What the 2028-2029 PJM Capacity Auction Results Mean for Businesses
The 2028-2029 PJM Capacity Auction cleared at historic highs for the third year in a row. Learn more about what’s driving rising PJM capacity prices and how your business can prepare for future rate changes.
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Key Takeaways
PJM’s 2028-2029 capacity auction cleared at $325/MW-day, marking the third consecutive year of historically high prices. Despite securing over 138,000 MW of generation, PJM still fell short of its reliability requirement by over 6,000 MW. PJM is implementing capacity auction market reforms to help address the widening gap in supply and demand, including a one-time PJM reliability backstop auction happening this fall. Understanding how capacity auctions impact costs can help businesses plan ahead for market shifts.
- The latest capacity auction cleared at the pricing cap of $325/MW-day
- Without the cap, PJM capacity prices would have reached $555/MW-day
- PJM missed its reliability requirement, putting the grid at a higher risk of outages.
- Since 2020, PJM has completed interconnection agreements for 103 GW, but only 23 GW have gone into service
- A one-time Reliability Backstop Auction is proposed to begin September 30, 2026
What Happened in PJM’s 2028-2029 Capacity Auction?
On July 14, 2026, PJM Interconnection announced the final clearing price for its 2028-2029 capacity auction of $325/MW-day. This marks the third year of historically high capacity prices and the second year where they reached the pricing cap. While PJM was able to secure approximately 138,318 Megawatts (MW) of generation resources, it still failed to reach the grid’s reliability requirement, underscoring how new generation sources are struggling to keep up with rising electricity demand.
How Does the PJM Capacity Market Work?
PJM’s capacity market is designed to secure enough future generation and demand response resources to provide reliable power to its 13-state service area. Each year, PJM holds a Base Residual Auction where generators submit bids to provide electricity capacity for a specific future delivery year, which is typically three years in advance. The auction’s clearing price reflects what it costs to secure enough resources to keep the grid reliable during peak demand events.
Why Did Capacity Reach the PJM Price Cap Again?
At $325/MW-day, the 2028-2029 clearing price is technically 2.5% lower than the 2027-2028 clearing price of $333.44/MW-day. However, that dip doesn’t necessarily mean market conditions are improving. Both PJM auctions cleared at the price cap, meaning supply was tight enough in both auctions to hit the highest possible price. Maxed out capacity prices mean that PJM is still struggling to keep up with regional electricity demand.
How High Would PJM Capacity Prices Be Without the Cap?
The PJM price cap actually protected customers from even higher capacity prices. Since PJM failed to reach its grid reliability requirement, capacity prices could have reached a staggering $555/MW-day if the current pricing collar wasn’t in place. PJM’s gap between supply and demand is widening, and the pricing cap exists to help protect consumers from paying for the cost of poor grid planning.
PJM Didn’t Reach Its Grid Reliability Requirement
In each capacity auction, PJM must account for the grid’s installed reserve margin target, which is an additional capacity reserve specifically for peak demand events. In the 2028-2029 auction, PJM was 6.8 gigawatts (GW) below the target, which is equivalent to the annual energy needs of approximately 5.7 million U.S. households. This means states within PJM’s service area will be at a higher risk of grid failure and power outages during peak demand periods in 2028 and 2029.
Back-to-Back Auctions with Reliability Shortfalls
This isn’t the first PJM capacity auction that failed to meet the reserve margin target. The 2027-2028 capacity auction also had a reliability shortfall of 6.6 GW. This marks the first time the entire PJM footprint has fallen short of its reliability requirement in two consecutive auctions, raising new questions about what’s keeping PJM from closing the gap.
Why Is the PJM Grid Falling So Far Behind?
Simply put, PJM’s supply just can’t keep up with how fast electricity demand is growing. Retiring power plants, slow progress on new generation projects, and interconnection delays are widening the gap.
- 2,941 MW of coal-fired generation was retired during this auction cycle alone.
- Only 525 MW of new generation was added since the 2027-2028 auction.
- It can take up to 8 years for new generation sources to come online in PJM.
- 2028-2029 peak demand rose by roughly 2,000 MW compared to 2027-2028.
Rapidly Rising Power Demand Is Pushing the PJM Grid to Its Limits
The massive uptick in PJM’s 2028-2029 peak demand forecast is primarily driven by rapid data center expansion, electrification initiatives, and manufacturing growth. PJM’s peak demand forecast for the 2028-2029 auction rose by roughly 2,000 MW compared to the prior auction cycle, highlighting how much faster demand growth can be compared to the mere 525 MW of projected new capacity.
