Electricity customers in the Mid-Atlantic and Midwest will pay $14.7 billion for electricity capacity in 2025 and 2026 combined, up from $2.2 billion last year. The change reflects the increasing impact of utility and climate policies on electricity pricing.
The prices were set at a capacity auction conducted by the regional grid operator PJM on July 31 and will be shared by customers in 13 states and the District of Columbia. PJM holds the auction to secure adequate electric supply and reliability by purchasing future capacity commitments from the owners of electric generating plants.
Electric capacity costs accounted for up to about 8% of consumer bills in 2023. Those costs plus charges for energy consumption and transmission are the three components that determine total electricity costs.
A report by Synapse Energy Economics, commissioned by the Maryland Office of People’s Council, concluded the auction prices will pass through to consumers, increasing electricity bills by up to $250 per year for residential customers and $2,700 for commercial customers.
A report on the auction issued by PJM points to three factors driving the unprecedented rate spikes.
- An increase in forecasted peak electric load, driven by data center development and the electrification of buildings and cars;
- The retirement of three fossil-fuel-powered electric generating facilities in Maryland and Delaware, and;
- Reductions in available electricity supply due to new accreditation methods adopted by PJM to more accurately represent the ability of generating facilities to deliver electricity during severe weather events. The new accreditation methods reduce capacity for all generating assets but have a much larger impact on solar and natural gas facilities.
The highest prices for capacity were in the BGE service territory which suffers from inadequate generating capacity to meet local demand and inadequate transmission capacity to import electricity.
Less than 10% of the generating capacity purchased to serve the BGE service territory was from local sources. This is largely due to the planned June 2025 closure of the fossil-fuel-generating facilities at Brandon Shores and Wagner in eastern Baltimore County. Together, the facilities represent 75% of the generating capacity in the BGE delivery area.
After evaluating the impacts of deactivating the Brandon Shores and Wagner facilities, PJM stated that the closures could result in widespread voltage collapse, and thermal violations across seven local PJM zones, leading to the risk of blackouts in Baltimore and surrounding areas.
To avoid these issues PJM ordered Talen Energy, the company that owns the plants, to keep the facilities running until the end of 2028 when a package of transmission line upgrades bringing more imported power to the region will be completed. Under PJM market rules, customers in the BGE service territory will carry almost all the costs of the transmission line upgrades and the cost to keep the plants open.
Power sources in the PJM auction broke down as follows – 48% natural gas, 21% nuclear, 18% coal, 5% demand response, 4% hydro, 1% solar, 1% wind, and 2% other. So, next year, the generation mix will remain 66% fossil fuel vs. 27% zero emission.
The state’s climate plan calls for most in-state, fossil-fuel-powered generating facilities to be closed before 2031. This will increase the capacity problems and make Maryland more reliant on imported power.
The higher capacity auction prices could spur the development of new generating facilities with the potential to change the fuel mix, mitigate capacity shortage, and moderate future prices. But PJM, the grid operator, is working through a long backlog of requests to connect to the system. Some estimate the time to market to be 3.5 years or more – too late for the new generation to get online before the next two capacity auctions are held.
When intermittent renewable generation does come online, it will need to be many times the capacity of what is being retired in order to be considered equivalent. According to a February 2023 PJM report on energy transition and maintaining grid reliability as generation resources are retired, it will require 5.2 MW of solar, 14 MW of onshore wind, or 3.9 MW of offshore wind to replace each 1 MW of retired fossil-fuel-powered generation.
For these and other reasons, the Synapse report concludes, “Without rapid and significant improvements to the interconnection process in PJM, reliability issues, RMRs [RMRs are the forced generating plant operating agreements like the one for Brandon Shores] and high capacity prices could continue escalating costs for Marylanders for years to come.”