Unpacking PJM and the Capacity Auction Phenomenon

How the Clearing Price Shapes Our Power Grid and What It Means for Future Reliability

If you’ve been following the energy news lately, you’ve likely seen some troubling headlines: soaring capacity prices, potential 24% hikes in electric bills for Maryland residents, and urgent warnings from PJM, the nation’s largest grid operator. The recent PJM Capacity Auction for the 2025/2026 delivery year, held in late July, sent shockwaves through the industry. Capacity prices reached record highs, signaling a tightening grip on an energy market already under pressure.

But beneath these headlines lies a deeper story about the complex mechanisms that keep our grid running. The PJM Capacity Auction isn’t just a routine market exercise; it’s a critical process that determines whether we have enough power to meet future demand and at what cost. This year’s auction results are more than just numbers—they reflect a system facing significant challenges, from aging infrastructure to rising demand.

Understanding the PJM auction also offers insights into broader trends across other energy markets. As the balance between supply and demand grows increasingly precarious, the stakes rise not just for PJM, but for grid operators across the country. The auction serves as both a warning and a blueprint for how other markets might navigate similar pressures.

Today, we’re diving deep into the PJM Capacity Auction, breaking down the mechanics of how it works, and exploring what this year’s results mean for the future of energy in America. Whether you’re an industry insider or just someone paying attention to your electric bill, understanding this process is key to grasping the future of our power grid.

The Different Models of U.S. Energy Markets

In the complex world of electricity markets, the way power is bought, sold, and priced varies significantly across the United States. Understanding these differences is crucial to grasping why the recent PJM Capacity Auction has generated so much attention. There are three primary models that guide how power is priced and secured at the interchange level: energy-only markets, capacity markets, and hybrid markets.

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