PJM capacity prices hit price cap, reserve shortfall grows

Key Points:

• PJM Interconnection's 2028-2029 capacity auction hit the $325/MW-day price cap, resulting in a 6.8 GW shortfall below its 20% reserve margin target and only about 525 MW of new resources cleared, down from 774 MW in the previous auction.
• The auction highlighted tight supply-demand conditions across PJM's 13-state region, with experts noting the current system fails to incentivize new capacity or sufficient demand response, as new generation requires prices above the cap to be viable.
• Without the price cap, auction prices would have surged to nearly $555/MW-day region-wide, significantly increasing costs; demand response participation also declined by 277 MW despite high prices.
• PJM plans to propose a backstop capacity auction and a "connect and manage" framework for data centers to FERC, aiming to address reliability and capacity challenges, while analysts predict major market reforms to reduce capacity prices.
• Stakeholders emphasize the need for improved transmission planning, better integration of demand response, and policy changes to accelerate new resource development, with some advocating for data centers to bear costs for necessary infrastructure to alleviate grid strain.