PJM Capacity Markets: The Increasing Cost of Reliable Electricity

Within the super-inflationary cycle affecting electricity markets, the premium placed on supply reliability continues to rise.

This is driven by three factors: increasing demand, the energy transition’s need for long-dated dual-source (fuel and renewable) transmission investments, and market pricing mechanisms in which electricity prices are frequently determined by the highest-cost marginal source rather than the lowest-cost producer in a market.

PJM Capacity Auctions Are Now the Primary Signal for Reliability Pricing

This dynamic can be seen in recent developments within The PJM Interconnection, the operator of the largest regional transmission organization in the United States.

PJM is tasked with ensuring the reliable flow of wholesale electricity across large portions of the Mid-Atlantic and Midwest, covering all or parts of Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia, and the District of Columbia.

The increases in PJM's capacity (AKA reliability) auctions, show how reliability has gained a greater $ premium in a complex transitory energy climate, with reliability pricing rising more than eleven-fold from 2024/2025 ($28.92) to 2027/2028 ($333.44) -- see PJM data below.

PJM Interconnection: Correlating Search Interest And Reliability Premiums

Surging capacity auction prices have triggered a sharp rise in interest in PJM. As evidenced by search interest volatility, the cost of grid reliability is emerging as a primary concern for market stakeholders.

This trend signals a fundamental shift in regional power economics that will likely define the market landscape for several years.

While this shift is most noticeable within PJM, the premiums paid for grid reliability are expected to permeate wholesale markets across the country. A pricing trend that was firmly in place, and that is now being further elevated by the rapid buildout of AI data centers.