Consumers to Face $14.7 Billion Capacity Bill in 2025/26 Delivery Year
Dive Brief: The latest capacity auction by PJM Interconnection has seen prices soar to unprecedented levels, signaling a strong incentive for power plant companies to either build new generation facilities or keep existing ones operational. According to PJM’s auction report, the capacity prices for the 2025/26 delivery year surged to $269.92 per megawatt-day (MW-day) for most of the region, a significant leap from the previous $28.92 per MW-day.
In specific zones, the prices hit the capped levels, reaching $466.35 per MW-day in the Baltimore Gas and Electric zone in Maryland, and $444.26 per MW-day in the Dominion zone covering parts of Virginia and North Carolina. Overall, the auction’s total cost to consumers skyrocketed to $14.7 billion, a sharp increase from $2.2 billion in the last auction.
The dramatic increase in capacity prices is attributed to several factors, including power plant retirements, heightened electricity demand, and newly implemented market rules aimed at better reflecting the risks associated with extreme weather conditions. Additionally, new resource accreditation metrics were introduced to more accurately measure the capacity a resource delivers during system stress events, according to PJM Executive Vice President for Market Services and Strategy, Stu Bresler.
Dive Insight: The auction outcomes are a reflection of tighter electricity supply coupled with increasing demand. Bresler noted that bids were approximately 6,600 MW lower than in the previous auction, a reduction driven by plant retirements and exceptions granted to plants nearing shutdown. The estimated peak load also saw an increase, rising to about 153,000 MW from the previous 150,000 MW.
PJM secured 134,672 MW for the 2025/26 capacity year, out of the 135,694 MW offered in the auction. This capacity included approximately 110 MW of new generation and 755 MW from upgrades to existing or planned generation. However, the volume of new generation fell significantly from the nearly 330 MW recorded in the previous auction.
Gas-fired plants dominated the cleared capacity at 48%, followed by nuclear at 21%, coal at 18%, demand response at 5%, hydroelectric at 4%, and solar and wind each at 1%. Other resources contributed the remaining 2%.
Bresler indicated uncertainty about how these price spikes would affect consumer bills. Last year, capacity costs accounted for about 8% of customer electricity bills.
“We’re finally seeing prices reflect demand, which is increasing at a growing rate,” commented William Scherman, a partner at Vinson & Elkins. He emphasized that the recent wave of fossil fuel plant closures should not be dismissed as a threat to reliability, suggesting that the auction results underscore the need for reliable generation capacity.
The Electric Power Supply Association expressed optimism that these price signals would encourage investment in new generation within PJM’s jurisdiction. Todd Snitchler, EPSA President and CEO, stated, “These prices should begin to incentivize the necessary investments to maintain a reliable system, though the results of one auction do not yet indicate a trend.”
However, not all reactions were positive. Advanced Energy United, a clean energy trade group, criticized PJM’s planning, accusing the grid operator of failing to anticipate the ongoing energy transition. “PJM didn’t prepare for an energy transition we all saw coming, and now consumers are going to pay the price,” said Jon Gordon, an AEU director.
PJM has expressed concern over the sluggish pace of generation construction. Although projects totaling around 38,000 MW have cleared PJM’s interconnection queue, they have yet to be built due to obstacles such as financing, supply chain issues, and regulatory challenges.
“While interconnection process reform is underway, many projects face hurdles outside of our control,” Bresler noted, suggesting that PJM is exploring ways to expedite those projects that can overcome these challenges.
Market Reactions: In the wake of the auction results, key market players saw significant stock price increases. Constellation Energy, which cleared its entire generating fleet in PJM, including 15,550 MW of nuclear and 1,950 MW of gas and other fuels, reported an 11% surge in its stock price.
Similarly, Vistra, which cleared 10,255 MW at a weighted average clearing price of $273.45/MW-day, saw its stock price climb by 14.5%. The company had previously cleared 6,905 MW at a much lower average price in the last auction, equating to around $109 million in capacity revenue for the 2024/2025 planning year.
Looking Ahead: PJM is scheduled to hold its next base residual auction for the 2026/2027 delivery year in December. These annual auctions are crucial for securing capacity three years in advance, and failing to win capacity obligations can be a significant factor in power plant owners’ decisions to retire their units. PJM operates the grid and wholesale power markets across 13 Mid-Atlantic and Midwest states, as well as the District of Columbia.
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