Why Prices Soared in a Recent Auction Held by a Major Electric Grid Operator
Prices soared in the market that pays electricity generators to be available to meet future demand in the PJM Interconnection, prompting policymakers, regulators, and researchers to debate the potential causes of increasing prices, along with solutions.
This summer, you may have seen some buzz around the PJM Interconnection, the regional transmission organization that manages the electric grid in 13 states in the Midwestern and eastern United States, along with Washington, DC. PJM held a routine capacity market auction, during which electricity generators promise to be electricity suppliers in a future year in exchange for payments from the system operator (PJM, in this case). The goal of the capacity auction is to procure enough commitments from generators to deliver electricity to meet anticipated levels of demand, plus some extra margin to cover uncertainties. Generators that offer this capacity service at the lowest prices are picked first, and the system operator accepts increasingly larger bids until the amount of future electricity promised equals the system needs. Prices soared in the capacity market auction in July, which covered the 2025/2026 delivery year, leading to a total capacity cost of $14.7 billion for the PJM region. This cost is up from $2.2 billion in last year’s auction.
Part of the problem is that potential electricity suppliers may be struggling to respond quickly enough to these price signals. Over 200 gigawatts of potential capacity are waiting in the line to be connected to the electric grid, known as the interconnection queue. Even if only a fraction of that capacity represents projects that actually will be built, those projects in the queue still represent new generators that could compete in the capacity market and contribute to lower prices in the future, if these generators are approved to connect to the grid.