MARKETS

Adapt & Enhance

PJM and stakeholders worked throughout 2024 to adapt PJM electricity markets to meet growing power demands competitively amid dynamic changes in the generation fleet.

Market Results Signal Need for New Power

The PJM capacity auction for the 2025/2026 Delivery Year, held in July, cleared enough capacity to meet future demand plus required reserves, although the resulting 18.5% reserve margin was lower than years past. The auction procured a diverse mix of resources at a record-high price of $269.92/MW-day RTO-wide. In localized areas with greater imbalance between demand and generation, prices were higher.

2025/2026 RPM Base Residual Auction RTO Clearing Prices

300 400 $/MW-day 100 0 200 2016/2017 $59.37 2017/2018 $120.00 2018/2019 $164.77 2019/2020 $100.00 2020/2021 $76.53 2021/2022 $140.00 2022/2023 $50.00 2023/2024 $34.13 2024/2025 $28.92 2025/2026 $269.92 2015/2016 $136.00

This outcome reflected the reality that generator retirements are proceeding faster than the interconnection of new resources while customer load continues to grow at an accelerating pace, driven by:

Development of data centers throughout the footprint

Electrification of vehicles and heating systems

State and federal decarbonization policies

New auction rules also improved risk modeling for extreme weather by more accurately accrediting generation units for their ability to produce in times of greatest system stress.

The July 2024 auction sent a price signal to support reliability by:

  • 1
    Incentivizing investment in new generation or uprates to existing generators
  • 2
    Stemming premature retirement of existing resources
PJM meeting
PJM meeting

Capacity Market Enhancements

Since the clearing of the 2025/2026 Base Residual Auction, PJM, its Board of Managers and stakeholders continued work on market enhancements aimed at cost-effectiveness, market participation and accurate investment signals. This work included:

  • The auction date for the 2026/2027 Delivery Year was moved from December 2024 to mid-2025 to provide time for FERC consideration and possible adjustments to proposed market rule changes.
  • PJM submitted a Section 205 filing to FERC in December to:
    • Maintain the Reference Technology used in prior auctions to prove the most realistic and accurate Cost of New Entry calculation.
    • Acknowledge the contribution of Reliability Must-Run resources, where appropriate.
    • Help mitigate price increases borne by consumers.
  • PJM filed a second proposal with FERC in December to broaden the capacity market must-offer requirement to include all generation capacity resources and to enhance the Market Seller Offer Cap rules to allow sellers to better reflect capacity commitment risk in their sell offers.

Capacity Market Work Ahead

PJM does not expect these capacity market filings to resolve all of the resource adequacy challenges and will continue discussions with stakeholders rooted in concepts such as:

Generation reliability needs

Winter deliverability for thermal resources

Demand Response availability and load flexibility more generally

Sub-annual capacity market auctions reflecting seasonal needs

Accurate resource accreditation, including enhancements to Effective Load Carrying Capability accreditation construct

Reserve Certainty Requirements

PJM’s reserve needs are changing, and the Day-Ahead Energy Market design does not always procure reserves sufficient to manage operational risk. As a result, PJM has managed the risk of potential supply shortfalls via out-of-market commitments. However, PJM is committed to advancing reserve market and energy market reforms to better reflect system conditions, value scarcity, mitigate market power and maximize social welfare. Risks and opportunities associated with these needs were detailed by PJM during 2024 in the paper Energy Transition in PJM: Flexibility for the Future (PDF).

As a result, PJM embarked on discussions in 2024 for enhancements toward more dynamic reserve markets in step with a more flexible intermittent resource mix. As the year came to an end, PJM laid out 2025 priorities for the Reserve Certainty Senior Task Force (PDF), where most of this work will take place.

To be effective, PJM’s markets will need to:

Effectively evaluate trade-offs between reliability risk and cost.

Recognize operational risk and align market solutions to support operator actions.

Manage changing levels of uncertainty and flexibility needs.

Pre-position the system to ensure future reliability.