PJM’s Base Residual Auction for Delivery Year 2027/28 cleared at the Cost of New Entry, approximately $333/MW-day. That outcome was not a market anomaly. It was the confirmation of a structural trend: supply tightness, accreditation compression, and interconnection queue uncertainty have pushed capacity pricing to the upper boundary of PJM’s regulatory framework for the second consecutive BRA cycle. In response, PJM and its Board of Managers have recommended extending the existing capacity price collar, a cap of approximately $333/MW-day and a floor of $175/MW-day, for two additional BRA cycles covering Delivery Years 2028/29 and 2029/30.
The decision raises a direct question for market participants: how long can price controls hold in the largest power market in the United States, and what does their extension mean for capacity investment, project finance, and load costs?
What Is CONE, and Why Is It the Relevant Benchmark?
The Cost of New Entry (CONE) is PJM’s estimate of the annualized cost required to finance, build, and operate a new combustion turbine, the reference technology used to anchor the upper bound of the capacity market’s demand curve. When the BRA clears at CONE, it signals that existing accredited supply is insufficient to meet the full reliability requirement at any price below what new dispatchable generation would cost to build.
A BRA clearing at CONE is not simply a high price. It is a structural indicator. The 2026/2027 BRA cleared at the administrative ceiling of $329.17/MW-day, the first time PJM had hit its cap in the modern auction structure. The 2027/28 result at ~$333/MW-day confirms that cycle was not an isolated event driven by temporary demand spikes or accreditation corrections. The tightness is systemic.
What Is PJM’s Price Collar?
The price collar is a regulatory construct that bounds clearing prices between a defined cap and floor across BRA cycles. The current collar sets:
- Cap (~$333/MW-day): limits upside volatility and prevents prices from clearing above CONE, protecting load from compounding exposure
- Floor ($175/MW-day): prevents price collapse that could undermine the investment signals needed to incentivize new capacity entry
The collar was introduced during a period of unusual market volatility, driven simultaneously by data center demand growth, accelerating thermal retirements, and fundamental changes to capacity accreditation methodology for batteries, solar, and wind. Its extension through 2029/30 reflects a regulatory judgment that those drivers are not transitory.
The floor itself, at $175/MW-day, sits considerably higher than pre-2025 BRA clearing prices, a signal that the market has structurally repriced independent of the collar’s upper bound.
CONE as the Near-Term Clearing Regime
Noreva’s PJM auction forecast indicates that near-term uncapped auctions would likely clear at CONE and remain there for several consecutive cycles. In both our base and high cases, CONE-level pricing persists for multiple years, reflecting a structurally tight reserve margin and a supply stack that remains sensitive to accreditation and project execution risk.
The collar is not a distortion. It is an alignment mechanism. By maintaining a price cap at CONE, PJM protects load from further upside volatility at a time when affordability is a political and regulatory flashpoint. By preserving a corresponding floor, the construct prevents price collapse that could otherwise undermine investment signals during a period when dispatchable capacity remains essential to grid reliability.
Where the Divergence Could Emerge
The longer-term picture is more nuanced. Across Noreva’s three modeled scenarios, the near term remains consistently firm:
| Scenario | Near-Term Clearing (2027-2030) | First Divergence Below CONE |
|---|---|---|
| Base case | At or near CONE | Deferred meaningfully beyond 2030 |
| High case | At CONE across full modeled horizon | Not within modeled timeframe |
| Low case | At CONE through mid-horizon | 2030/31, as new generation enters the stack |
In the low-price scenario, incremental generation eventually enters the supply stack and catches up with expected load growth, easing prices below CONE from 2030/31 onward and rendering the cap progressively less binding. But even this optimistic scenario does not produce a near-term break. The extended collar period (through 2029/30) captures the interval during which all three scenarios agree: the market equilibrium is CONE.
