What a 9x Price Increase from PJM’s Capacity Auction Signals about the Power Market and How Companies Can Prepare
As electricity demand grows, the power grid is increasingly constrained. Grid reliability depends on having enough capacity to meet peak demand, and power capacity auctions are a critical component of electricity supply planning in many parts of the United States.
For the PJM Interconnection, one of the largest regional transmission organizations (RTOs) in the country, the Base Residual Auction (BRA) is a crucial annual event. Its primary purpose is to procure capacity commitments from power supply resources to ensure grid reliability.
Here’s how it works:
- Capacity Reserves: The BRA secures capacity reserves for the upcoming delivery year. These reserves are foundational for meeting projected electricity demand during peak periods of consumption, extreme weather events, or unexpected power generator outages.
- Market Mechanism: Participants (including power generators, demand response providers, etc.) submit offers to supply capacity during the coming year. The auction clears these offers based on cost and reliability criteria, resulting in committed capacity.
There are several factors that influence the BRA results, including:
- Supply-demand balance: Tightening supply-demand conditions impact auction results. If supply falls short of demand, prices rise, affecting both energy costs and capacity payments. Of course, if supply exceeds demand, prices fall.
- Resource mix: The mix of generating resources (coal, gas, renewables) matters. Changes in fuel prices, power plant retirements, and new investments impact auction dynamics.
- Policy and regulations: Environmental policies, state incentives, and federal regulations shape resource availability and investment decisions.
The current tightening of the supply-demand balance resulted in an unprecedented price spike -- 9x higher in this year’s BRA (July 2024) versus the prior year.1 BRA prices increased to $269.92/MW-day for most resources in the wholesale power market. In two specific zones, Baltimore Gas & Electric in Maryland and Dominion in Virginia, insufficient resources and transmission constraints drove prices to $466.35 and $444.26, respectively. 2
The unexpectedly high prices signal market demand for additional generation capacity. “The significantly higher prices in this auction confirm our concerns that the supply/demand balance is tightening across the RTO,” said PJM President and CEO Manu Asthana. “The market is sending a price signal that should incent investment in resources.” 3
What this potentially means for non-residential energy consumers
This latest PJM auction highlights similar trends happening across the US:
- - Higher prices - Other ISOs/RTOs are experiencing price increases. For example, New York City (NYISO territory) saw a 221% increase in capacity costs in Q124 driven by retirements of ‘peaker ‘plants (that help address demand peaks) and increased capacity requirements.4 ISO-NE reported a 38% increase in the clearing price for its latest capacity auction in February compared to the prior year.5
- Increased focus on demand response (DR) programs - DR may increase in volume and value as DR is used by power authorities to increase capacity in a nearer-term, cost effective manner. For example, PJM’s Emergency Load Response Program (ELRP) has been relatively stagnant, but with new pricing, it is now a much more lucrative program designed to attract and increase participation.
- Concerns about price volatility and grid reliability -With tightening electricity supply, power authorities are concerned about managing price volatility and grid reliability.6 To help address these concerns, the US Department of Energy’s Future of Resource Adequacy report offers recommendations, including employing demand response, energy efficiency measures, and more distributed energy resources: “A portfolio approach that takes advantage of the full range of technology, planning, and operational solutions best ensures reliable, clean, secure, and affordable power.”7
Actions companies can take to help optimize their energy use and minimize their costs
Participating in demand response programs
Demand response programs incentivize customers to voluntarily decrease their power usage during peak demand or shift demand to off-peak hours in exchange for financial incentives. The goal is to protect consumers and the energy system by alleviating stress on the grid, enhancing grid reliability, and minimizing the operation of more expensive, higher-emissions ‘peaker’ power plants. The recent BRA results have increased the potential earnings companies can generate by participating in demand response programs. For example, potential earnings have risen by up to 6x for most regions within PJM, equating to at least $75,000 per participating MW.8
See our Flex Monetization page to learn how we connect customers to demand response programs.
Reducing costs through energy efficiency
Customers can also save money through various energy management initiatives. Improving the energy efficiency of building systems or aligning their usage schedules to when energy prices are lower can contribute to significant savings. See our Flex Optimization page for more information on how we can help.
A great first step is often getting more insight into how a company uses energy. As the energy system grows, digitizes and decentralizes, organizations will require finer, real-time data to effectively adapt to grid conditions and market prices. Energy platforms like ours (see Flex Analytics) can help fill data gaps.
Maximizing energy flexibility
Optimizing energy profiles can also mean adding flexible energy capacity onsite at facilities, such as with solar and battery energy storage systems. By adding onsite capacity, companies can
- Bring energy closer to where it is consumed to reduce energy waste from transmission and distribution
- Utilize lower carbon power sources onsite to reduce carbon footprint
- Engage an alternative energy source, beyond grid power, when the grid is more expensive or constrained
- Create additional energy capacity that can be monetized with demand response programs
We can help companies model the potential benefits of adding distributed energy resources. (See our Flex Optimization page)
Planning events, like PJM’s Base Residual Auction, provide important market signals to regulators and consumers alike. As demand for electricity increases, companies have multiple options to help themselves and the market address energy needs.
2 PJM 2025/2026 Base Residual Auction Report
6 US Department of Energy, The Future of Resource Adequacy Report
7 US Department of Energy, The Future of Resource Adequacy Report
8 Based on internal calculations derived using the $269.92/ MW-day BRA clearing rate and the 76% Electric Load Carrying Capability set by PJM. Energy payments for event participation would be in addition to this number.
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