The results are in, and PJM’s latest capacity auction for the 2026/2027 delivery year cleared at $329.17/MW-day, the maximum allowable price. This marks a 22 percent increase over last year’s $269.92/MW-day clearing price, and a staggering 10X increase from the 2024/2025 price of $28.92/MW-day. For the second year in a row, PJM capacity prices have surged.
What Happened in the 2026/2027 Auction?
PJM’s Base Residual Auction (BRA) procured 134,310.8 MW of capacity. All modeled zones, including traditionally constrained areas like BGE and Dominion (DOM), cleared at the cap of $329.17/MW-day. While BGE and DOM saw declines from their prior year highs of $466.35 and $444.26, the broader RTO saw prices rise significantly.
The main driver was not a large drop in supply, which declined by only about 500 MW, but a shift in PJM’s reliability planning:
- Forecasted peak load increased by more than 5,400 MW.
- The Installed Reserve Margin (IRM), which represents the extra capacity PJM requires above forecasted peak demand to maintain system reliability, increased from 17.8 percent to 19.1 percent. This acts as a buffer to cover unexpected outages or demand spikes.
- The Forecast Pool Requirement (FPR), which adjusts for the risk that some resources may not be available when needed, decreased from 0.9387 to 0.917. A lower FPR increases the effective capacity obligation.
Together, these changes raised PJM’s overall Reliability Requirement at a time when the market remains supply constrained.
Understanding the Clearing Price Relative to the Stated Cap
Although PJM referenced a $325/MW-day cap, the auction cleared at $329.17/MW-day. This was not a violation but rather a result of how the cap is expressed.
PJM stated the cap in ICAP terms at $256.75/MW-day. However, auction results are reported in UCAP terms, which account for expected resource availability. Using the conversion factor of 0.7801, the ICAP cap translates to $329.17 in UCAP terms, aligning with the clearing price.
The cap itself did not change. The difference comes from the use of two capacity metrics. While the Forecast Pool Requirement (0.917) determines how much capacity PJM needs to procure, the ICAP-to-UCAP price conversion uses a separate performance-based ratio of 0.7801.
How Does This Compare to Last Year?
- RTO prices increased by 22 percent, despite a modest decline in cleared capacity.
- No Locational Deliverability Areas (LDAs) were constrained, yet every zone still cleared at the cap. This points to system-wide tightness rather than isolated regional constraints.
- Total auction value rose to $16.1 billion, up 9.5 percent from the prior year.
Key Takeaway for End Users
Capacity costs, often embedded in fixed supply rates, are rising sharply and now represent a growing portion of overall electricity spend. While energy prices have remained relatively flat, they are also facing upward pressure due to long-term demand growth, infrastructure constraints, and market volatility.
For end users in PJM, this means total electricity costs may continue to rise even in the absence of major energy market shocks. With higher reserve margins, more conservative planning assumptions, and limited new capacity additions, capacity prices could remain elevated in future auctions. Monitoring these developments will be essential when evaluating contract timing and overall procurement strategy.
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