What Small Businesses Should Know About PJM’s Latest Capacity Auction

3 MIN READ

If you own or operate a small business, you may not spend much time thinking about regional electricity markets. But the results of PJM’s latest capacity auction could eventually impact what you pay for power and explain why energy costs may continue to rise in the years ahead.

PJM, the organization responsible for managing the electric grid across thirteen states and Washington, D.C., recently completed its 2028/2029 Base Residual Auction. The auction secured enough power resources to help meet future electricity demand, but the results also highlight ongoing challenges facing the region’s power supply.

Capacity Prices Remain High

The auction cleared at a price of $325 per megawatt-day, only slightly lower than last year’s record-level result of $333.44 per megawatt-day. While the decrease is welcome, capacity prices remain dramatically higher than the levels businesses saw just a few years ago.

Capacity costs are one of the components built into electricity pricing. When these costs increase, they can eventually contribute to higher energy bills for businesses and consumers alike.

Demand for Electricity Keeps Growing

One of the biggest themes from the auction is that electricity demand continues to increase. PJM reported an additional 1,374 MW of forecasted load, driven largely by growth in large energy users. While PJM does not break out data center demand separately, growth from AI, cloud computing, and large industrial facilities is placing additional pressure on the grid.

As demand grows faster than new resources are added, maintaining reliability becomes more challenging—and more expensive.

Supply Remains Tight

Even after securing nearly 149,182 MW of total capacity, PJM reported that the region remains approximately 6,831 MW below its reliability requirement. PJM stated this does not mean customers will experience outages, but it does mean the system may operate with slimmer reserves and greater risk during periods of extreme demand.

For businesses, this is another sign that electricity markets are becoming tighter and more complex than they were several years ago.

New Power Supply Isn’t Keeping Pace

The auction results show that only about 525 MW of new generation and generation upgrades were added through this auction cycle, while reserve margins remain below PJM’s target levels. At the same time, some traditional generation resources continue to retire.

Natural gas remains a major contributor to grid reliability, and solar, battery storage, and other renewable resources continue to grow. However, the overall pace of new supply additions has not fully kept up with rising demand.

What Small Businesses Can Do

While businesses cannot control PJM auction results, they can take steps to better manage their energy costs.

Many small businesses can benefit from:

• Monitoring electricity usage during peak demand periods.
• Improving energy efficiency through lighting, HVAC, and equipment upgrades.
• Exploring demand response programs when available.
• Working with an energy supplier like AEP Energy to understand how capacity costs affect their electricity rates.
• Choosing a fixed-price energy product and other risk-management options that provide greater budget certainty.

Even modest reductions in electricity usage during high-demand periods can help businesses better manage future energy expenses.

The Bottom Line

The latest PJM capacity auction sends a clear signal: electricity demand continues to grow, supply remains tight, and capacity costs are likely to remain elevated for the foreseeable future.

For small business owners, the key takeaway is simple: now is a good time to understand your energy usage, look for opportunities to improve efficiency, and explore strategies that can help reduce exposure to rising electricity costs. Taking a proactive approach today can help protect your business from market uncertainty tomorrow. Contact your AEP Energy sales representative to learn more!

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