Freedom Energy Newsletter | December 2024
Latest Capacity Auction Significantly Impacts Consumer Costs in the PJM Market
The latest PJM Base Residual Auction revealed a staggering increase in capacity costs, highlighting the growing challenges of grid reliability amid the transition to renewable energy. With insufficient local generation and transmission constraints, the auction results indicate a 9-fold increase in costs, creating significant implications for consumer electricity rates. As the U.S. pushes for emissions reduction and electrification, these trends underscore the uncertain future of energy pricing and grid stability.
As many are aware, the demand to increase renewable sources of power is creating cost increases in the US energy markets. We started seeing this several years ago in New England when the last coal fired plant was shut down and outdated nuclear plants were taken offline. As this growing trend continues throughout the US, there is no limit to how this will impact future electric rates.
With increased demand for AI, electrification, and the overall push for more renewable energy, we will continue to put ourselves in a precarious situation with grid reliability. The recent PJM Base Residual Auction is a prime example of how these unknowns will drive up costs.
The PJM capacity market, like other capacity markets, is in place to ensure grid reliability by securing the necessary amounts of generation to meet future demand. The capacity is procured via the Base Residual Auction (or BRA). These auctions are typically done three years in advance of the forward capacity year. Due to regulatory issues and litigation matters the timeline has been stunted for the last few auctions.
As it stands now, known capacity costs only extend through May of 2026 and the next auction was just pushed to July 2025. This impacts future auctions and now creates more unknowns as the schedule will not be back on track until May 2027.
The auction results on 7/17/2024, resulted in capacity costs 9 times higher than the current established value. Insufficient local generation and transmission constraints were cited as the causes for these increased costs. These insufficiencies were predominantly driven by generator retirement and the move towards renewable sources to help sustain the grid during peak demand periods. Figure One illustrates the impact of the latest auction results on capacity costs, showcasing how these changes have influenced a client’s supply rate.
Figure 1
Figure Two provides an example of a client whose cost was impacted by the latest auction. They experienced a 25% increase in their supply rate, which may be indicative of future trends for the PJM market and its end users.
As the U.S. continues to reduce emissions and meet increasing electric demand, the full impact of these changes on the population remains uncertain.
Figure 2
Meet the Writer
Josh Mitera
Freedom Energy Logistics
Regional Sales Manager
Josh Mitera is the Regional Sales Manager at Freedom Energy Logistics, dedicated to delivering tailored energy solutions and supporting clients in achieving their energy goals. His expertise in sales and energy strategy makes him a trusted partner for businesses navigating the evolving energy landscape.
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