More than 150 industry professionals from sectors such as manufacturing and non-profits to food processing and information technology joined a packed webinar on December 12th to learn about the implications of this past summer’s PJM Capacity auction on electricity price increases for the coming year. Heads of facilities, procurement, finance, as well as managers and presidents, gathered to ask questions and explore strategies to combat higher prices.

Environ Energy is a leader in integrated energy management solutions and has delivered practical solutions for addressing rising costs through analysis of supply contracts, energy efficiency programs, and more. Read on to learn more. 

Adapting to rising costs is essential for businesses to manage exposure to shifting market prices. Environ Energy’s recent PJM webinar, hosted by President Chris Sternberg and led by energy market experts Courtney Duell, Chief Operating Officer, and Ben Walker, Vice President of Energy Strategies, provided valuable insights and answers regarding the upcoming PJM capacity pricing changes in 2025. The session explored the history of capacity auctions, their methodology, what impacts capacity, how it is calculated, and how the business owner pays for it.  Attendees also learned strategies for navigating this uncertain landscape.

If you missed the webinar, it is now available to watch on-demand:

Capacity Pricing Overview

Capacity charges are an essential component of electricity supply bills, compensating power generators for maintaining standby capacity to meet peak demand. These charges, calculated through forward auctions, are typically based on summer usage patterns. Currently, capacity charges account for about 20% of a business’s total energy costs. However, businesses can expect these costs to rise dramatically by June 2025, with prices in most zones expected to increase from around $28 per unit to $270, with some reaching over $400. This rise could translate to an additional $15 per megawatt-hour in costs, significantly impacting budgets. 

Why Are Prices Rising

Modeling Changes 

PJM has reduced available capacity by approximately 7,000 MW due to two major updates in its modeling framework: 

• Reliability Ratings: Since 2018, PJM has incorporated realistic assessments of what each resource can reliably contribute, factoring in risks like intermittent wind, gas plant maintenance, and coal supply issues. 

• Extreme Weather: Following Winter Storm Elliott in 2022, PJM now models how extreme weather can lead to simultaneous failures across multiple plants. 

These updates address evolving risks, making modeling a critical driver of this year’s capacity changes. 

Net Retirements 

Plant retirements and limited capacity increases have resulted in a net loss of 5,000 MW: 

• Retirements: 5,700 MW of capacity retired due to aging infrastructure and economic challenges. 

• Upgrades: Efficiency improvements added only 650 MW, offsetting some losses. 

This decline has further tightened the supply-demand balance. 

Demand 

PJM is seeing increased electricity demand, largely driven by new developments: 

• Data Centers: The expansion of data center construction, fueled by the growing digital economy, is a major driver of demand growth. 

• AI Revolution: Energy-intensive applications supporting artificial intelligence development are creating additional pressure on the grid. 

These factors are pushing demand higher, exacerbating the strain on PJM’s already limited capacity and contributing to the tight supply-demand balance. 

Strategies for Businesses 

Because of these shifts, businesses should act now to avoid being blindsided by added electricity costs. The webinar emphasized the importance of clear communication across departments, ensuring that facilities, supply chain, and finance teams understand the expected price increases. Establishing or engaging with an energy committee can help coordinate decision-making across the organization. 

Strategies for Team Implementation: 

• Proactive Communication: Inform facilities, supply chain, and finance teams about upcoming changes. 

• Energy Committees: Establish or engage with an energy committee for coordinated decision-making. 

• Work with Advisors: Collaborate with energy advisors to understand financial impacts and explore tailored strategies. 

• Review Contracts: Examine energy contracts for any cost pass-through mechanisms and ensure terms are transparent. 

Additionally, businesses can take practical steps such as implementing demand response programs, adjusting operational schedules, and investing in energy efficiency projects. Options for on-site generation like solar, CHP, and fuel cells can also be explored.  

Looking Ahead: Industry Outlook 

The future of PJM capacity pricing remains uncertain, but several factors may help stabilize prices over time. Current generation capacity stands at 180,000 megawatts, while 280,000 megawatts are queued for interconnection. How quickly new generation comes online, alongside regulatory adjustments like FERC Order 2023, will determine whether the market balances and prices stabilize. 

Polling Results: Industry Readiness 

Poll results from the webinar indicated that about 29% of participants have already started planning for the upcoming changes. But the largest number of attendees reporting at 36% had no plan at all. Environ Energy shared strategies such as renegotiating contract and on-site generation options, to help prepare for the upcoming electricity price increases.

Key Takeaways: Proactive Energy Management is Key 

The anticipated rise in PJM capacity pricing highlights the need for businesses to adopt proactive energy strategies. Businesses with annual energy costs exceeding $100,000 are encouraged to contact Environ Energy for a custom analysis. Contact us for localized market analysis and recommendations.