PJM’s inability to quickly connect new large-scale energy sources to the grid cost consumers $7 billion in latest capacity auction, found new Grid Strategies analysis
WASHINGTON, DC – Electricity prices across the Mid-Atlantic and Midwest are set to soar, but a new analysis finds that consumer electricity costs could have been reduced by as much as $7 billion dollars in PJM Interconnection’s latest capacity auction had the grid operator’s interconnection process been working more efficiently to bring needed supply online to match demand.
The finding comes from a new analysis from the consulting firm Grid Strategies, “Penny-wise and pound foolish: PJM’s Capacity Auction Demonstrates the Cost Imperative of Simplified and Speedy Interconnection.” The report was prepared for national business association Advanced Energy United, and explores PJM as a specific case study of a broader national trend.
The grid operator PJM, that serves 65 million Americans, paid a high price for interconnection delays in its most recent electricity capacity auction – where it buys electricity in advance to meet predicted future energy demand. For the upcoming year of service beginning in the summer of 2025, the total cost to consumers will be $14.7 billion, up $12.5 billion from the previous auction’s $2.2 billion dollar price tag. Had PJM used a faster, simpler process to connect just 15% of the proposed projects waiting in line in its interconnection queue, it likely would have led to more than 10 GW (gigawatts) in increased capacity, in line with historical norms, found Grid Strategies.
“Typical interconnection processes are ‘penny wise’ but ‘pound foolish’,” said Rob Gramlich of Grid Strategies, who co-authored the report. “As illustrated by the data from PJM, grid operators are slow and methodical, which means they provide detailed cost responsibility accounting, but the associated length of time to connect new generation contributes to scarcity and raises consumers’ rates.”
The effects of slowing supply increases amid growing demand will start to show up for households and businesses throughout the region starting in the spring or summer of 2025, when retail rates are expected to increase significantly, with bills going up by as much as 24% in parts of the region.
"The only way to fix this problem is to prioritize speedier and simpler interconnection for all the kinds of energy resources that want to build in the region,” said Jon Gordon, Director at national business association Advanced Energy United, which commissioned the report. “The recent ‘cost cap’ agreement made between PJM and Pennsylvania Governor Shapiro for the next two auctions constitutes a short-term band-aid to a process that needs major surgery. Unless policymakers in the region and at FERC make significant changes to the interconnection process, supply will continue to not keep up with demand, and consumers will pay the price.”
Among the solutions proposed by Advanced Energy United – with widespread support from the advanced energy business community – is the institution of an “entree fee” model for proactively planned capacity, as well as ways to speed up queue studies, and improved construction transparency.
In 2024, PJM earned a D- for its interconnection process, the lowest grade of any grid operator in the country on Advanced Energy United’s scorecard.
PJM’s service territory includes all of Delaware, Maryland, New Jersey, Pennsylvania, Ohio, Virginia, West Virginia, as well as parts of Illinois, Indiana, Kentucky, Michigan, North Carolina, and Tennessee.