Background
Energy Markets
- Independent power providers (IPPs) bid to sell, while utilities and retail suppliers bid to purchase electricity.
- This market operates in both real-time and day-ahead formats.
Capacity Market – Reliability Pricing Model (RPM)
- PJM conducts a forward auction with a three-year outlook, known as the Base Residual Auction (BRA), where power providers submit bids for capacity availability rather than fixed electricity supply.
- The lowest bids are accepted until the demand threshold is met, and the final bid that clears sets the clearing price for all accepted participants.
- Penalties are enforced on providers that fail to meet availability commitments, ensuring reliability.
- Incremental Auctions (IAs) adjust commitments based on updated demand forecasts.
Capacity Market Challenges: 2025/2026 Base Residual Auction (BRA)
- Demand Growth: AI data centers have accelerated demand beyond PJM’s forecasting capabilities, contributing to the fastest year-over-year load growth since 2007. The International Energy Agency (IEA) projects continued strong electricity demand growth of 4% annually through 2025, outpacing GDP growth.
- Supply Constraints: Supply in the RPM capacity market dropped by 13,252 MW, marking the fourth consecutive BRA with declining capacity offerings. The retirement of power plants is outpacing the new generation of projects. Policy, economic factors, and regulatory hurdles are driving accelerated retirements, while new projects are generally smaller and require more interconnection approvals.

PJM RTO SUMMER PEAK DEMAND FORECAST
Impacts of Rising Capacity Prices
- Effects on End Users: Electricity prices are expected to increase by an average of 30%, with industrial and large commercial users, such as manufacturing plants and universities, facing the highest cost increases. The new pricing structure takes effect starting June 1, 2025.
- Future Market Adjustments: PJM has implemented market interventions:
- The BRA now accepts bids only one year in advance, down from three years.
- A new price ceiling of $325/MW-day has been set, reduced from $500/MW-day.
- A price floor of $175/MW-day has been introduced, where previously no floor existed.
- Incremental Auctions will now occur every six months to better align forecasting with market conditions. PJM is expediting interconnection approvals to accelerate the deployment of new-generation resources.