Post: PJM capacity market at a crossroads

PJM capacity market at a crossroads

PJM opens its capacity auction for the 2028-29 delivery year on June 30. With electricity demand growing faster than new generation can physically be built to serve it, the auction lands at a time of increased focus from grid operators, policymakers, and large energy users on the value of flexible assets.

PJM’s capacity market secures generation and demand response resources three years before they are needed, helping maintain reliability while providing investment signals for new resources. For many years, the market attracted enough supply to meet growing demand. More recently, demand growth has accelerated, construction timelines have lengthened, and costs have increased, creating new challenges for resource developers to respond to market signals. The December 2025 auction for the 2027-28 delivery year cleared roughly 134GW of capacity against a target reserve margin of 20%, leaving the system approximately 6.5GW short of its reliability requirement. The primary driver is data center load growth.

PJM’s response has included a price cap and floor for this auction and the next, set at approximately $325 and $175 per MW-day respectively. That limits volatility for consumers and investors in the near term, but it does nothing to close the underlying supply-demand gap.

As PJM’s Powering Reliability Through Market Design paper, published May 6, notes:

“The PJM region is now navigating a convergence of three structural forces that have pushed the system into disequilibrium: an unprecedented surge in demand driven by the rapid expansion of large-load data centers and broader economy-wide electrification; the accelerated retirement of dispatchable generation due to environmental policy and economics; and significant supply chain and permitting frictions that have extended the time required to bring new resources online.

“The result is a transition from an era of managing surplus to an era of managing scarcity – one that is anticipated to persist for some time based on current projections, because new generation simply cannot be built fast enough to offset the combined effect of retiring supply and surging demand.”

In the forward to the report, PJM Interconnection President and CEO David Mills said that the region has “years not decades” to make structural choices about how its markets work.

The report set out three pathways:

• Path A, stabilized markets: the capacity market continues, but most load is covered through long-term forward commitments, either via mandatory Load Serving Entity (LSE) hedging or PJM-administered procurement. The goal is to keep scarcity prices intact as an investment signal while insulating most load from volatility through forward contracts
• Path B, differential reliability: the shared reliability compact is not maintained for all loads during structural scarcity. New large loads that connect without bringing supply are curtailed first. Reliability could also be differentiated by geography or customer class. Those who don’t fund supply can’t lean on the shared pool indefinitely
• Path C, energy market transition: revenue recovery shifts gradually from the capacity market to the energy and ancillary services markets, paired with mandatory long-term forward energy contracting for consumers. The capacity market is retained as a backstop rather than replaced. Scarcity is priced more accurately in real time, and the energy product becomes the primary hedging instrument

What’s striking about PJM’s framing of those choices is how central demand-side flexibility has become to each of the three paths. Whether the region moves toward mandatory long-term hedging, explicit reliability differentiation for large new loads, or a progressive shift toward energy market revenue, the logic converges on the same point: the grid needs resources that can respond economically when the system is tight, not just assets that sit passively in a capacity commitment.

This is where the opportunity for industrial and commercial energy users lies. PJM is actively developing a “Connect and Manage” framework that could prioritize curtailment of new large loads that have connected without contributing supply; a direct signal that demonstrating demand-side accountability will matter increasingly for grid access and cost exposure. At the same time, the proposed reserve market reforms under the Reserve Certainty Senior Task Force could create products that place real economic value on the ability to reduce load quickly when the grid needs it most.

GridBeyond’s AI-powered platform is already enabling industrial and commercial customers to optimize their participation in capacity, energy and ancillary services markets in real time. Where many organizations see their energy assets in isolation GridBeyond’s multi-site intelligence layer treats them as a co-ordinated portfolio, maximizing revenue across every available market while protecting operational priorities.

The PJM market is entering a period where the rules are changing, and the value of flexibility is rising. The businesses best positioned to navigate it are those that already understand their assets as grid resources and that have the technology in place to act on that understanding when the market signals are there.