PJM and the capacity crunch

19 snips

Jul 31, 2025

Steve Piper, Research Director for North American Power and Renewables at S&P Global, joins to discuss the recent record-breaking PJM capacity auction prices. He explains how inflated prices are designed to incentivize new generation amidst tight supply, driven largely by the surge in data centers. The conversation reveals concerns over low prices previously discouraging market participation, as well as the challenges of developing new resources and enhancing demand response strategies. Steve emphasizes the need for regulatory adaptations to navigate these complexities.

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INSIGHT

Capacity Crunch Signals Rising Costs

The rising capacity prices signal a resource adequacy concern and higher costs for consumers.
Higher wholesale prices translate directly into increased monthly electricity bills impacting customers.

INSIGHT

Demand Response Limited by Accreditation

Demand response contributes less capacity than nominal megawatts, roughly 60-70% credit.
Despite strong price signals, demand response participation shrank in the latest PJM auction, indicating adoption challenges.

ADVICE

Adapt Demand Response for PJM Rules

The demand response industry must adapt to evolving PJM rules and clarify capacity accreditation.
Stakeholders should explore how emerging loads and distributed storage can enhance demand flexibility contributions.

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The PJM capacity auction this month broke records with sky-high wholesale power prices — and that was by design. Under PJM’s auction rules, tight supply raises prices, incentivizing the development of new generation and encouraging existing generation to stay online. The big driver of that tight supply? Data-center driven load growth. The independent system operator covers Virginia, one of the densest and fastest-growing regions for data center development.

So will higher wholesale prices incentivize enough generation to meet load growth without provoking the public with higher bills?

In this episode, Shayle talks to Steve Piper, research director of North American power and renewables at S&P Global. Steve and Shayle cover topics like:

Why Steve says PJM and other stakeholders became concerned that low prices weren’t incentivizing enough generation to stay on the market
Why ISOs upping resource adequacy requirements across technologies, while raising targets for reserve margins
The bottlenecks slowing down the development of new generation
What’s holding back demand response in the auction

Resources:

Latitude Media: Will Pennsylvania be the nation’s AI-energy model?
PJM: PJM Auction Procures 134,311 MW of Generation Resources; Supply Responds to Price Signal
Utility Dive: PJM capacity prices set another record with 22% jump

Credits: Hosted by Shayle Kann. Produced and edited by Daniel Woldorff. Original music and engineering by Sean Marquand. Stephen Lacey is executive editor.

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