PJM Capacity Prices Surge for 2026/2027: What Businesses Need to Know

On July 22, PJM announced the results of their latest capacity auction for the 2026/2027 planning year. The price came in at $329.17/MW-day, the highest price allowed under PJM’s FERC-approved price cap. Prices from the 2025/2026 auction (which brought more than an 800% increase, year-over-year reaching $269.92/MW-day) hit bills last month, while the most recent results discussed in this post will impact bills starting June 2026.

Key Highlights from the Auction

• Clearing price: $329.17/MW-day—up 22% from last year’s $269.92.
• Total capacity procured: 134,311 MW (unforced capacity, UCAP).
• PJM estimates the impact to power bills will equate to a year-over-year increase of 1.5%-5%.
• Begins June 1, 2026 and runs through May 31, 2027.
• The 2027/2028 capacity auction will be held December 2025.

What This Means for Your Business

While the capacity component of an energy bill may seem small, it can have a significant impact on electricity costs, especially if a business uses a large amount of electricity during peak times.

So independent of the size of a business, managing usage during peak periods is important. While it’s not possible to control the capacity rate, load curtailment and shifting strategies provide a way to minimize the impact of increased capacity rates.

Let’s break down how...

How Capacity Charges Are Calculated

A business’s capacity costs are calculated by multiplying (1) their peak load contribution times (2) the capacity rate set by PJM’s annual capacity auction.

1- Peak Load Contribution

PJM determines a business's capacity tag based on its peak load contribution (PLC).

• Calculated by averaging a business's electricity use during the five highest demand hours of the year across PJM.
• These five peak hours are called the Five Coincident Peaks, or 5CP. (A snapshot of historical peaks from 2021-2024 can be found here.)
• The capacity tag (annual value) represents the business's share of the grid's total peak demand during these times.
• The capacity tag is multiplied by the prevailing capacity rate to determine the capacity charges a business will pay over the following year (June 1 - May 31).

Successful load management strategies executed in the current year will impact capacity costs the following year, June 1 to May 31.

Escalating Costs, An Illustration

A brief look at capacity charges over the last three years quickly reveals the importance of taking proactive steps to manage capacity costs.

The following example assumes a peak load contribution of 500 kW.

2026/2027: $329.17/MW-day × 0.5 MW (500 kW) × 365 days = $60,074/yr for June 1, 2026 - May 31, 2027

2025/2026: $269.92/MW-day × 0.5 MW (500 kW) × 365 days = $49,260/yr for June 1, 2025 - May 31, 2026

2024/2025*: $29.40/MW-day × 0.5 MW (500 kW) × 365 days = $5,366/yr for June 1, 2024 - May 31, 2025

*2024-2025 prices for AEP, DP&L, Duke, and FE markets.

2 - Capacity Rate (Set by PJM’s Annual Capacity Auction)

To protect grid reliability during periods of high demand, PJM runs an annual capacity auction to secure commitment for power generation sufficient to meet forecasted demand.

Once PJM reserves the necessary power, the resulting cost is shared by companies that provide electricity, called Load Serving Entities (LSEs). The cost, called the Locational Reliability Charge (LRC) goes to power suppliers for making electricity available when needed.

For the 2026/2027 planning year the capacity rate is $329.17/MW-day.

How PJM’s Capacity Auction Works

Understanding how PJM’s capacity market functions begins with clarifying essential roles. Two key groups—power suppliers and Load Serving Entities—each have distinct responsibilities that are fundamental to maintaining grid reliability and meeting end-user demand. The following section provides a basic overview.

Power suppliers (power plants) commit to providing electricity in the future.

Load Serving Entities (LSEs) are companies that deliver electricity to homes and businesses. They are required to buy enough capacity to meet their customers’ needs at all times. Examples include utility companies, retail suppliers, and municipal power providers.

How the Clearing Price Is Set

How the Final Price is Determined. A Simple Simplification…

1. Suppliers make bids. They stipulate how much power they can provide and at what price.
2. PJM forecasts how much capacity generation is needed.
3. PJM accepts the lowest-price offers first and works up the list until enough generation is secured.
4. The price of the last accepted offer becomes the clearing price and everyone whose bid was accepted gets paid that price.

Example:

(Units chosen to simplify the example.)

PJM forecasts the need for 100 units of power and collects bids:

• Organization A bids 20 units at $50
• Organization B bids 30 units at $60
• Organization C bids 50 units at $70
  
  

PJM accepts all three bids to reach 100 units. The last accepted bid (Organization C at $70) sets the price. All three organizations are paid $70/unit, even if they bid less.

 Strategies to Control Capacity Costs 

1. Review Your Supply Contracts
   

   If you have not already done so, work with your energy manager to evaluate upcoming contract terms and understand how capacity charges are treated. Make sure you've secured optimal terms ahead of expected increases in 2026–2027.
   
   

2. PLC Management

   Consider voluntary curtailment during peak grid hours. This can help offset rising capacity costs. While you can't control the capacity rate, lowering your capacity tag by using less during periods of system-wide peak demand means lower overall cost, because remember your annual capacity rate is the product of the presiding capacity rate and your capacity tag. 
   
   If you aren't sure if PLC Management is right for your business, or if you'd like help working through your load reduction/shifting strategy, please contact us. If you're new to managing your load during times of peak demand or are looking for new ways to improve your existing approach, here are a few ideas:

• Track Peak Alerts
  Sign up for peak load notifications to know when high-demand days are expected. Timing your load reduction during these periods can lower your future capacity charges. We provide weekly load forecasts and alerts on days one of the 5CPs may be set. You can sign up here. 

• Monitor and Analyze Usage Trends

  Use submetering or energy monitoring tools to identify load patterns, track progress, and find new savings opportunities. PowerHub from Alternative Energy Source presents use and expense data in a streamlined dashboard which allows energy decisionmakers the ability to quickly spot and target waste as well as identify opportunities for conservation and efficiency projects. Contact us to learn more. 

• Reduce Load During Peak Hours
  Shift or reduce non-essential energy use (like lighting, HVAC, or equipment).

• Use Backup Generation Strategically
  Run onsite backup generators during peak events.

• Stagger Start-Up of Equipment
  Avoid powering up multiple large systems all at once. Staggering equipment start-up helps prevent short-term spikes in demand.

• Schedule Energy-Intensive Tasks Off-Peak
  Move processes like manufacturing, charging, or cleaning to off-peak hours whenever possible.

• Engage Staff in Energy Awareness
  Educate employees about how their actions affect energy costs. Small behavior changes (like turning off lights or adjusting thermostats) can add up during peak days.

3. Implement Energy Efficiency Upgrades

   Efficient systems (like LED lighting, smart thermostats, and high-efficiency HVAC or motors) use less electricity all the time—including during peak hours—so your demand during high-cost periods is lower by default.
   
   The more efficient your building or operation is, the easier it is to reduce load during peak hours without impacting productivity. For example, with an efficient HVAC system, you might be able to pre-cool a space and then scale back usage during the peak period.
   
   To learn more about how energy efficiency can help your business, visit our energy efficiency resource page and for ways to introduce energy efficiency to your team, check out our post. 
   
   

4. Participate in Demand Response

   When your business participates in demand response, you can earn payments just for reducing your load when asked. These incentives offset your overall energy costs. To learn more, visit our Demand Response resource. And to sign up contact us.