Alarm bells for the U.S. power grid are going off. The latest capacity auction conducted by PJM Interconnection—the nation’s largest regional transmission organization—has sent shockwaves through the energy sector.
The auction, which secures power supply commitments three years in advance, saw prices skyrocket by more than 800% compared to last year, a signal of tightening supply-demand balance and a growing concern over grid reliability.
The 2025/2026 base residual auction (BRA) conducted by PJM resulted in a clearing price of $269.92 per megawatt-day, up from just $28.92 in the previous year’s auction. The surge has been attributed to a combination of factors, including the accelerated retirement of coal, natural gas, and nuclear power plants, rising demand, and new market rules intended to better account for extreme weather risks.
“The significantly higher prices in this auction confirm our concerns that the supply/demand balance is tightening across the RTO,” said Manu Asthana, President and CEO of PJM Interconnection in a July press release. “The market is sending a price signal that should incent investment in resources.”
PJM noted, however, their concern with the “slow pace” of new dispatchable generation construction.
The auction procured 135,684 megawatts (MW) to meet the anticipated demand in PJM’s 13-state territory from June 2025 through May 2026. However, only 1% of that capacity came from solar and wind resources, with gas, nuclear, and coal accounting for 87% of the total. The results underscore the challenges facing the energy transition, as intermittent renewable energy sources struggle to replace the reliability provided by retiring thermal generators.
PJM’s warnings are echoed in a February 2023 report where the organization projected that as much as 40 gigawatts (GW) of existing generation could retire by 2030, with new generation projects lagging due to supply chain disruptions, financing difficulties, and permitting challenges. The Midcontinent Independent Systems Operator (MISO), which manages the grid for much of the Midwest, has similarly projected that by 2032, none of the Great Lakes states will have sufficient electricity capacity to meet even the most conservative demand projections.
The situation is exacerbated by government policies promoting the rapid deployment of renewable energy through subsidies and mandates. While these policies aim to reduce carbon emissions, critics argue that they have led to an over-reliance on renewable energy sources that cannot yet provide consistent, reliable power. The result is a grid increasingly vulnerable to blackouts, particularly during extreme weather events when renewable output can plummet.
A study by the Mackinac Center for Public Policy highlights the risks of this over-reliance. It found that utilities across the Great Lakes region are pledging to achieve net-zero emissions by 2050, yet the capacity shortfalls anticipated by grid operators suggest that these goals may lead to severe reliability issues unless supplemented by substantial backup power generation.
The dramatic increase in capacity prices is likely to have wide-reaching economic consequences. Industrial customers, particularly those that are energy-intensive, could see their costs soar by millions per month. These costs are expected to trickle down to consumers through higher prices for goods and services, further straining household budgets already stretched by inflation.
Energy experts warn that without significant new investment in reliable power generation—both renewable and thermal—the U.S. grid may be heading toward a series of reliability issues and skyrocketing energy costs. The next capacity auction for the 2026/2027 delivery year, scheduled for December 2024, is expected to further highlight these challenges.
“The results of one auction don’t establish a trend, but they do indicate that we are on a precarious path,” said Todd Snitchler, President and CEO of the Electric Power Supply Association. “The grid’s reliability is at risk, and we need to address these challenges with urgency."
“Reliability watchdogs, regulators, policymakers, and PJM itself have been sounding the alarm that the misalignment of power resource retirements and additions poses a serious reliability risk to the grid,” Todd Snitchler, President and CEO of the Electric Power Supply Association told Power Magazine. These issues are especially pertinent “in the face of rising demand spurred by data center and manufacturing growth among other factors like electrification, extreme weather, and policy choices.”
