The United States is facing a supply and demand problem in the electric sector, raising serious concerns not only about energy affordability but the reliability of the grid.
On Tuesday, July 30, 2024, PJM Interconnection, LLC (PJM), the regional transmission operator for a 13-state region, including West Virginia, Virginia, Ohio, Pennsylvania and other neighboring states, announced the results of its capacity auction results for the 2025/2026 delivery year. The purpose of the Capacity Auction is to procure power supply resources for electricity needs in the PJM region on a future-looking basis. With a clearing price of $269.92/MW-day, the auction results represent a nine-fold increase over prior auctions. This article states that Maryland customers could see their electricity bills rise by as much as 24 percent as a result of the PJM auction results.
While an increased clearing price from PJM’s capacity auction was expected, the magnitude of the increase took many by surprise. As noted by this article, PJM has been plagued for many years by an increasing number of generators retiring, predominantly base-load generation like coal, reducing the amount of capacity in PJM available to serve load. Further complicating the picture is a backlog in PJM’s interconnection queue for bringing new resources online, resulting in a delay in new resources filling the holes left by planned retirements. Recent reports suggest that $84 billion in clean energy projects throughout the United States, not just PJM, spurred by the passage of the Inflation Reduction Act (IRA), are running behind schedule. This timing issue contributes to the PJM capacity prices seen in the most recent auction.
Layered on top of these issues are the changing resource mix and policy decisions impacting that resource mix. While intermittent resources like wind and solar make up an ever-increasing percentage of the resource mix, their intermittency can often create issues when the renewable resource is unavailable. For example, during a 2024 heat wave, we saw reports of decreased wind production spurring some of the highest recorded natural gas generation in history. This unexpected demand on a resource like natural gas can also result in unexpected cost increases for customers. This also raises questions about precisely how and what type of resources can be relied upon to reliably serve customer’s energy needs.
A final piece of the puzzle is precisely how electric utilities and the broader electric grid can ensure they have sufficient, reliable power in the face of recent regulation. While renewable resources are low-cost, fuel-free resources, they are also only available when the wind is blowing or the sun is shining. Customers across all segments are relying on electricity now more than ever before, and at all hours. With the closure of numerous coal plants around the country, many utilities have been looking towards natural gas to fill the need for reliable, base-load generation in the near term. With the EPA’s recent enactment of Rule 111 Rule, (assuming these are not overturned by legal challenge), however, it will – as this article discusses, impact and limit the role that natural gas can play in the future, further limiting the options available to meet customer’s energy needs.
PJM’s 2025/2026 Capacity Auction results sent a strong price signal to the market, telling generators, particularly base-load generators in PJM, that they are needed. As capacity auctions are scheduled for future delivery years, we will see whether this trend perpetuates. If so, the question will be how to bring online the resources needed to reliably and affordably serve customers.
