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PJM auction prices reach cap and hold near record levels

PJM Interconnection held its 'latest annual capacity sale on Tuesday,' with power prices nearing record highs of $325 per'megawatt-day. This is the maximum price allowed by a temporary cap set by the U.S. largest grid operator in order to reduce rising bills for businesses and households. The auction is aimed at securing sufficient electricity to cover high-demand days in the PJM grid, which covers 13 states of the Mid-Atlantic region and Midwest. Prices have risen in recent years largely because demand from data centres has outstripped supply.

PJM failed to meet its reliability requirements for the second time in a row. This means that it faces a higher risk of electricity shortages, which could lead blackouts at times of high demand. Due to this imbalance in supply and demand, the so-called "capacity" prices that were determined by auctions have increased by over 1,000% since 2024. This has increased energy bills for people who live in PJM's?regions, which is about one fifth of Americans.

PJM temporarily capped 'prices' in its auction under pressure from a group of governors in the area. Consumers are struggling with high utility costs and energy prices. This price cap was also in place during the auction last year, so this year's prices are essentially unchanged. Prices will be updated in 2028.

POWER SUPPLY CUSHION

Power plant operators are compensated for capacity prices that are included in power bills of homes and businesses within the PJM area. This is to ensure they can provide electricity at the peak times and days on the grid.

The incentives are also intended to encourage the construction of new plants. After nearly two decades with a?flat growth of power consumption in PJM the region suffered net losses of energy supplies as 'demand for energy-intensive?"data centers" began to emerge.

PJM failed to secure the power supply cushion it needed in its capacity auction held in December. For reference, one gigawatt is enough electricity to power approximately?750,000 households.

The capacity price increase is also due to PJM recalculating its available supplies in the winter, when the electricity generated by natural gas-fired 'plants' and solar resources are lower than during the summer.

PJM has added new rules and policies in order to meet the new electricity demand of data centers, advanced manufacturers and other large energy consumers. (Reporting from Laila KEARNEY in New York, with additional reporting from Anjana Anil. Emelia Sithole Matarise edited the story.

(source: Reuters)