PJM Capacity BRA Auction and Shifting Product Discussions with Customers

Results of the most recent BRA auction

The recent PJM Base Residual Auction (BRA) for capacity auction has seen a dramatic increase in costs for securing resources to meet the reliability requirements for the 2025/2026 Delivery Year. The auction cleared at $269.92 per megawatt-day (MW-day) for much of the PJM footprint, a significant jump from the $28.92 per MW-day achieved in the previous auction for the 2024/2025 Delivery Year.

Why we are seeing increases

This stark increase underscores the evolving challenges in maintaining grid reliability and highlights the substantial financial shifts occurring within the energy sector. The rise in capacity prices is driven by several factors. The transition towards renewable energy and the integration of advanced technologies requires substantial upfront investments, which are reflected in the higher auction prices. This increase in costs highlights the ongoing challenges and financial implications of maintaining a reliable energy grid amidst evolving market conditions and economic pressures.

So, with these evolving challenges around capacity costs, how should Customers adjust their energy procurement plans, assess the right product for their business and make sure they are making apples to apples comparisons between suppliers?

When it comes to the cost of capacity customers have the option to either fix this cost upfront or choose to "pass through" the cost. Here's why passing through the cost of capacity can be beneficial:

1. Flexibility to Capture Future Price Drops

With capacity prices spiking from $28.92 to $269.92 per MW-day, a fixed cost could lock in the higher rate. A pass-through product lets your business benefit from potential price drops if the market stabilizes or future auctions lower rates.

2. Avoidance of Risk Premiums

Fixed capacity costs often include a risk premium to cover price spikes. Choosing a pass-through option avoids these premiums, letting you pay the actual market rate, potentially lowering costs over time.

3. Incentive to Optimize Energy Use

The sharp rise in capacity prices shows the financial impact of peak demand. A pass-through product encourages your business to reduce usage during peak times, lowering capacity charges and boosting savings.

4. Hedge Energy Costs While Minimizing Risks

Locking in electricity costs while passing through capacity offers a balance of stability and flexibility. Your business gains budget certainty with a fixed rate while capturing potential savings from fluctuating capacity costs, blending risk management with market opportunities.