Breaking News: PJM 2025 Capacity Prices Increase 8X
If your business is in PJM – the market operator for the Mid-Atlantic— your energy bill is about to increase.
Results from PJM’s capacity auction for the period starting June 2025 were released, with a price for most of the territory of $269.92/MW-day. That's eight times higher than the prior year.
While it is unlikely that the prices will remain as high indefinitely, more volatile swings are to be expected and prices will remain higher than they have been in the last few years.
In this blog, we’ll dig into why capacity costs in PJM are expensive (and likely to stay expensive) and how your business can reduce those costs with an on-site energy storage and/or solar PV system.
What Happened? PJM’s Capacity Auction Explained
PJM runs a forward capacity auction—electricity generators and demand response making themselves available to support the grid when most needed in exchange for a capacity payment. In this most recent auction (July 2024), the capacity price for most of PJM jumped by eight times, to $269.92/MW-day or $8/kW-month. Two zones (BGE, around Baltimore, and DOM, covering eastern Virginia and Northeast North Carolina) were even more expensive at $466.35 and $444.26 respectively. Customers there will face a capacity cost of almost $14 per kW-month.
Why are PJM Capacity Prices so Expensive?
Various factors have collided to drive PJM capacity prices so high. A primary reason is that older generators are retiring. PJM expects as much as 40GW, or 21% of installed capacity, could retire by 2030. This leaves a capacity deficit. In addition, PJM is pushing up its load forecast, i.e. how much electricity it expects the system will use by 3GW (a significant amount!) in 2025/2026 and a total of 40GW (a huge amount!) over the next 15 years.
So, can PJM just add more resources? Transmission-level interconnection and siting challenges limit how much new generation can reach the electric grid. Only 110MW of new generation took a capacity position this time. There are also more arcane drivers specific to PJM, such as the implementation of a new marginal Effective Load Carrying Capability (ELCC) model, which effectively derated how much capacity many resources could provide. For example, each MW of nameplate solar is only valued for capacity purposes at less than a third of the capacity contribution, compared to a year previously.
The factors described above—older generators retiring, challenges adding grid-scale resources, ELCC impacts—will continue for the foreseeable future. Recent PJM modelling has shown potential capacity (UCAP) shortfalls of 2-6GW for 2029/2030 through 2035 and beyond. The fear of not having enough capacity will lead to both participant and PJM changes that push up the effective floor of capacity pricing.
To sum it up: these price increases are not a one-year phenomenon. While it is unlikely that the prices will remain at the stratospheric levels of 2025/2026 indefinitely, two things are clear: more volatile price swings are to be expected, particularly in transmission-limited Eastern PJM from New Jersey through Virginia, and we are unlikely to return to the days of historically lower prices (i.e. $30/MW-day) anytime soon.
What Do Higher PJM Capacity Prices Mean for my Business?
For customers the impact is straightforward: almost $15 billion dollars will come from load--homes and businesses—to pay for the July 2024 capacity that was auctioned. This compares to $2.2 billion in each of the prior two years. A 7X increase!
Many businesses (and some municipal utilities) can optimize those costs via the capacity tag system. That bases the cost on how much power is used at your site during peak hours of the year. In other words, if you operate “business as usual,” you will face higher, bigger bills.
How Battery Storage and Solar PV Can Lower Your Energy Bill and Insulate You Against Volatile Capacity Prices
Energy storage systems allow electricity to be stored—and then discharged—at the most strategic times. Today, lithium-ion batteries, the same batteries that are used in cell phones and electric vehicles, are the most common form of energy storage. Like the batteries in your cell phone, commercial- and industrial-scale battery energy storage systems can be charged with electricity from the grid, stored, and discharged when there is a deficit in supply or when energy is most expensive which saves customers money.
The alternative to business as usual (and exposure to increasingly high PJM capacity prices): on-site energy storage. Switching some or all of your peak power needs to on-site battery storage can reduce or eliminate these higher costs from your energy bill. Strategically discharging the battery, rather than relying on the electric grid at the most expensive times, will contribute to your bottom line.
Distributed storage avoids the transmission-level challenges above by interconnecting at the distribution level, and offers other cost savings and revenue opportunities such as demand response. It’s critical to optimize the battery’s operations to take best advantage of these services. Convergent Energy and Power, a leading developer of energy storage and solar across North America, operates and maintains on-site renewable energy systems on behalf of customers—determining the peak times to charge and discharge the batteries for optimal value creation.
Battery energy storage is also increasingly being paired with solar photovoltaics (PV). Solar can reduce your capacity costs directly, and the storage system maximizes the value of the solar to the grid, such as storing solar-generated electricity for after the sun sets.
Conclusion
Ready to lower your (rising!) energy costs and insulate your business against price volatility?
Convergent has been in the energy storage industry since its infancy, more than a decade ago—and have partnered with businesses like Shell, Ford, and NSG’s Pilkington Glass to sustainably lower their energy costs. Over our 13-year history, we’ve gained experience and expertise, working closely with businesses to take the hassle out of energy storage and solar by building, owning, and operating these systems on their behalf. We’re proud to say that it has never been easier to integrate battery storage into your organization.
Naturally, it is important to have a trusted partner in developing and operating your on-site renewable energy system (spoiler alert: that partner should be Convergent!).
To learn more about how an energy storage system (with or without solar PV) can benefit your business, schedule a free, no-obligation introductory call with our team today.
Peter Cavan serves as Convergent's Senior Vice President of Market Development and leads the team responsible for answering the question, "Where next?" Peter has spent over a decade in distributed energy for business and utility customers.
