Proven Strategies to Offset Your PJM Capacity Costs

PJM’s recent auction results signal more than a short term reality. They point to a larger trend of tightening supply and increasing demand that’s likely to sustain high capacity costs in the years ahead. For businesses, this means that capacity-related cost increases are likely to persist unless proactive measures are taken. 

The good news? There are steps you can take right now to reduce your exposure.

Understanding the Supply-Demand Imbalance

PJM’s capacity market is designed to ensure grid reliability, but the system is being stretched in ways that are new to the grid manager. Several key dynamics are driving persistent, upward pressure on capacity prices:

•    Demand Growth Outpacing New Generation: Rapid demand expansion, caused primarily by the proliferation of large-scale data centers is putting unprecedented pressure on the grid. The resulting surge in electricity consumption is outpacing the addition of new generation resources. Analysts estimate data centers now account for over 90% of new power demand in the PJM service territory, driving capacity price increases. 

•    Limited Generation Additions: While investments in new generation projects are accelerating, the pipeline for generation remains constrained. New gas, coal, or nuclear facilities face long construction timelines and permitting hurdles, leaving a gap between current needs and available supply. 

•    Tight Reserve Margins: PJM’s current reserve margin (the amount of extra generation capacity available above forecasted peak demand) remains historically narrow. That leaves little cushion to absorb unplanned outages or weather-driven demand spikes. This is the result of:

- The retirement of older coal and nuclear units. 

- Declining operational reliability in some gas-fired plants.

- A persistent backlog of new resources waiting for interconnection.

With less buffer, PJM is faced with more frequently relying on higher-cost resources and is more exposed to market shocks. These conditions directly influenced the latest capacity auction as PJM procured 134,311 MW of capacity and prices cleared at the market cap of $329.17/MW-day, a roughly 22% increase from the prior auction. Effectively, the structurally tight reserve margin amplified price volatility and contributed to the increase in capacity costs.

As long as supply consistently struggles to keep pace with escalating demand, cost increases will become the norm. Businesses across PJM need to take action to mitigate their exposure.

Proactive Strategies to Offset Rising Capacity Costs

Businesses can proactively manage their energy use and offset some of their capacity charges, even in a high-price environment.

Here are key strategies:
•    Demand Response: Enroll in programs that compensate you for curtailing load during grid emergencies or peak demand events/tests. For more information about available Demand Response programs, visit our resource here.

•    Peak Load Management: Identify non-critical operations that can be curtailed or shifted to non-peak hours during high-demand days to reduce your Peak Load Contribution (PLC). High Demand Day Alerts from Alternative Energy Source provide advanced notice of peaks, giving you time to adjust operations. Sign up for PLC Alerts here.

•    Energy Efficiency Upgrades: Implement equipment and operational improvements that can decrease your overall electricity consumption and lower your PLC capacity tag for the following planning year. To discover low-cost or no-cost energy efficiency options or to view a list of available energy efficiency projects, learn more here. 

•    PowerHub: Using a data invoice management tool can help you identify areas of waste and target your efficiency projects for better results. It can also help you plan your load management strategy, revealing the most effective curtailment options real-time. For more information on how this works, visit our PowerHub resource page here or our utility data management case study here. 

•    On-site Generation & Storage: Adding behind-the-meter energy generation or storage solutions can help manage demand peaks.

Partner with Experts to Build Your Plan

Managing capacity costs in today’s PJM market isn’t a DIY task. It requires strategic planning, real-time monitoring, and a clear understanding of market dynamics. That’s where we come in.

At Alternative Energy Source, we help businesses:
•    Analyze current PLC exposure and capacity obligations.
•    Develop customized load management and demand response strategies.
•    Implement proactive measures that protect your energy budget.

The earlier you act, the more impact you can have on future costs. This is a conversation worth having now.

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PJM’s 2026/2027 capacity auction cleared at $329.17/MW day—the highest price allowed under federal rules and a 22% year over year jump. That means a business that paid around $5,300 in capacity charges for 2024/2025 could face $60,000+ annually starting June 1, 2026 unless they engage a proactive strategy.

System demand is accelerating faster than generation additions, tightening supply and raising urgency to act. Let’s talk. Our team can evaluate your load management strategy, explain demand response opportunities, and build a custom plan to safeguard your energy budget. Schedule a meeting now.

View latest auction insights: How PJM’s Capacity Price Spike Affects Your Bottom Line