Consumers and the Environment Will Bear the Costs of Issues with the Nation's Largest Grid Region
Last week's auction conducted by PJM Interconnection revealed a significant surge in prices, driven by delays in approving renewable energy projects. This auction, meant to ensure reliable electricity supply, has become an example of poor management in a time of rapid change.
PJM Interconnection, which manages the largest grid region in the U.S., held its annual "capacity" auction to secure resources for meeting electricity demand in 2025-26. The auction resulted in a projected cost of $14 billion, a stark increase from the $2.2 billion in the previous year's auction for 2024-25.
The auction is designed to ensure enough electricity is available during peak demand periods. Power plants submit their desired payments in exchange for guaranteeing availability when needed. When resources are tight, as they were last week, prices increase.
The biggest beneficiaries of this surge include operators of coal, natural gas, and nuclear plants, which constitute the majority of paid resources. In contrast, wind and solar energy make up only a small percentage of the mix. Ric O'Connell, executive director of GridLab, criticized the situation, noting how poor planning has led to such a small role for renewable energy.
Consumers across PJM's territory, which spans from Chicago to North Carolina, will indirectly pay these increased costs through their electricity bills. The environment, climate, and the broader energy transition also stand to lose, as these issues appear to be low priorities for PJM.
PJM faces multiple challenges:
- Increased electricity demand due to growth and the construction of data centers and factories.
- Closure of coal-fired plants due to pollution concerns and high operational costs, without enough new plants to replace the lost power.
- Slow approval process for new power plants, causing a backlog of renewable energy projects.
- Winter storms have exposed the underperformance of certain resources, leading PJM to adjust its resource expectations.
Customers will face higher costs, though the exact increase is unclear. Exelon, a utility with customers in PJM's area, predicts rate hikes of at least 10%.
For example, a hypothetical 1,000-megawatt coal plant could earn over $80 million from the auction, which is part of the $14.4 billion in projected costs. This income is ten times what it would have been in the previous auction.
While the auction process should signal the need for more power plants, it doesn't work that way. A one-year spike in payments isn't enough to prompt long-term investments. The primary beneficiaries are existing plants, owned by utilities and independent power producers.
Brendan Pierpont, director of electricity modeling for Energy Innovation, described the situation as "institutional inertia," where market rules are dominated by incumbents.
Despite this, thousands of renewable energy projects are stuck in PJM's queue, unable to come online by 2025-26 due to slow processing. At the end of last year, PJM had 3,309 projects waiting for approval, most of them solar farms or battery storage systems.
PJM spokesman Daniel Lockwood acknowledged the high prices and cited similar factors. He mentioned that PJM is working to reform and accelerate the approval process, expecting to process 72,000 megawatts of new power plants in 2024 and 2025. However, he noted that some delays are beyond PJM's control, including projects facing financing, permit, or other issues.
As the clock ticks, the momentum for the energy transition is being hindered by an expensive and inefficient process.