What happens next will reshape US power markets.
PJM’s huge auction result has attracted attention because it highlights the impact of a worsening shortfall of available capacity supply next year.
But while owners of fully capitalized plants may be happier than ever to garner cap-level revenues, the auction also highlighted just how far PJM market reforms will have to go to return any price transparency to a region desperately in need of it.
When modeled capacity revenue based on current supply and demand comes in at over $500/MW-day and the price cap sets revenue below $350/MW-day, the spread between the market’s indicated requirement for new capacity additions and regulators’ willingness to incentivize new capacity additions can suddenly be quantified down to the cent.
That more than $150/MW-day spread represents what it would take to bring new generation online, a premium that the financial backers of power assets would require as PJM’s actual future trajectory gets less and less easy to read.
Demand Standoff
Resolving the resulting standoff between 1. what current assets can get and 2. what future assets need is crucial to 3. meeting new power demand, with AI-aligned data centers as the chaos logic behind massively widening tails in the corresponding demand forecasts.
Because capacity represents the hours where operating conditions in power are tested, relatively small changes in demand can result in huge price modeling discrepancies.
The wider the spread between the auction results and the auction’s modeled outcome gets, the harder it is to quantify how much of the demand that generators are seeking premiums to service is actually real. The actionable granularity markets are supposed to provide degrades with each passing price-capped auction.
In commercial terms, PJM’s capacity market today is all ask visibility and no bid visibility, with everyone not already in the game as an asset owner sidelined while load forecasts fog up, worsening the very problem the auction was designed to solve.
From Noreva’s analysts, some early insight on the auction’s details:
- The 2027/2028 PJM capacity auction cleared at the price cap for the second straight year and still failed to meet reliability targets.
- This year’s outcome is materially worse than last year, despite similar prices.
- The shortfall is system-wide, not locational — no LDAs constrained.
- Roughly 800 MW of capacity sat on the sidelines solely because of the cap.
- A no-cap auction implies true clearing prices around $530/MW-day, with still-tight conditions.
- PJM is on a clear trajectory toward backstop intervention unless market rules change.
