In April 2025, the Federal Energy Regulatory Commission (FERC) approved a PJM proposal to set a floor and cap of roughly $64,000/MW-yr and $119,000/MW-yr on capacity prices for the next two PJM Base Residual Auctions (BRAs), the primary auction where PJM secures the capacity resources needed to meet future energy demand and ensure long-term grid reliability.

The floor and cap were proposed by Pennsylvania regulators on the heels of last summer’s record-high capacity prices in an effort to reduce pricing volatility while ensuring adequate investment in new generation. As seen below, the $64,000/MW-yr floor exceeds capacity pricing in recent years, meaning that high pricing (at least in the coming years) is here to stay.

The good news is that demand response remains a proven way to offset high capacity prices by paying your business to reduce electricity usage during peak demand periods. Read on to learn more.

What led to high capacity prices?

• Trouble started back in 2018 and 2019, when PJM struggled to figure out how to handle power sources that receive government subsidies — like renewables — offering into its capacity market at below-market prices, undercutting unsubsidized resources and distorting fair competition.
• PJM proposed changes to level the playing field, but FERC pushed back, suggesting even stricter rules. This created a lot of uncertainty.
• In 2021, PJM and FERC tried again to fix these rules with what’s known as the Minimum Offer Price Rule, or MOPR — this time aiming to make it easier for new, often cleaner, power sources to compete. The updated rules were approved in 2022 and helped open the door to more market participants.
• Winter Storm Elliott further complicated participation as a large number of resources failed to perform during the extended emergency, leading PJM to revise the accreditation methodology that it uses to qualify and pay capacity resources.
• Each of these stages triggered significant delays in auction timelines, which impacted market participants’ confidence in the market. Clearing prices fell by roughly 32% in PJM’s capacity auction for the 2023/2024 delivery year, reaching some of the lowest levels ever seen in PJM. This was driven by a surge in accredited capacity (primarily from uprates and delayed retirements) combined with decades-long stagnation in demand growth.
• The price drop raised concerns across the industry, particularly among investors and generators that rely on capacity revenues to invest in new generation. Clearing prices fell below the levels needed to sustain investment in both new and existing thermal resources. As a result, PJM began to see signs of reduced investment in firm generation and increased retirements, even as it started to revise its demand forecasts upward in response to the accelerating growth of electrification and data centers.
• At the same time, PJM’s already backlogged interconnection queue lengthened. This was and continues to be driven by several factors, including growing wait times for gas turbines, transmission constraints, and a large number of projects in the queue. Combined with, until recently unforeseen, high demand growth driven by data centers, new technology, and the electrification of everything, these dynamics have created a supply-demand imbalance. 

The result: Capacity prices reversed course and surged to an all-time high!

So… What can be done to manage capacity costs?

One of the most common ways of reducing effective capacity charges is by participating in the Emergency Load Response Program, which pays customers to provide demand response at the price set in the capacity auction. The deadline for enrolling in that program for the program year starting on June 1, 2025, has now passed, but energy users can (and should!) sign up for future years. 

Customers can also reduce their exposure to rising capacity prices by reducing their capacity charges, which are determined by their load contribution during peak demand hours. 

Capacity charges consist of two components: Generation capacity charges and Transmission capacity charges (commonly known as NITS).

• Generation capacity charges are priced at the PJM capacity auction clearing price. A customer’s Generation capacity charges are based on their average load across the five PJM system peak hours, their Peak Load Contribution (PLC), multiplied by this capacity price. Therefore… If you lower your PLC, you lower your capacity costs.
• Energy users also face NITS charges. NITS charges are based on your load during your local utility system’s peak hour (or hours). NITS prices continue to rise, in nearly every zone (see graph below).

Voltus’s Peak Saver program targets both Generation and Transmission capacity charges by providing customers with clear signals on when to reduce load in response to potential peaks.

There is nuance to managing participation in PJM’s Emergency Load Response Program while avoiding Capacity and Transmission charges because they can cannibalize each other or lead to unreasonable dispatch frequency. Working with an experienced provider like Voltus that understands how the programs are interconnected is critical to maximizing value.

The takeaway 

PJM’s newly approved capacity price floor will likely result in more stable but higher capacity prices through 2028. Commercial and industrial businesses can manage these rising costs by participating in the Emergency Load Response Program and Peak Saver with Voltus. Reach out to info@voltus.co to get started.

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