PJM and stakeholders worked throughout 2024 to adapt PJM electricity markets to meet growing power demands amid dynamic changes in the generation fleet, while market results reflected the need for additional generation resources.
The PJM capacity auction for the 2025/2026 Delivery Year, held in July, cleared enough capacity to meet future electricity demand plus required reserve levels, although the reserve margin result of 18.5% came in lower than years past.
The auction procured a diverse mix of resources at a record-high price of $269.92/MW-day RTO-wide. Prices were higher in areas with even greater imbalance between electricity demand and the generation to serve it.
These auction results reflected the reality that generator retirements are proceeding faster than the building of new ones due mainly to state and federal decarbonization policies, while customer load continues to grow at an accelerating pace, driven by data centers and electrification of vehicles and heating systems.
New auction rules also improved risk modeling for extreme weather by more accurately valuing generation units for their ability to produce in times of greatest system stress.
The July 2024 auction sent a price signal to: (1) incentivize investment in new generation or uprates to existing generators and (2) stem premature retirement of existing resources. This is how the capacity market supports reliability.
The capacity auction results heightened stakeholder, policymaker and industry focus on solutions to the supply and demand imbalance PJM has been warning about since 2021. Elsewhere in 2024, PJM pursued reforms (PDF) related to Capacity Interconnection Rights transfers, Surplus Interconnection Service and the Reliability Resource Initiative – all aimed at bulking up generation supplies.
Capacity Market Enhancements
Since the clearing of the 2025/2026 Base Residual Auction, PJM, its Board of Managers and stakeholders continued work on market enhancements aimed at cost-effectiveness, market participation and accurate investment signals. This work included:
- The auction date for the 2026/2027 Delivery Year was moved from December 2024 to mid-2025 to provide time for FERC approval and subsequent adjustments to proposed market rule changes.
- PJM submitted a Section 205 filing to FERC in December to:
- Maintain the Reference Technology used in prior auctions to provide the most realistic and accurate Cost of New Entry calculation.
- Acknowledge the contribution of Reliability Must-Run resources, where appropriate.
- PJM filed a second proposal with FERC in December to broaden the capacity market must-offer requirement to include all generation capacity resources and to enhance the Market Seller Offer Cap rules to allow market sellers to better reflect capacity commitment risk in their sell offers.
Market Rule Deliberations Ahead
PJM does not expect these capacity market filings to resolve all of the resource adequacy challenges and will continue discussions with stakeholders rooted in:
- Generation reliability needs
- Accurate resource accreditation
- Winter deliverability for thermal resources
- Enhancements to the Effective Load Carrying Capability accreditation construct
- Demand Response availability
- Sub-annual capacity market auctions reflecting seasonal needs
Reserve Certainty Requirements for Resource Adequacy
PJM’s reserve needs are changing. As the Day-Ahead Energy Market is currently not designed to procure sufficient reserves to manage operational risk, PJM has handled reserve supply shortfalls through out-of-market commitments. However, PJM is committed to reserve and energy prices that reflect system conditions, value scarcity, mitigate market power and maximize social welfare. PJM’s goal is to adjust reserve market rules to evolve with transparency for more robust participation and efficient market results. Risks and opportunities to accommodate these needs were detailed by PJM during 2024 in the paper, Energy Transition in PJM: Flexibility for the Future (PDF).
Existing reserve market rules at PJM do not align with operational needs. As a result, PJM embarked on stakeholder discussions in 2024 for enhancements toward more dynamic reserve markets in step with a more flexible, intermittent resource mix. As the year came to an end, PJM laid out 2025 priorities for the Reserve Certainty Senior Task Force (PDF), where most of this work will take place.