Prices for PJM capacity in the 3rd Incremental Auction structure were released this week by the ISO, and some clients have asked us why they cleared at $164/MW-day, so much lower than the PJM price cap.
Some insight from our analysts:
The BRA can still indicate a bullish capacity market while the 3IA clears at a materially lower price because it is only addressing residual reliability need.
The 3rd Incremental Auction (3IA) should be viewed as a true-up mechanism rather than a second price discovery event like the Base Residual Auction (BRA). By the time the 3IA occurs, most of the capacity requirement for the delivery year has already been procured in the BRA.
The incremental auctions exist primarily to adjust for updated reliability requirements; changes in load forecasts, resource availability, accreditation updates, or new supply entering the market.
Because the remaining procurement volume is typically small, the auction is clearing a marginal adjustment rather than the full supply stack.
That is why the cleared price in the 3IA can be well below the BRA price or the BRA cap without contradicting the tightness signaled by the BRA itself.
In this case, the relatively low 3–5 GW volume reinforces that interpretation. The BRA price reflected system-wide scarcity under PJM’s reliability requirement, whereas the 3IA is only clearing the incremental reliability adjustment against a broader set of potential supply, including previously uncleared capacity and resources that became available after the BRA.
PJM’s updated load forecasts can also influence this dynamic: by shifting expected load growth further out (for example from the prompt year toward year 3), the system may appear tighter during the BRA while leaving room for later adjustments through the incremental auction process.