The drivers sustaining this equilibrium are compounding. Demand-side visibility in PJM remains structurally limited, with data center load projections subject to revision across delivery years. Accreditation methodology continues to evolve: new battery performance standards and ELCC recalibrations for solar and wind compress the effective capacity credit of assets that appear abundant on paper. Interconnection queue timelines remain extended, preventing new supply from entering the market fast enough to offset retirements and load growth simultaneously.
Investment and Project Finance Implications
For asset developers and capital providers, the collar extension introduces a defined earnings band during a period of elevated capital formation. Predictable clearing outcomes support financing assumptions, particularly for new thermal generation, uprate projects, and life-extension investments that rely on forward capacity revenue visibility to size debt and underwrite returns.
A cap at CONE with reasonable certainty of clearing near that level provides bankable capacity revenue projections. The floor at $175/MW-day provides a meaningful downside buffer, reducing revenue risk for projects underwriting against capacity as a primary income stream. The project finance implications of PJM’s current auction structure are significant: the combination of a defined band and sustained CONE-level clearing has materially changed debt sizing and return assumptions for new dispatchable capacity entering the market over the next three years.
For utilities and load-serving entities, the cap offers a measure of consumer protection at a time when capacity costs are already well above historical averages. That protection comes with a trade-off: the collar also limits the price signal available to attract the incremental new supply that could eventually break the CONE-clearing equilibrium.
For those evaluating asset-level economics under these conditions, Noreva’s asset valuation framework models capacity revenue across scenarios, incorporating auction price bands, accreditation assumptions, and delivery year timing into project-level cash flow projections.
Frequently Asked Questions
Why did PJM’s 2027/28 BRA clear at CONE?
The 2027/28 BRA cleared at CONE because the combination of sustained load growth from data centers, ongoing thermal retirements, and accreditation compression for non-dispatchable resources left insufficient accredited supply to meet the reliability requirement at any price below new-entry economics. This followed the 2026/2027 BRA clearing at the administrative price ceiling, confirming that structural tightness, not a one-cycle anomaly, is driving results.
What is the purpose of the PJM price collar?
The PJM price collar bounds BRA clearing prices between a cap (preventing prices from clearing above CONE) and a floor (preventing price collapse that would undermine investment signals). It was introduced to stabilize a market experiencing simultaneous volatility from demand growth, retirements, and accreditation methodology changes. The extension through 2029/30 reflects regulatory alignment with modeled market fundamentals: the collar cap aligns with where uncapped auctions would likely clear anyway.
When could PJM capacity prices fall below CONE?
In Noreva’s low-price scenario, prices ease below CONE in 2030/31 as incremental generation from the current development pipeline enters the supply stack. In the base case, that divergence is deferred beyond 2030. In the high case, CONE-level clearing persists across the full modeled horizon. The extended collar period, through Delivery Year 2029/30, covers the interval during which all three scenarios remain structurally firm.
How does the 3IA fit into this picture?
The Incremental Auctions, including the 3IA, are true-up mechanisms rather than structural price signals. The 2026/2027 3IA clearing at $164/MW-day does not contradict the tightness signaled by the BRA. The 3IA procures only the residual reliability adjustment against a post-BRA supply pool, clearing a small marginal volume at a different point on the supply curve. The BRA remains the primary indicator of system-wide capacity adequacy.
What This Means Going Forward
Extending the price collar for two additional BRAs aligns regulatory posture with modeled fundamentals. It preserves investment signals without amplifying consumer exposure, and stabilizes planning assumptions during a period of constrained supply growth and accreditation recalibration.
The greater risk in this market is not over-disciplining prices through a collar. It is destabilizing them prematurely, before new supply can enter the stack in sufficient volume to justify a structural price break. The collar buys time for the development pipeline to translate into accredited capacity. Whether that pipeline delivers fast enough to move prices below CONE before 2030 is the central uncertainty in Noreva’s forward modeling.
Noreva’s PJM capacity auction modeling provides forward visibility into when and how that equilibrium may shift, equipping developers, investors, utilities, and traders with a clearer lens on risk, timing, and capital deployment across the next several delivery years.
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