The price that grid operator PJM Interconnection will pay power generators to assure they’re available when needed has soared a stunning eightfold, as the balance between rising demand and diminishing supplies worsens from Chicago to the Atlantic Coast.

The bottom line: Coal and natural gas generation is shutting down too quickly and new wind and solar projects can’t get approved fast enough inside PJM, the power market and transmission operator serving 65 million people in a 13-state region.

PJM said Tuesday that based on bids from generators, it will pay plant owners a daily price of $269.92 per megawatt in the 2025-2026 delivery year to commit to be in operation during specific times beginning next June. Analysts say that should send a clear price signal to electricity companies to build more generation.

The sharp rise in demand from data centers supporting a growing digital economy is fueling concerns about electric reliability. That power demand is coming on as more money and regulatory muscle get behind a transition to zero-carbon technology to replace aging fossil fuel plants.

The deteriorating reliability trend provides fresh ammunition to opposing forces in the intense economic and political debate over President Joe Biden’s campaign to reduce carbon emissions from coal- and gas-fired generating plants to combat the threat of climate change. The Federal Energy Regulatory Commission, behind Biden appointees, has pushed through major new regulation intended to break through barriers to new power line expansions that could deliver more clean energy and strengthen the grid.

On the other side, House Republicans — echoing former President Donald Trump's attack on Biden's climate agenda as a hoax — oppose efforts to require coal and gas plants to control emissions. They say the policy is forcing power prices up and imposing an energy tax on consumers.

The capacity payments to generators will add an estimated $14.7 billion to customer rate payments, PJM said. Capacity prices are even higher in parts of Maryland and Virginia, where overcrowded transmission lines limit how much electricity can be imported.

The supply committed by generators declined 9 percent from the year before, the fourth annual decline in a row, though PJM’s reserve margin — its operating cushion —remained above industry averages.

“The significantly higher prices in this auction confirm our concerns that the supply/demand balance is tightening,” PJM CEO Manu Asthana said in a statement.

Insurance policy

Capacity payments act like an insurance premium to assure enough generation is available, particularly when power demand peaks or extreme weather knocks out generators and gas supplies.

PJM charges heavy penalties for generators that take capacity payments and commit to operate, but then can’t or don’t in violation of PJM rules.

After the severe Winter Storm Elliott in late December 2022, PJM imposed $1.2 billion in penalties on generators that had pledged to operate but couldn’t or didn’t when Arctic cold knocked out plants and gas supplies, creating a power emergency.

Regulatory protests and complaints from many sides have produced new attempts to improve the PJM capacity system, but the Elliott controversy may have caused some generators to withdraw from PJM’s latest capacity market process, some analysts opined.About 6,600 MW of generation that participated in the previous capacity bidding were missing from the new bidding because of retirements or plans to retire, PJM said.

Clean energy advocates say the real issue is the years long inability of PJM to act swiftly on requests by wind and solar developers to connect to the PJM network.

“There are enough clean energy resources waiting [for interconnection approval] to replace all of the generation” shutting down in PJM, said Jon Gordon, director of Advanced Energy United, a business group supporting clean energy. PJM has not met the challenge, he added. “A smooth transition from fossil to clean energy is being stymied. Consumers are going to feel this in their rates.”

“The bill is suddenly due for an over reliance on fossil fuels and inadequate planning for amore affordable, diverse power grid in PJM,” said Tom Rutigliano, senior advocate with the Natural Resources Defense Council, in a statement.

“Make no mistake: this was foreseeable and preventable," he added. "This is what happens when regulators sideline a wealth of historically affordable clean energy resources waiting at their doorstep and the transmission needed to bring them online."

Rutigliano accused PJM of depending excessively on old coal and gas plants "while ignoring reliability failures."

"This sticker shock is a direct result," he said.

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