PJM Interconnection, which operates the electricity grid across Pennsylvania and part or all of 12 other states, as well as Washington, D.C., announced the results of this year’s capacity auction. The final price hit a record high for the second year in a row. This could impact electricity bills for over 60 million people across PJM’s territory.
The Allegheny Front’s Kara Holsopple spoke with Jon Gordon, a policy director at Advanced Energy United, an industry association focused on clean power and transportation electrification, to find out what’s behind price increases and what a long line of renewable energy projects has to do with it.
LISTEN to the interview
The interview has been edited.
Kara Holsopple: So, for the layperson, what is the PJM auction?
Jon Gordon: The PJM capacity market — it’s where the auction takes place —we call it the capacity market. And that exists because at certain times of year, like today, where it’s summer, and it’s really hot, and everyone’s running their air conditioners, the demand for electricity spikes on days like this to way above average.
There’s this whole class of power plants that just run a few hours a year to meet these super-high peak demands. That’s not a very economical way for these plants to run just a few hours a year. So we sort of have to provide them a revenue stream to keep them maintained and up and running and available on these days when we desperately need them most.
The capacity market provides revenue to these plants that are critically important to meeting demand on these super-high-demand days.
Kara Holsopple: And there’s like a price decided, right?
Jon Gordon: The power plant owners, the folks that are going to provide this peak energy, it’s how much they need to be compensated to provide this generation. It reflects all of their costs of operation, maintenance, fuel, risk — all of those things. It’s an auction, so you’re trying to get the lowest price for consumers. But, you know, auction prices can go up when there’s not a lot of folks bidding in the auction.
Kara Holsopple: Why was this year different than previous years?
Jon Gordon: I would say this began in last year’s auction, that’s when prices shot up in the auction. So for many years, the portion of your bill for capacity was relatively stable; it was unchanging. So nobody really noticed it. For many years at PJM, load growth demand for energy was pretty flat, pretty stable, and they had plenty of power generation, almost an excess of supply relative to demand.
We suddenly saw this spike in demand that was driven largely by data centers and to a lesser degree, electrification, like electric vehicles, electric heat pumps, and all of that.
In last year’s auction, that kind of flipped. We suddenly saw this spike in demand that was driven largely by data centers and, to a lesser degree, electrification, like electric vehicles, electric heat pumps, and all of that.
We saw this really flat demand spike up at the exact same time that a lot of power plants began retiring. We have a lot of very old power plants on the system. As plants age, they become, like a car, less economical to run. They need repairs all the time. They’re dirty, they’re polluting, there are all sorts of reasons for these plants to retire. So we had two things happen at once. We had less supply, with retiring plants and increased demand, and that drives prices up.
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Kara Holsopple: Why is it so difficult to get new power sources online?
Jon Gordon: That is kind of the heart of this matter, in my view. In PJM, it’s very difficult for new supply to come online. And the reason for that — it gets into a little bit of an arcane concept. I’ll try and explain it as easily as I can. PJM has what they call the interconnection queue.
If you’re a power generator who wants to supply energy – a solar plant, a natural gas power plant – you have to go to PJM and basically apply to connect to the grid. The reason for that is that PJM has to make sure the grid can support whatever your project is. You can’t just plop a power plant anywhere. There has to be enough capacity in the power lines, the transmission lines, to move the power. So they do an interconnection study. That lets you know when and where you can connect.
This interconnection queue is broken.
If we go back 15 or 20 years before the clean energy revolution, the clean energy transition, the interconnection queue would be just a couple of power plants a year. PJM was all about just these big centrally located power stations, these big old coal plants and natural gas plants, huge power generating plants. So they’d only get a handful of interconnection requests a year. They’re quite complicated, these interconnection studies. It’s a big engineering and economic analysis. It takes PJM several years, believe it or not, to do one of these interconnection studies.
Suddenly you have hundreds of solar developers wanting to put little solar fields everywhere…PJM quickly became overwhelmed with hundreds and hundreds of interconnection requests.
So, along comes the clean energy transition. Instead of having four or five large plants wanting to connect, suddenly you have hundreds of solar developers wanting to put little solar fields everywhere. They’re smaller, they’re distributed. PJM quickly became overwhelmed with hundreds and hundreds of interconnection requests. They just got they got buried in these.
It got so bad that in 2022, they closed the interconnection queue. No wonder we’re having trouble getting new supply online. They’re hoping it’ll be open in late 2026. PJM’s failure to effectively manage this queue and anticipate this change, this high-volume queue that we suddenly have, is really what has led, in my view, to these higher prices.
Kara Holsopple: How does PGM compare with other grid operators in the country when it comes to getting sources of energy into the grid?
