Short Answer
PJM capacity auction prices surged over 800% for 2025/2026, driven by plant retirements, rising demand, and new reliability rules. Fixed all-inclusive contracts are becoming scarce. Businesses need layered procurement, active peak load management, and demand response enrollment to control costs.
The recent PJM capacity auction has caused a significant stir in the energy market. Auction prices have reached record increases of more than 800% higher than last year, causing concern among energy generators and businesses alike.
Year-over-year increase in PJM capacity auction clearing prices
These price increases were caused by several factors: fewer power plants are available, demand for electricity is higher, and new FERC-approved market rules have been implemented to better manage reliability during extreme weather events.
For energy generators, these high prices underline the urgency of investing in new power projects or upgrading existing infrastructure. For businesses, the main challenge will be managing these rising costs.
Traditional energy procurement, often involving fixed-price contracts, is becoming harder to manage due to volatile capacity costs. Suppliers are more cautious because predicting these costs incorrectly can be risky. So, the industry is moving towards variable, true-cost pricing models, which offer more flexibility and reduce financial risks from unexpected capacity charges.
Businesses now need to adjust their energy procurement strategies to match this new reality.
From our team
Erin Schmerschneider, Director of Energy Advisory at Pilot Energy: "The days of having a fully fixed, all-inclusive contract are going to be either gone or limited to one-year terms." Flexible pricing models that consider market changes and cost fluctuations are becoming essential.
Closely monitoring energy market opportunities will help manage rising demand costs.
To manage these challenging times, businesses can adopt several strategies to reduce potential cost impacts:
One effective way to manage energy costs is by controlling PLCs. Businesses can achieve this by reducing their load during the five highest usage hours of the year. This proactive approach can significantly lower annual capacity charges. The period between June 1st and September 30th is critical; identifying potential peak days and reducing load during these times can lead to substantial savings for the following planning year.
Taking part in demand response programs can provide financial incentives for businesses that reduce their load during peak times. These programs reward businesses for shedding load when the grid is under stress, helping to offset some of the increased costs associated with high energy prices. The value of DR participation grows as capacity prices increase — making enrollment more financially compelling than ever.
Rather than locking into a single fixed-rate contract, businesses should consider layered procurement strategies. By purchasing energy in tranches over time, organizations can average out price volatility and avoid the risk of locking in at a market peak. Pilot's advocates typically recommend keeping 20–30% of load flexible to capture favorable pricing windows.
Understanding and actively managing your capacity tag — the peak load contribution that determines your share of capacity costs — is one of the highest-impact levers available. A 1 MW reduction in your capacity tag at $269.92/MW-day translates to nearly $100,000 in annual savings at the RTO level. In constrained zones like BGE, the savings are even larger.
"It's very, very crucial to have an advisor that understands the space, understands challenges, can speak the lingo, and stays up to date because it is an ever-changing space."
— Erin Schmerschneider, Director of Energy Advisory, Pilot Energy
The impact of these auction results will continue to shape the PJM energy market and business operations. The current high prices are likely to persist unless significant new generation capacity is added or regulatory changes occur. Businesses must prepare for continued high clearing prices and plan accordingly.
PJM is working to process 72,000 MW of new resources in 2024 and 2025. However, challenges like financing and supply chain issues are slowing down new-generation projects.
The next PJM capacity auction, expected at the end of this year, will provide further insights into the market's direction. However, businesses should anticipate similar, if not higher, clearing prices and adapt their strategies to remain competitive. Additionally, regulatory interventions and potential investigations into the recent price surge could influence future market dynamics.
Talk to a Pilot advocate. We'll review your current capacity exposure, identify the highest-impact levers for your specific load profile, and build a strategy that accounts for the new pricing reality.
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