PJM's latest Base Residual Auction, the market-based mechanism that allows for the grid to plan for expected future electric supply needs, cleared at the market price cap of $325/MW-day for the 2028/2029 delivery year. Despite the price signal, capacity still fell 6.8 GW short of PJM’s reliability requirement.
The results reinforce a growing reality: elevated capacity costs are no longer a short-term market disruption; they're becoming the new normal.
While the auction outcome is now fixed, the impact on your energy budget isn't. Commercial energy buyers still have opportunities to manage how much capacity they ultimately pay for through procurement strategy, capacity tag management, and operational flexibility.
A Structural Shift, Not a One-Time Spike
This week’s PJM capacity market results mark the third consecutive auction to clear at the market price cap, and approximately 11 times greater than it was for the 2024/25 delivery period, reflecting persistent structural pressures across the region.
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Source: Catalyst Power analysis of PJM RPM BRA auction data.
- Capacity remains tight: PJM procured 138,318 MW of unforced capacity (UCAP) through the RPM auction and 10,864 MW UCAP under the FRR commitment. After accounting for both, PJM still fell 6,831 MW short of the amount of power it needed to maintain reliability during periods of peak demand.
- Resource mix has changed little: PJM continues to rely primarily on dispatchable thermal generation, with natural gas accounting for 46% of cleared capacity, followed by nuclear (20%), coal (18%), and demand response (5%). Solar, wind, battery storage, hydro, and other resources make up the remaining.
- Retirements continue to outpace new supply: Nearly 3 GW of coal capacity exited the market through retirements or conversions to natural gas. Replacing that lost capacity was just 525 MW of new generation and capacity upgrades, further tightening supply conditions.
As PJM President and CEO David Mills noted, “These auction results show that demand for electricity continues to grow faster than electricity supply.”
That imbalance reflects broader structural trends reshaping the PJM market. Electricity demand continues to grow at one of the fastest rates in decades, driven by data center expansion, manufacturing investment, and electrification.
At the same time, supply growth has struggled to keep pace. Many existing power plants are reaching the end of their useful lives and retiring faster than new generation can be interconnected and constructed. Lengthy interconnection queues, permitting challenges, and multi-year lead times for critical equipment such as gas turbines, transformers, and switchgear have further slowed the pace of new supply.
The result is a market where capacity remains structurally scarce, making elevated capacity prices increasingly likely to persist rather than represent a one-time event.
Why This Matters
Capacity is one of the major components of commercial electricity costs, alongside wholesale energy, transmission and distribution, ancillary services, and environmental compliance.
For businesses with pass-through capacity charges, the higher auction clearing price will directly increase overall electricity supply costs during the June 2028 through May 2029 delivery year.
Even customers on fixed-price electricity contracts aren't immune. Capacity costs influence future retail pricing, meaning today's auction results will be reflected in any contracts signed after today, as suppliers incorporate high long-term capacity costs into their pricing.
The takeaway is clear: capacity is becoming an increasingly important driver of total electricity costs, making it essential to understand how your supply agreement allocates and manages this risk.
What Commercial Energy Buyers Should Do Now
While you can't control PJM's capacity auction results, you can take steps today to reduce your exposure to higher capacity costs and improve your long-term energy strategy.
- Review Your Energy Supply Contract
Not all electricity supply agreements treat capacity the same way. Some contracts pass capacity costs through directly, while others bundle them into an all-inclusive fixed price for the term of an agreement. Read more about fixed vs pass-through contracts.
Understanding how your current agreement is structured can help you anticipate how higher PJM capacity prices may affect your future electricity costs.
With capacity markets expected to remain elevated, evaluating your contract options and overall energy strategy can help you manage risk and budget with greater confidence. - Prepare for Peak Demand Events
While PJM’s capacity auction determines the market price of capacity, your future capacity costs also depend on your facility's Peak Load Contribution (PLC), or its share of electricity demand during PJM's highest-demand hours.
While no one can predict those peak hours with certainty, energy suppliers and advisors use weather forecasts, grid conditions, and market data to identify periods when a system peak is more likely. Having a plan in place allows your facility to respond quickly if one of those events occurs.
To put it into perspective, at current PJM prices, reducing demand by just 50 kW during system peak hours could reduce annual capacity costs by about $6,000 in the following delivery year.
The challenge is finding opportunities to reduce demand during these critical periods without disrupting essential operations. - Build More Operational Flexibility
Facilities that can temporarily reduce demand when the grid is under stress are better positioned to manage rising capacity costs.
Here are some operational levers that can help a facility reduce dependence on the grid during peak hours:
- Load shifting from operations and building automation (e.g., shifting non-critical operations to lower-demand hours, adjusting temperature setpoints on thermostats)
- Load reduction through efficiency measures (e.g., upgrades through variable frequency drives, LED lighting retrofit)
- Peak shaving or full electric load reduction through onsite resources like solar paired with battery energy storage, combined heat and power (CHP), backup generation
As capacity markets become more constrained, flexibility becomes a competitive financial advantage, not just an operational one.
Looking Ahead
Few market observers expect capacity prices to return to historical levels in the near future.
PJM has begun reforms intended to accelerate new generation, including a collaboration with Google’s Tapestry to leverage AI to reduce study timelines. It’s also developing “Connect and Manage” frameworks that allow large new loads, such as data centers, to connect to the system but operate flexibly when needed to limit disruptions to other consumers. These changes will help reduce the gap in supply-demand over time.
For commercial energy buyers, planning around elevated capacity costs is now a more prudent strategy than waiting for prices to decline.
The Bottom Line
The latest PJM capacity auction wasn't an isolated event; it reinforced a fundamental shift in the region's electricity market.
Organizations that proactively review their electricity procurement strategy, understand and manage their capacity tag, and increase operational flexibility will be better positioned to control long-term energy costs.
Catalyst Power serves more than 4,500 commercial and industrial businesses across PJM and other deregulated U.S. electricity markets. Whether you're approaching a contract renewal or simply want to understand how rising capacity costs will affect your facility, our energy experts can help.
Send us a recent utility bill and your current electricity contract, and we'll identify opportunities to reduce your total cost of electricity.