Jon Gordon: It’s funny to ask that question because Advanced Energy United actually did a scorecard where we rated every RTO in the U.S. On their ability to interconnect new resources. That’s a regional transmission organization. That’s what PJM is known as in the business. Unsurprisingly, PJM had the lowest score of any RTO in America. They got a D minus, which I think was fairly generous considering their queue has been closed since 2022. There are some other RTOs that have a little bit of a slow queue, but nothing like the problem we see in PJM.
Kara Holsopple: So, in your opinion, what’s the solution?
Jon Gordon: Once the hole gets dug this deep, it gets a lot harder to dig your way out. It would have been a lot easier to have anticipated this. They get frustrated when we talk about the problems of the past; they want to look forward. There aren’t a lot of easy solutions. There’s no silver bullet.
PJM’s failure to effectively manage this queue and anticipate this change, this high-volume queue that we suddenly have, is really what has led, in my view, to these higher prices.
One of the things they tried to do when this problem became apparent was hire a whole bunch more people to do these interconnection studies. But the problem was, these are really complicated studies. You need transmission engineers with really unique expertise. Finding skilled, qualified engineers is generally a challenge, and people with transmission engineering expertise, even more so. So PJM couldn’t really staff up. There are ways to abbreviate these studies and complete them more quickly, and they’re starting to do that now. They’ve made those improvements, but again, you barely notice it when the hole is this deep.
We would like to see PJM just reopen the queue because we have to start restocking this queue with new projects. The projects that are in the queue are so old. They’ve been in there for so long. Many of them entered the queue before COVID, before we had the supply chain issues, inflation, tariffs, you know, the world has changed. Even though there are lots of projects in the queue – I just want to mention 95% of them are clean energy – there’s a concern that the economics have changed. When they finally do get permission to interconnect, they may no longer be economic.
So one of the things we want to see PGM do is really refresh this queue and start allowing new projects that reflect today’s economic realities of the queue, and just open the queue back up.
Kara Holsopple: How are federal policies impacting PGM’s ability to provide affordable electricity?
Jon Gordon: The Federal Energy Regulatory Commission is the body that oversees PJM. So that’s one of the unusual things about PJM, one of the things the states are learning. The states have taken, as you might imagine, a much bigger interest in PJM after this big range increase, and I think that really struck them how much what happens if PJM impacts states and their consumers.
The offshore wind projects have been canceled. PJM was counting on offshore wind to meet future demand, expecting these to come online eventually.
Honestly, if I’m going to get into it, some of the things the new administration is doing are shutting down a lot of projects that could have been new supply. The offshore wind projects have been canceled. PJM was counting on offshore wind to meet future demand, expecting these to come online eventually. A lot of what’s happened to the clean energy from a federal government policy perspective is going to harm consumers and increase prices, I think, for a long time.
Kara Holsopple: Are there other technologies besides adding more renewables to the grid that could help with costs or with demand?
Jon Gordon: There are. One of them is advanced transmission technologies. That’s sort of a broad term for all sorts of things that make transmission lines more efficient, allow them to carry more power. There are all sorts of new technologies where you can take an existing transmission line and increase its capacity by 20%. It’s almost like adding a new power plant. But again, there are obstacles: inertia and challenges in some cases to get the transmission owners to upgrade these transmission lines. So that’s an area that we really emphasize. We want to see that done. It’s kind of low-hanging fruit. We should do as much of that as we absolutely can.
PJM announced this year that they were partnering with the Google Tapestry, an affiliate of Google that does AI. They’re trying to find a way to apply AI to these interconnection studies. If we can somehow find a way to use AI to take that three-year interconnection study and do it in a few weeks or a few months, that would really be something. PJM just kicked this off. They don’t really have a lot of firm timelines on this, but maybe technology can come in and help us there.
Kara Holsopple: If data centers are really driving the electricity power needs here, then should data centers be more responsible for taking care of how they are powered?
Jon Gordon: Yes, absolutely. So in the business, people have coined the term, “data centers should bring their own power.” Meaning, if you’re going to build a data center, you better have a plan to build like a power plant right next to it, because you’re not going to take power plants from rate payers who desperately need them and have paid for them. But this is all happening so fast, this phenomenon. I’ve never seen anything like it, frankly, with data centers. And I know the regulatory wheels turn slowly. New rate structures and regulatory regimes happen over many years. We don’t really have structures to account for this phenomenon. It is the issue of the day, truly.
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Jon Gordon is a policy director at Advanced Energy United.
We reached out to PJM for comment. A senior communications manager for the company said in an email that existing supply to the grid has been leaving the system due primarily to state and federal decarbonization policies and some economics. He said PJM has studied and approved 46,000 MW of new supply (enough to power about 40 million homes) that have been slow to construct due to reasons outside of PJM’s control, including the global supply chain.
