PJM hits capacity price cap again, but data centers leave 6,831-MW reliability gap

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What happens when the largest US power market hits its price cap and runs short on supply? Right now, that’s PJM. 

PJM’s auction for generating capacity for 2028-2029 cleared at the federally approved cap of $325 per megawatt-day. The market secured 138 GW of capacity and demand response. Without the price cap, results were expected to near $555 per MW-day. 

Yet, PJM still came up 6,831 MW short of meeting its reliability requirement with a 14.7% reserve margin versus its 20% target. Without enough capacity, the grid may not be able to meet peak demand. 

The gap, which widened from last year, is being driven by the data center boom as demand is rising faster than new generation can be built. That’s pressuring grid reliability and driving up prices. 

S&P Global Energy CERA market experts see tight conditions keeping upward pressure near the price cap through 2030. But analysts say that capped price just isn’t offering the returns needed to bring new generation online. But the alternative – even higher capacity revenue for power producers – would likely flow more costs to consumers’ utility bills.  

For now, PJM plans to ask FERC for approval to run a reliability backstop procurement in September to close the gap. That would give the grid another chance to procure power from new power projects.  

But it also feeds continued questions about whether PJM’s procurement policies are working and whether the grid can keep costs under control.