Watt's the deal with rising electricity prices in PJM? If you're living in the Mid-Atlantic states, you're seeing a significant increase in your utility bills. And the latest capacity auction just added more fuel to the fire. As a quick refresher, PJM interconnection runs the grid across 13 states, including Pennsylvania.
Every year PJM runs a capacity auction to make sure there's enough generation committed three years from now to keep the lights on. Here's what's happened over the past few auctions.
In just two years, we went from one of the softest capacity markets to one clearing at the price cap. That's not noise. That's structural tightening. And this is starting to show up at the rate payer's electricity bill.
In Pennsylvania, average retail electricity prices have risen roughly 20% year over year, climbing from about 12 and a half cents per kilowatt hour to nearly 15 cents per kilowatt hour. Capacity isn't the only driver. Transmission, fuel, inflation all play a role, but when capacity prices increase nearly tenfold in two auctions, that cost pressure eventually works its way through the system.
Pennsylvania's Governor Josh Shapiro has been very vocal about energy affordability. He took legal action against PJMs capacity auction design and negotiated a settlement that reduced the auction price cap from where it might otherwise have been--well over $500 a megawatt day, down to around $330 a megawatt day, averting billions in unnecessary costs for consumers in Pennsylvania and across the PJM footprint.
But will that hold up on a go forward basis? Here's where things get even more interesting, especially for those of us building projects. We have renewable energy and storage projects in the queue. We have developers ready to build and we have long-term demand growth. But right now in PJM, there's a widening gap between renewable energy suppliers and buyers.
Corporate and utility buyers are hesitant to sign long-term PPAs at prices that reflect today's higher capital costs, construction, and interconnection related risks. Developers can't pencil projects at yesterday's PPA pricing, given equipment, financing and capacity market uncertainty. So, deals are stalling.
And when new megawatts don't get financed and built, supply stays tight. And when supply stays tight in a growing load environment, capacity prices and retail electricity prices remain elevated. It becomes a reinforcing cycle. Who's gonna blink first in this electric game of chicken? So that's where we are.
Record capacity prices rising retail rates in Pennsylvania and throughout PJM policy, pressure on affordability, and a renewables market that hasn't quite repriced to reality yet. The market is sending a very loud signal: we need more reliable megawatts and we need them fast. Energy storage, anyone? The question is whether capital, policy, and buyers can align quickly enough to prevent the next spike.
And that's ... Watt's the Deal!
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