The PJM grid is home to some of the United States’ biggest data center hot spots, like Northern Virginia, Pennsylvania, Ohio, and Illinois. As more data centers are developed in these regions, it adds a significant base load to the PJM grid. Data center electricity demand across PJM is projected to grow by 30,000 MW between 2025 and 2030, with more than 1,000 data centers expected to be in operation by then. When paired with additional load growth like electric vehicle adoption, building electrification, and manufacturing growth, it’s no surprise that the grid can’t keep up.
Why Aren’t More Generation Projects Coming Online?
Unfortunately, high capacity prices don’t necessarily mean new generation projects are underway. Developers still have to navigate the PJM interconnection process before a generation project connects to the grid. Since 2020, PJM has completed interconnection agreements for 103 GW of new capacity, but only 23 GW have actually come online. That gap demonstrates how many projects fall through and the complexities of connecting new generation to the PJM grid.
What’s Delaying the PJM Interconnection Queue?
PJM’s interconnection queue includes a complex series of technical studies, permitting, and grid upgrade planning before construction even begins. Historically, PJM’s queue has been clogged with far more projects than it could realistically study. High, unpredictable infrastructure upgrade costs are the leading reason power suppliers abandon their interconnection requests.
Long wait times for feasibility studies compound the problem, especially since these costs typically aren’t assigned until late in the already slow process. This outdated, unpredictable process can quickly turn an otherwise viable project into a financial dead end.
What Happens Next for PJM Capacity Market?
With consecutive reliability shortfalls, back-to-back maxed out pricing, and rapid demand growth, PJM’s capacity auction market is under close scrutiny. To improve market conditions, PJM has proposed reforms for their interconnection process to help projects move through the queue faster. PJM has also introduced a new procurement mechanism designed to help secure more capacity beyond the traditional auction process. These efforts underscore that PJM is treating its reliability shortfall as an urgent problem rather than something to address gradually.
PJM’s Next Move: A Reliability Backstop Auction
To help close the gap, PJM has proposed a one-time Reliability Backstop Auction. Once approved by the Federal Energy Regulatory Commission (FERC), this auction could begin running as soon as September 30, 2026. PJM is targeting new generation resources that can come online by 2032. This unique auction exists solely to help PJM make up for their 6,831 MW reliability shortfall and contribute to greater grid reliability.
Turning Capacity Auction Results into a Business Energy Strategy
Market shifts are an ideal time to review your company’s energy contract and management strategies. Below are a few things to consider before PJM energy prices shift.
How Capacity Costs Impact Your Energy Bill
Capacity can represent up to 30% of your business’s total energy spend. It’s influenced by your peak load contribution, or the amount of electricity your business uses during PJM’s peak demand periods. The more you consume during those windows, the higher your capacity costs — regardless of your overall usage.
Reduce the Impact of Rising Capacity Costs
A few smart strategies can help your business manage capacity costs before they impact your bottom line:
- Review your past usage during peak demand periods to know your risk
- Reduce usage during peak demand periods whenever possible
- Enroll in a demand response program to be rewarded for curtailing usage
- Factor future capacity cost increases into your long-term budgeting plan
- Partner with a broker for personalized guidance when the market shifts
FAQs about the 2028-2029 PJM Capacity Auction Results
When will the 2028-2029 PJM capacity auction take effect?
The final 2028-2029 PJM capacity prices will go into effect on June 1, 2028. This gives businesses more time to plan their next energy decision around the changing rates.
How is the PJM capacity auction clearing price determined?
PJM’s capacity auction is a competitive process where energy generators submit bids to provide capacity for a specific delivery year. The clearing price will be within the PJM pricing collar from $175/MW-day to $325/MW-day. The pricing collar will last through the 2030 delivery year.
What happens if PJM does not meet its reliability requirements?
When PJM fails to meet its reliability requirement, it means the grid might not be able to provide enough power during peak demand periods. This puts PJM customers at a higher risk of power outages or other failures during severe weather events or seasonal demand peaks.
How do capacity auction results affect electricity rates?
Capacity costs represent roughly 20-30% of a typical commercial electricity rate. If regional capacity costs rise, so will local electricity prices. Locking in a fixed rate plan before new capacity prices take effect can help protect you from rising rates.
Can PJM add enough generation to meet future demand?
PJM is working to bring new generation sources online as soon as possible; however, they also must make up for lost capacity from power plant retirements. Delays in the interconnection queue, permitting, and construction process mean that PJM can’t keep pace with how quickly electricity demand is rising in their service area.
Will PJM capacity prices continue to increase?
With the PJM pricing collar in effect through 2030, elevated capacity prices will likely continue through at least the next four years. Ultimately, future capacity prices will depend on how quickly PJM can get new generation online and address its reliability gaps.
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Tim Trus
