The PJM capacity market has experienced a tumultuous journey over the past several years, navigating policy debates, regulatory interventions, and significant real-world reliability challenges. From the Minimum Offer Price Rule (MOPR) controversies to the wake-up call of Winter Storm Elliott, the market’s evolution reflects the growing complexities of maintaining grid reliability while balancing diverse energy policy goals. The recent price increase in the 2025/26 auction underscores the critical role of capacity markets in securing a resilient electricity grid. 

In a December 2024 webinar – Environ energy management experts explored this story further and explained ways companies can combat the impending electricity price spike in the PJM Market beginning 2024. You can watch this on-demand on YouTube. 

The MOPR “Jump Ball” of 2018: Setting the Stage for Change 

In 2018, the PJM capacity market became a battleground over the future of energy markets. At the heart of the debate was the Minimum Offer Price Rule (MOPR), a rule requiring certain resources (mainly those receiving state subsidies, such as renewables, nuclear, or gas) to bid into capacity auctions at a minimum price to avoid “market distortion.” 

The controversy came to a head during what became known as the MOPR “jump ball” filing. PJM proposed changes to the MOPR, aiming to balance federal oversight of competitive markets with state-level policies promoting clean energy. The Federal Energy Regulatory Commission (FERC) rejected PJM’s initial proposal and instead imposed a significantly expanded MOPR in 2019, effectively increasing the floor price for all new generation resources. 

This decision sparked widespread criticism, from regulators, clean energy advocates, and state agencies. They argued that the expanded MOPR hindered states’ efforts to meet climate goals by artificially inflating capacity prices and sidelining renewable energy projects. While some traditional generators supported the rule, claiming it leveled the playing field, the reality was it served to protect entrenched interests. The resulting market uncertainty led to delayed auctions and policy gridlock, frustrating stakeholders across the board. 

The Shift Away from MOPR: A Turning Point 

By 2021, the winds of change began to blow. A new FERC leadership – driven more by market principles than political ideology – welcomed a new filing from PJM of a significantly scaled back version of the MOPR, effectively returning to a more resource-neutral approach. This change, approved in 2022, allowed all resources to participate more freely in capacity auctions, aligning the market more closely with state energy policies (including decarbonization goals) and fair market principles. 

While this shift was celebrated by clean energy proponents, some existing generators introduced new concerns (some real, some disingenuous) about how the market would balance reliability and affordability as the resource mix evolved. Little did they realize their own reliability would soon be called into question.  

Winter Storm Elliott: A Reliability Wake-Up Call 

The December 2022 Winter Storm Elliott exposed reliability vulnerabilities in PJM’s existing generation. During this extreme weather event, plunging temperatures led to unprecedented demand spikes while simultaneous generation failures – mainly among coal and natural gas plants – caused significant capacity shortfalls. Nearly 25% of committed generation failed to perform, forcing PJM to implement emergency measures to maintain grid stability. 

This event underscored the critical importance of ensuring that capacity resources are not only available on paper but also reliable in practice. It highlighted challenges associated with integrating intermittent renewable resources into a grid that was already exposed to the risk of fuel supply disruptions for traditional generators, all the while underscoring the need for a more resilient grid in the face of climate change-driven extremes. 

The 2025/26 Auction: Rising Prices and Renewed Focus on Reliability 

In the wake of Winter Storm Elliott, PJM implemented changes to improve reliability, including tougher penalties for non-performing resources and more stringent performance requirements. These adjustments, combined with lingering impacts of the MOPR debates and shifts in resource mix, contributed to a notable increase in capacity prices in the 2025/26 auction.  

When the results came out in the summer of 2024, there were a lot of questions about why this happened. Key drivers of the price increase include (in approximate order): 

1. Resource Retirements: 
   The continued retirement of older, existing plants reduced available capacity, which is tightening the market considerably. New generation wants to be built, but is stuck awaiting regulatory approval to connect to the grid.  

2. Stronger Reliability Requirements: 
   To address the lessons from Winter Storm Elliott, PJM increased the emphasis on reliability, updating their models to analyze correlated generator failures under extreme conditions.  

3. Increasing Demand Forecast: 
   PJM is expecting an increase in demand in the region, led primarily by Data Center growth in the near term and Electric Vehicles in the long term. (Although only Data Center growth impacted the prices from this recent auction.) 

Integrating Renewables:  
While cleaner energy sources are entering the mix, their intermittent nature can pose challenges for meeting reliability. To address this, PJM is requiring renewables bid in at a smaller percentage of their nameplate capacity so as not to over-promise their availability.  

Looking Ahead: Challenges and Opportunities 

The evolution of the PJM capacity market highlights the ongoing challenges of the energy transition. Winter Storm Elliott served as a stark reminder that reliability cannot be taken for granted, especially in a rapidly changing energy landscape. 

To address these challenges, PJM and stakeholders are continuing to refine the capacity market framework. Two looming current issues include: 

1. Clearing the Interconnection Queue:  
   There is more generation capacity waiting to come online than there is already installed. As PJM works through the backlog of new generation requests, capacity prices are likely to soften. 

2. Consider RMR Participation in Capacity Markets: 
   Some plants want to retire but are required to operate anyway for reliability reasons. These plants are labeled RMR (Reliability, Must-Run). Currently, RMR plants are excluded from participating in capacity markets. FERC & PJM are reviewing whether those RMR plants should be allowed to participate in the next capacity auction, scheduled for June, 2025. Allowing these to participate could allow prices to drop significantly.  

Conclusion

The reason behind the price increases seen in the recent 2025/26 auction started way back in 2018 with the original MOPR question. The journey until now reveals the complexities of managing energy markets in transition. While policy shifts and market adjustments have aimed to address emerging challenges, events like Winter Storm Elliott demonstrate that reliability remains a pressing concern. As PJM navigates these pressures, striking the right balance between affordability, decarbonization, and reliability will be critical for the future of the region’s power grid. 

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