The headline from PJM's recent Base Residual Auction (BRA) is that capacity prices are expected to be roughly 9x higher in 2025-2026, with prices per MW-yr increasing from between $11,000 - $27,000 to between $99,000 - $170,000, depending on the zone. This all-time high in capacity prices is due to a decrease in available capacity and an increase in regional load growth. 

These auction results present energy decision makers at commercial and industrial (C&I) businesses both a challenge and an opportunity to rethink the integration of their demand response and energy procurement strategies. 

Understanding PJM’s Capacity Auction (Base Residual Auction or BRA)

The BRA is essential for ensuring grid reliability by procuring capacity resources three years in advance. The auction sets the stage for future energy pricing and availability, making it a critical event for C&I businesses to monitor and understand future energy costs in their region. 

Why Capacity Prices Increased

Clearing prices increased by 9x in the recent auction

Capacity prices rise when supply decreases and/or demand for capacity increases.

The overall supply stack for 25/26 was reduced by 13 GW from 2024-25. This reduction is driven by two key factors:  

• Reduction in Supply Capacity: According to EIA, since 2013, there have been 36 GW of fossil-fuel based plant retirements in PJM. This decrease in available supply puts upward pressure on prices. We expect this trend to continue over the next 5 years.
• DR Accreditation factor: In 2022, Winter Storm Elliott showed us PJM’s growing Winter capacity needs. As a result, PJM is now rating all resources, including demand response, based on their ability to provide capacity in an expanded winter window. Most resources have been derated, with Demand Response being derated by 24% in 2025/2026 and 30% in 2026/2027.

Additionally, peak load in PJM increased by 6 GW in 2024 to 152.3 GW. This is the highest peak load seen since 2013. In addition, it’s expected that due to delays in interconnection queues, there is a high probability that costs in the next auction will remain at high levels. 

PJM peak load increase year-over-year

How Will the BRA Impact Your Energy Bill?

In PJM, we expect the impact to your bill to be an 11% increase in total energy spend. Regions like DOM and BGE will see between 0% to 24% depending on your rate class and retail energy contract. See the breakdown below to get a better understanding of what to expect based on your supply agreement. 

Customer Type & Expected Rate Impact

Utility Pass-Through: Customer’s total energy expenses will increase by ~$88,000 per year, this could be an increase of about 11% of total energy spend.

Utility 60% Hedged / 40% Auction: Capacity Costs may increase from $22,000 to $57,800, which is an increase of about 4.1% to your bill.

Utility 60% PPA / 40% Auction: Capacity Costs may increase from $22,000 to $50,200, which is an increase of about 4.1% to your bill.

Retailer Fully Fixed: It is possible there is no impact here, unless the retailer is able to adjust the contract rate under certain conditions.

Retail Pass-Through: Customer’s total energy expenses will increase by ~$88,000 per year, this could be an increase of about 11% of total energy spend.

What Businesses Can Do to Mitigate Impacts of the Auction

If you are operating a site in PJM’s footprint, you can take three clear actions to mitigate these costs: 

• Shed load during peak demand: Capture on-bill savings for FY’2024 and FY’2025 by participating in Voltus’s Peak Saver program during the summers.
• Capture grid service revenue through ELRP: Participate in PJM’s Emergency Load Response Program to secure grid-service revenue that can help offset additional costs. In some zones, you may be able to get paid more than your increase in costs!
• Take a look at your supply agreements: It’s crucial to consider integrating demand response with your supply agreements so you can mitigate capacity charges on your energy bill.

If you have any questions on the above, feel free to reach out to us by sending an email to info@voltus.co. 

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