Published: September 16, 2025
By: Concentric Staff Writer
Key takeaways:
- The PJM Interconnection’s latest base residual auction for capacity was subject to a federally approved price cap of $329.17 per megawatt-day (MW-day).
- Concentric Energy Advisors’ Chief Executive Officer, Danielle Powers, said that PJM’s capacity market was designed for a set of circumstances that no longer exist, mentioning a massive influx of zero-fuel-cost renewables.
- The assumption underlying the original market design, which was that energy prices would rise and reliance on capacity market revenues would decrease over time, has not materialized, Powers said.
The PJM Interconnection’s most recent auction for future adequate power generation is once again drawing attention for high prices, amid a larger conversation about the efficacy of the capacity market and whether it is serving its intended purpose across the organization’s 13-state region.
PJM’s 2026/2027 Base Residual Auction (BRA), held in June, reached a federally mandated price cap of $329.17 per megawatt-day (MW-day) for unforced capacity generation (UCAP), not a welcome signal for load serving entities in PJM. The auction covers the delivery period of June 1, 2026 to May 31, 2027.
The second year of high auction clearing prices raises questions about the capacity market design and whether it is suitable for an energy landscape that has significantly changed.
Concentric Energy Advisors’ Chief Executive Officer, Danielle Powers, said in an interview that the PJM capacity market auction structure is now operating in “a world that was not anticipated.” This includes increasing levels of contracted renewable generation, the retirement of large fossil-fueled generation, and unprecedented demand growth.
Of price signals in general in the capacity market, however, Powers said, “I think it’s largely been successful—the capacity auction has sent the appropriate price signal when new capacity is needed, as both the energy markets and the ancillary services markets have demonstrated positive outcomes. The challenge lies in the delay between the price signal indicating the need for new generation and the actual connection of resources to the system. This process typically takes around five to seven years, which presents a significant obstacle. It is hard to tolerate that lag.”
But overall, the markets were designed for a different electrical system, she commented. “The capacity markets worked for a time, and under a set of circumstances that are fundamentally different than those in today’s environment,” Powers said.
PJM’s capacity market, also known as the Reliability Pricing Model, is designed to procure adequacy three years out, according to PJM documents. The capped price of $329.17 compares with a price of $269.92 in the previous auction (2025/2026), reflecting an increase of about 22 percent. The exceptions in the 2025/2026 auction were the Baltimore Gas & Electric (BGE) zone in Maryland and Dominion Energy, which includes portions of Virginia, North Carolina, and South Carolina. BGE cleared at $466.35 per MW-day and Dominion at $444.26 per MW-day in the previous auction but this year cleared at the same cap as the rest of the PJM region.
The 2026/2027 auction, held in July, procured 134,211 MW of UCAP and demand response across PJM’s regional footprint, which includes more than 67 million people and also encompasses the District of Columbia, PJM said.
“Wholesale capacity accounts for a relatively small portion of retail electricity bills; PJM would expect the cap price to translate to a year-over-year increase of 1.5–5% in some customers’ bills, depending on how load-serving entities and states pass on wholesale costs to consumers. Given that prices decreased in two zones, it is possible that consumers in some areas could see a drop in retail rates,” PJM said.
The auction shows that generation suppliers are reacting to price signals from the previous 2025/2026 auction, PJM said. The total amount of new generation and generation uprates added in the most recent auction was 2,669 MW of UCAP, the first increase in new generation and uprates in the last four auctions, it said. Despite PJM’s conclusions, there are indications that the market is not working as intended
Also, 17 generating units totaling approximately 1,100 MW of capacity have withdrawn their retirements since the 2025/2026 auction, another indication that suppliers are reacting to price signals as intended.
But price signals only work if there is enough time to act on them. A three-year forward auction may buy investors certainty, but it doesn’t guarantee shovels in the ground, fuel security, or new steel in time to meet reliability needs. The question today isn’t just whether the market sends the “right” price – it is whether those prices arrive with enough runway for real investment to happen.
In addition, Powers points out that when it was designed, the capacity market was intended to be a residual market, which means the base residual auction is intended to procure only the remaining, or residual, capacity needs in the region after accounting for self-supply (vertically integrated utilities meeting their own load) and bilateral contracts between capacity suppliers and load-serving entities outside of the auction.
The market cap flows from a complaint filed in December 2024 by Pennsylvania Governor Josh Shapiro to the Federal Energy Regulatory Commission (FERC) that argued PJM’s auction demand was flawed, with the issue exacerbated by rising demand and a clogged generation interconnection queue. This resulted in PJM agreeing to the price cap for the latest auction in order to avoid billions of dollars of projected additional costs for customers in the PJM footprint. The price cap came along with a floor of $175 per MW-day. FERC formally approved the settlement in April of this year. Other states, such as Maryland, Illinois, Delaware, and New Jersey, supported the complaint.
States are beginning to recognize that if they bear responsibility for resource adequacy, then reliance on competitive markets to meet those requirements requires that the markets function effectively. States are wondering why they are paying higher prices without the generation that they need coming on line, Powers said.
“The market is sending the signals,” she explained. “But it’s seven years before you can actually get generation on line. So, that’s the frustration.”
Another factor is load growth due to new and planned data centers. Pressure on capacity markets was also supposed to lessen with higher energy prices, but prices actually declined, Powers commented, putting pressure on the capacity market, which is now showing signs of structural failure.
“This highlights that there may not have been enough consideration given to the combined impact of thousands of megawatts of zero-variable-cost resources, the retirement of large generating units, and surging demand growth,” she said.
The issues seen in PJM are likely to spread to other regions, such as the Midcontinent Independent System Operator, Powers commented.
“In PJM, the challenges are immediate and pressing, whereas in other regions, the same issues are beginning to emerge. They may have a bit more time, but the pressures are inevitable,” she said.
Sources used in this article:
2026/2027 Base Residual Auction Report
PJM Auction Procures 134,311 MW of Generation Resources; Supply Responds to Price Signal
Complaint of Governor Josh Shapiro and the Commonwealth of Pennsylvania
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All views expressed by the author are solely the author’s current views and do not reflect the views of Concentric Energy Advisors, Inc., its affiliates, subsidiaries, related companies, or clients. The author’s views are based upon information the author considers reliable at the time of publication. However, neither Concentric Energy Advisors, Inc., nor its affiliates, subsidiaries, and related companies warrant the information’s completeness or accuracy, and it should not be relied upon as such.
