There are significant warning signs for the PJM Interconnection’s capacity market and grid reliability, primarily due to the rapid growth of data centers, according to the grid operator’s independent market monitor.
Recent capacity auctions have revealed a concerning trend: the gap between available capacity and reserve margin targets is widening. In the latest auction for 2026/2027, the shortfall was approximately 210 MW and increased dramatically to about 6,520 MW for 2027/2028. This information comes from Monitoring Analytics and their annual report focusing on PJM’s markets.
The effects of these changes are being felt financially. In 2025, wholesale power costs in PJM surged to $67 billion, a rise of 54% from $43.5 billion the year before. Energy costs alone comprised 60% of total expenses and increased by 51% from the previous year. Capacity costs soared even higher, experiencing a staggering 262% increase, raising their share to 16% of total costs compared to just 6.5% in 2024. Transmission costs also rose slightly by 4.5%.
A recent analysis estimated that the growth of data centers contributed to a total increase of $23.1 billion in system costs across the last three capacity auctions. The independent market monitor noted that the expansion of large data centers has had a lasting impact on the grid, leading to higher energy prices and transmission costs that all customers will ultimately bear.
PJM currently does not have enough capacity to support the demands from data centers. To address potential issues, the market monitor recommends that these facilities should find their own power supplies or face the possibility of curtailed energy access during peak stress periods on the grid.
Monitoring Analytics emphasized the necessity for a practical market solution that maintains the efficiency of PJM markets, rather than reverting to older regulatory frameworks. Jeffrey Shields, a spokesperson for PJM, acknowledged the extensive analysis provided by the market monitor, indicating that discussions around these issues are underway. Their outcomes are expected to prompt new proposals for the Federal Energy Regulatory Commission soon.
PJM is exploring a backstop reliability auction aimed at managing load growth. The market monitor proposed a separate capacity auction specifically for data centers, suggesting that only new generation could participate, which would be followed by long-term contracts with power plant owners.
This approach aims to prevent data centers from offloading costs and risks onto the general customer base, a concern the market monitor highlighted. Despite the challenges noted, Monitoring Analytics believes that the current PJM market framework is essentially sound and that only minor adjustments are necessary rather than a complete overhaul.