PJM Interconnection

The Base Residual Auction

• The 27/28 Reliability Pricing Model (RPM) Base Residual Auction (BRA) cleared ~ 135 GW of Unforced Capacity (UCAP) at an RTO wide cap of $333.44 per MW-day.

• Only ~ 809 MW of UCAP did not clear due to those resources being priced above the temporary price cap of $333.44 per MW-day.

  • Note, this price cap is expected to go away in the upcoming auction in June/July 2026

  • For those struggling to convert, this is equivalent to $10 per kW-mo

  • In the absence of the cap, the auction would have effectively cleared at $529.80 per MW-day (Rest of RTO) with a reserve margin of 15.1%, clearing somewhere in the range of $26.3B

• The RPM cleared 14.8% of Installed Reserve Margin (IRM), 5.2% below the 20% IRM.

  • For context, the IRM is the margin required to maintain a one-day-in-10 years Loss of Load Expectation (LOLE)

  • According to estimates, PJM is short of 6.62 GW

of UCAP

THE BOTTOM LINE

The price came in at the FERC-approved cap, $333.44/MW day (UCAP) for the entire PJM footprint, a slight increase (+1.3%) from the 2026/2027 Base Residual Auction. The cap, agreed to be in place for the Base Residual Auctions for delivery years 2026/2027 and 2027/2028, is calculated using the accredited capacity of the PJM reference resource. The cleared supply in the auction times the clearing price totals $16.4 billion, although not all load pays this clearing price because of the impact of self-supply and bilateral contract arrangements.

GENERATION RESOURCE MIX

• The cleared resource mix in this auction includes: 43% natural gas, 21% nuclear, 20% coal, 5% demand response, 4% hydro, 2% wind, 2% oil and 1% solar

• The latest auction results were driven by a 5,250-MW increase in PJM’s demand forecast, almost entirely driven by data centers, and a roughly 370-MW increase in cleared “unforced capacity” compared to the last auction

• Reliability risk has shifted from ‘fuel security’ to ‘capacity sufficiency’

• Where prior reliability concerns focused on winter gas performance, this time around, the system is short of accredited capacity itself

• Even perfect performance wouldn’t fix a structural MW/MWh gap

EFFECTIVE LOAD CARRYING CAPABILITY

• Even at record capacity prices, PJM is still not able to attract

meaningful storage capacity as well as large-scale renewables

• This is telling because if high prices are not enough to

incentivize investment, the issue is less to do with cost of revenue capture, but more to do with interconnection, accreditation, and rules-based risk

CLUES FROM THE QUEUES

• Based on the interconnection queue, there is ~2,500 MW of offshore wind, 914 MW of solar, 732 MW of BESS, and 569 MW of natural gas under construction at the time of writing

• Withdrawals took center stage in the last 12-18 mos., where we saw ~37,442 MW of solar, 35,659 MW of BESS, 21,669 MW of natural gas, 7,414 MW of hybrids, 5,117 MW of offshore wind, 3,602 MW of onshore wind exit the queue due to a variety of reasons

• The greatest number of withdrawals took place in PA, VA, IL, and IN, respectively

• By capacity, VA and MD have the most projects currently under construction, whereas from a pipeline perspective, IL, VA, and OH have the most projects currently active in the queue

• This underscores the fact that new generation response continues to remain weak in PJM. The BRA is signaling scarcity and it’s not going to get better without serious reforms

• The auction increases the probability of an ‘out of market’ action by PJM, indicating market design as a hurdle this weakening investor confidence in RPM

LOAD GROWTH

PJM has flagged that one of the major drivers of the tight supply-demand balance is the increase in forecasted load, to the tune of + 5,249.9 MW, mostly attributed to large loads

Summer:

• Projected to average 3.1% per year over the next

10-year period and 2.0% over the next 20 years

• Annualized 10-year growth rates for individual

zones range from 0.1% to 6.3%; median of 0.7%

Winter:

• Projected to average 3.8% per year over the

next 10-year period, and 2.4% over the next 20

years.

• Annualized 10-year growth rates for individual

zones range from 0.1% to 6.0%; median of 1.6%

SOME KEY TAKEAWAYS

• There was no price discovery this auction – it hit a wall

• When every LDA clears at the cap, price loses locational signaling value

• Demand Response was the quiet winner. Required Demand Response (DR) availability increased to all hours in the year, and the calculation of the winter peak load was updated to a coincident value. This was a major driver to an increase of the ELCC value for DR from 69% in the 2026/2027 BRA to 92% in the 2027/2028 BRA

• If the shortfall continues for two consecutive BRAs, PJM will trigger a Reliability Backstop Auction (RBA) with prior filing with FERC

• This is almost certain given the large gap between supply and demand

• The clearing solution may be required to commit capacity resources out-of-merit order but still in a least cost manner to ensure that all these constraints are respected.

• In these cases where one or more of the constraints results in out-of-merit commitment in the auction

  solution, resource clearing prices will be reflective of the price of resources selected out-of-merit order

  to meet the necessary requirements

• PJM submitted $0 offers for specific Reliability Must-Run units and will allocate the revenue as a credit to the associated load

• The Chanceford-Doubs 500 kV backbone transmission line was delayed, which significantly impacted MAAC, SWMAAC and DOM CETLs.

MARKET EVOLUTION

• The Federal Energy Regulatory Commission this year also approved a PJM-proposed expansion of Surplus Interconnection Service to augment the operating efficiency

and availability of existing resources, and the Reliability Resource Initiative, which attracted 11,000 MW of nameplate capacity in proposed, shovel-ready, high reliability generation projects.

• PJM has also asked FERC for amendments to the rules on Capacity Interconnection Rights (CIRs) that would facilitate an expedited interconnection process to utilize the CIRs of a deactivating resource.

• Recognizing that electricity demand is increasing faster than generation is being added, PJM is working on multiple fronts to further streamline the Interconnection Study processes. This includes our collaboration with Google/Tapestry, to leverage

artificial intelligence to further streamline the study process and reduce study

timelines.