How PJM's Capacity Auctions Influence Energy Cost Management

Managing energy costs has become increasingly challenging for consumers and large commercial and industrial businesses alike. The recent results of PJM’s 2025/2026 Base Residual Auction (BRA), which saw capacity prices soar, are causing a growing need for effective energy cost management.

PJM holds these auctions to ensure that enough electricity is available to meet future demand and maintain grid reliability across 13 states during peak periods, such as summer heatwaves.

How The PJM Capacity Auctions Set Prices

Here’s a breakdown of the PJM’s annual capacity auction works:

• PJM reviews available power generation resources to assess their capacity to meet peak demand.
• Power generators submit bids with the price they would charge to supply electricity.
• PJM sets a clearing price based on these bids, making sure enough capacity is secured.
• The auction price is then announced, and this price directly impacts the energy rates paid by consumers.

The record-high clearing prices in the 2025/2026 auction resulted from several key trends:

• Retirement of fossil fuel plants, particularly coal, has created a gap in the energy supply.
• Increased demand from industries like AI data centers is further straining the grid.
• Intermittent renewable energy sources have not yet fully compensated for this gap.

Energy Procurement Strategies to Mitigate Rising Energy Costs

Optimizing Energy Procurement: While capacity costs are largely unavoidable, businesses can offset some of the increase by securing the lowest possible energy commodity prices. By working with Pilot’s energy advisory services, businesses can time their energy procurement to take advantage of favorable market conditions. Pilot Energy’s proprietary software, PowerUp™, uses predictive analytics and market monitoring to ensure businesses are locking in the best rates. This approach helps to mitigate the financial blow of rising capacity charges.

Peak Load Management: A major factor in managing capacity costs is the Peak Load Contribution (PLC), which is based on a business's energy consumption during the five highest-demand hours of the year. Businesses with high energy usage during these hours face higher capacity charges. By closely monitoring grid conditions and participating in demand response programs, businesses can reduce their PLC and lower future capacity expenses. As Erin Schmerschneider puts it: “It’s not an all-or-nothing game; even a 10-20% reduction during peak hours can lead to significant savings.”

Behind-the-Meter Solutions: For businesses seeking to reduce reliance on the grid during peak demand periods, behind-the-meter solutions like battery storage, solar power, and backup generators are increasingly viable options. These systems allow businesses to shift their energy usage away from the grid during peak hours, avoiding high capacity charges. Additionally, participating in demand response programs with these systems can generate revenue while contributing to grid stability.

About Pilot Energy
Founded in 2001, Pilot Energy is an unbiased and independent energy procurement advisor that empowers leaders to confidently know when, where, and how much energy to purchase by leveraging our unique blend of industry knowledge and innovative digital platforms. Putting our know-how to work daily, we drive clarity and control in decision-making and take pride in providing unparalleled personalized service. Guiding businesses with strategic innovation while committing to sustainable solutions.

Ready to improve your energy procurement strategies and, in turn, your energy cost management? Schedule a free consultation from Pilot Energy today!