.
Policymakers are focusing on smarter planning and reducing barriers to development.
At both the federal and state levels, policymakers are increasingly focused on ensuring infrastructure decisions are based on realistic demand projections and efficient market signals. As forecasts for large electricity users continue to evolve, regulators are taking steps to improve transparency, reduce speculative forecasting, and better protect consumers from unnecessary infrastructure costs.
Recent efforts include:
- Federal and state proposals to improve electricity load forecasting and increase transparency around large-load development. In addition to OH Sen. Troy Balderson’s Load Forecasting Enhancement Act, this includes Pennsylvania’s new Electricity Load Forecast Accountability Act; and Ohio regulators’ ongoing review of data center load forecasts.
- Continued work to streamline permitting and siting so new generation can reach the grid more quickly
- Ongoing discussions about ensuring large electricity users contribute appropriately to the infrastructure needed to serve them while protecting existing consumers from unnecessary cost shifts.
Capacity Prices and Your Electric Bill
Capacity prices represent the cost of ensuring enough electricity will be available when demand is highest. Recent increases in capacity prices have been a focus for policymakers, but the monthly electric bills paid by households and businesses reflect many cost components. Capacity is only one piece of the generation portion of a bill – which is to say, the cost of power supply itself. Other line items include energy (the electricity actually produced each hour), the cost of transmitting and distributing electricity, and other taxes and public policy charges. For a typical residential customer in PJM, capacity costs often represent roughly 5–15% of the total retail bill, though the percentage varies by utility, state, and market conditions.
In many parts of the country, transmission and distribution charges have increased more rapidly than generation costs over the past decade as utilities invest heavily in poles, wires, substations, and other grid infrastructure. Independent analysis has pointed to those soaring costs as the leading driver of rising electricity bills. These costs are only projected to increase—and are passed directly to ratepayers.
While higher capacity prices can modestly increase the generation portion of bills, they also help avoid the much greater costs associated with electricity shortages or reliability problems. Stronger price signals encourage competitive power companies to invest private capital in new generation and upgrades—bringing more supply to the grid over time and helping moderate prices in future auctions, all without shifting investment risk to consumers.
Looking Beyond the Clearing Price
When the auction results are released, they should be viewed within the broader context of America’s changing electricity landscape.
Meeting growing demand will take time and a holistic suite of policy, regulatory, and market solutions. It requires continued investment in new and existing generation, more efficient permitting and interconnection processes, improved load forecasting, expanded transmission where needed, and policies that encourage innovation while protecting consumers from unnecessary costs. Combined with investments from competitive power suppliers, recent actions by PJM, FERC, Congress, and state policymakers demonstrate that progress is already underway.
Preserving the Power of Competition
America has long relied on competition, private investment, and innovation to solve its greatest economic challenges, and the electric power sector is no exception.
Competitive wholesale electricity markets have helped deliver reliable power, attract billions of dollars in private investment, and protect consumers by placing investment risk on shareholders rather than ratepayers. As electricity demand grows, those same principles remain essential.
Meeting the nation’s future energy needs will require policies that strengthen competitive markets by enabling investment, accelerating infrastructure development, and encouraging a diverse mix of resources. While some have argued that returning to a regulated utility model – and allowing investor-owned utilities to build generation financed by passing costs directly to captive ratepayers – in competitive markets is necessary to build costly new generation, there is little evidence that this would speed development or bring down consumer costs. Preserving competition while removing barriers to new generation offers the best path to expanding electricity supply, supporting economic growth, and keeping costs as low as possible for consumers.
