PJM capacity prices may more than double in the 2026/27 auction.

Per a report by Morgan Stanley, capacity prices for the next PJM auction in December could go as high as $695/MW. This would be a 157% increase over the record high prices in the July capacity auction ($270/MW).

We are already starting to see the effects of the last PJM auction for the 2025/26 delivery year, which starts June 1. Maryland’s electric rates might increase by as much as 24%, Duquesne Light is increasing rates, and PECO’s rates might jump by 12.3% in January, with more increases on the horizon.

If capacity prices rise significantly again, some analysts are predicting rates could increase by as much as 20%.

The Factors Driving Further Increases

While there are many factors at play, some of the biggest are:

• • PJM’s forecast peak load for the 2026/27 delivery year is 2.2% higher than the last auction.
  • PJM’s installed reserve margin—a measure used in the power industry to ensure that there is enough electricity generating capacity to meet expected demand, plus a buffer to handle unexpected surges in demand or unplanned outages—increased to 18.6% from 17.8%.
  • Power plant retirements and a short-term lack of new generation.

PJM expects that 147,246 MW will need to be acquired in this December’s auction, a 1.9% increase from the last. This capacity will be required for 1 year starting on June 1, 2026, about 18 months after the auction takes place.

Industry analysts doubt there is enough time for significant amounts of new supply to enter the market, given permitting and construction timelines.

In the last auction, almost every single power plant cleared, so there was almost no excess capacity in the PJM market. This means that if the same plants clear in the upcoming auction, we could see prices spike to around $700/MW-d due to the power plant capacity shortage.

The PJM market has incredibly tight supply-demand conditions and will be sensitive to even very small power supply changes.

If a few gigawatts (GW) of new power plants are completed in time, and they offset the plants that exit due to retirement, prices might swing between $300/MW-d and $700/MW-d. However, analysts are saying there is a solid case that prices could hit $700 given all the challenges and the short timeline (18 months).

Additional new supply could also come from the reactivation of retired power plants, changes in resource accreditation, and demand response resources. When prices are high, capacity tends to crawl out of the woodwork. However, unless significantly more supply than anticipated becomes available, prices are probably going to be higher than the last auction.

What You Can Do About it

We are advising our clients to look at longer term contracts (2+ years). Now, exactly how long is largely going to depend on a couple factors:

1. How much electricity your business is using.
2. Where you are located.
3. Your load profile and load factor.
4. Your risk tolerance.
5. Do you have multiple locations?

This is where our energy experts come in, they will look over your energy usage and help you find the right supplier and right plan that fits your specific needs. So give us a call at 866-748-2669 or click here and submit your info and one of our energy experts will reach out.