PJM Capacity Auction Faces Significant Cost Increase for 2025/2026 Delivery Year
The recent PJM Base Residual Auction (BRA) for capacity- 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. This stark increase underscores the evolving challenges in maintaining grid reliability and highlights the substantial financial shifts occurring within the energy sector.
This year’s auction has procured 135,684 MW of capacity for the period from June 1, 2025, through May 31, 2026. In addition to the auction-secured capacity, there is a Fixed Resource Requirement (FRR) obligation of 10,886 MW, bringing the total required capacity to 146,570 MW. The increase in auction prices reflects the need for significant investment in both new and existing generation resources to meet future demand and ensure grid stability.
The rise in capacity prices is driven by several factors. The transition towards renewable energy and the integration of advanced technologies require substantial upfront investments, which are reflected in the higher auction prices. Additionally, economic conditions such as supply chain disruptions and inflationary pressures have increased the costs associated with energy projects, further contributing to the surge in capacity prices.
Comparatively, the reserve margin—the difference between the total capacity and peak demand—has decreased from 20.4% for the 2024/2025 Delivery Year to 18.5% for the 2025/2026 Delivery Year. This reduction in reserve margin indicates a tighter supply-demand balance, adding to the urgency and cost of securing sufficient capacity. Despite these higher costs, the PJM capacity auction remains a crucial tool for ensuring long-term grid reliability.
In summary, the recent PJM capacity auction has resulted in a significant increase in clearing prices, with costs rising from $28.92 to $269.92 per MW-day. The total procured capacity and FRR obligations amount to 146,570 MW, reflecting an 18.5% reserve margin. This increase in costs highlights the ongoing challenges and financial implications of maintaining a reliable energy grid amidst evolving market conditions and economic pressures.
Reminder this is the BRA and there is one additional final auction in February of 2025 that will set the final prices. When evaluating supplier offers, it is important to ensure they are pricing in the BRA results published 7/30/24 from PJM. If the BRA is not used, you will see a significant variance in price offerings from SmartestEnergy as we implemented these projected future costs into our models on 7/31/24. Capacity costs are outside of a suppliers control and are ultimately the responsibility of the rate payer regardless of where supply is secured. We will continue to keep you updated as changes occur.
Source: 2025-2026-base-residual-auction-report.ashx (pjm.com)