Energy consumers in the PJM network are facing increased capacity costs up to 800% higher, beginning June 1, 2025. Capacity is a necessary & significant component of electric supply and cannot be hedged. Many in the industry, including our supply partners, have no reason to believe rates beyond June 2006 will materially decrease based on the current supply/demand fundamentals – with significant generation unit retirements and increasing demand. As such, many, but not all suppliers are carrying forward the 2025/2026 PJM Capacity pricing to even the unknown capacity price years (June 2026 and beyond). This is a classic example of where EnerConnex can help you unbundle all components of a fixed price and whether a supplier offers bilateral rate adjustments when future capacity auction results are known or wear the risk of future capacity prices.
What this means for you:
1) These capacity adjustments do not go into effect until June 2025. Capacity pricing is set at the Wholesale level in an auction and passed on by Retail suppliers. These changing times for energy, capacity, and demand management may call for a different supply procurement approach going forward.
2) It’s increasingly more important for facilities to reduce & control peak demand, which is closely related to capacity obligation.
3) Return on investment for implementing energy efficiency and alternative energy solutions will increase as the offset cost has increased.
EnerConnex can help with all the above. Reach out to me Howard Levine and the EnerConnex, LLC team to discuss in more detail.
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PJM’s capacity auction has competitively secured resources to meet the RTO reliability requirement for the 2025/2026 Delivery Year. Auction prices were significantly higher across the RTO due to decreased electricity supply caused primarily by a large number of generator retirements, combined with increased electricity demand and implementation of FERC-approved market reforms.
While the overall resource mix is adequate, two zones cleared just short of their reserve requirement, resulting in prices being set at the zonal cap.
The higher prices send a clear investment signal across PJM’s 13 states and the District of Columbia.
“The capacity auction has been a valuable tool over time to help PJM competitively secure resources to meet reliability requirements,” said President and CEO Manu Asthana. “The significantly higher prices in this auction confirm our concerns that the supply/demand balance is tightening across the RTO. The market is sending a price signal that should incent investment in resources.”
Read more at PJM Inside Lines.
https://lnkd.in/esawCkk5
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