PJM’s capacity costs hit record as grid falls short on supply

Booming data center growth and sluggish power plant construction are driving up electricity costs in the country’s biggest energy market.

On Wednesday, PJM Interconnection announced the results of its latest capacity auction, which sets the price of resources needed to meet peak power demands for a grid serving more than 65 million people in 13 states and Washington, D.C.

Capacity prices for delivery in the 2027-2028 period hit a new record of $16.4 billion, up from $16.1 billion in July and $14.7 billion in 2024. That will put more upward pressure on utility bills, which are already expected to rise between 1.5% and 5% for some PJM customers in the 12-month period starting in June 2026.

Even higher capacity costs could follow at the next auction in summer 2026. This time around, prices were kept in check by a limit instituted in April through a settlement agreement between PJM and Pennsylvania Gov. Josh Shapiro (D). But that price cap is set to expire after this auction.

During the auction, PJM also failed to secure enough resources to meet its targeted 20% reserve margin for the 2027-2028 period, a measure of the generating capacity it aims to have on hand in order to keep the lights on despite disruptions caused by weather or power plant outages.

PJM emphasized in its Wednesday statement that this doesn’t necessarily mean its grid is on shaky ground. It outlined ​“several mitigating factors that could improve the reliability picture” between now and then, such as the potential for plants slated for retirement to keep operating.

These results are yet another challenge to a grid operator facing increasing political backlash for its inability to let power plants and clean energy online fast enough to meet booming electricity demand from data centers. PJM projects that peak demand will grow by 32 gigawatts from 2024 to 2030, with all but 2 gigawatts coming from data centers.

“This auction leaves no doubt that data centers’ demand for electricity continues to far outstrip new supply, and the solution will require concerted action involving PJM, its stakeholders, state and federal partners, and the data center industry itself,” Stu Bresler, PJM’s executive vice president of market services and strategy, said in Wednesday’s release.

But the grid operator has so far failed to unclog a backlog of more than 100 gigawatts’ worth of power capacity, the vast majority of it solar, wind, and batteries.

Only about 2.7 gigawatts of new generation and ​“uprates” of existing projects came onto the system in the 12 months preceding PJM’s July auction. A fast-track procurement held earlier this year secured additional capacity, mostly in the form of gas plants, but almost none of it is set to be online until 2030 or later.

“Projects in PJM are still struggling to get built,” Julia Hoos, head of USA East at Aurora Energy Research, said in a Thursday statement. Beyond its interconnection backlog, the region is also facing ​“permitting challenges, a challenging financing and regulatory environment, and, of course, turbine shortages” that have added years to construction timelines for gas plants.

The mismatch between stifled supply and exploding demand is driving PJM’s surging capacity prices, according to an August report from Monitoring Analytics, the company tasked with overseeing the grid operator’s markets.

In August, PJM launched a process to seek proposals on how to get data centers and other energy-hungry facilities online fast without breaking the grid. But stakeholders in November failed to approve any of the dozen proposals that emerged, despite the grid operator’s goal to send one to the Federal Energy Regulatory Commission this month. 

Calls for intervention are becoming more urgent.

In November, Monitoring Analytics filed a complaint with the Federal Energy Regulatory Commission, asking it to force PJM to halt interconnection of data centers unless the grid operator can secure additional generation to serve them. That stance aligns with proposals from environmental groups, state consumer advocates, and a bipartisan coalition of state legislators that urged PJM to make data centers supply their own electricity or have grid power cut off during times of peak demand.

But that and similar proposals, including one from PJM’s staff, have faced stiff opposition from the Data Center Coalition, a trade group that includes Google, Microsoft, Meta, Amazon, and dozens of other companies that own, operate, or lease data centers. That coalition joined with state governors and utilities to put forth an alternative that would encourage, but not force, data centers to seek out their own capacity or curtail power use during grid emergencies. 

Monitoring Analytics has critiqued the concept as unenforceable.

Meanwhile, voter anger over the region’s rising utility bills helped propel Democrats to landslide victories in gubernatorial races in New Jersey and Virginia in November.

Unconstrained data center growth threatens to push energy costs much higher for PJM customers, according to an analysis by the Natural Resources Defense Council. By 2028, an average family could see monthly electricity bills rise by about $70, the analysis found.

“You can see this is a multibillion-dollar issue across the PJM region,” Clara Summers, campaign manager for the Citizens Utility Board, an Illinois-based consumer advocacy group, said in a December webinar. ​“It’s really important that we ask ourselves, ​‘Does it make sense for all consumers in PJM to be paying this much on their electricity bills for one particular industry to serve data centers owned by some of the wealthiest companies in the world?’” 

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