By John Quigley, Senior Fellow, Kleinman Center

Next year, the electricity bills for twenty percent of Americans will start reflecting the high cost of failing to transition to clean energy.

On July 30, PJM, the regional transmission organization that coordinates the movement of wholesale electricity in Pennsylvania and all or parts of 12 other states and the District of Columbia, announced the results of its latest capacity auction to procure generation resources to ensure a reliable electricity grid.

The cost of lining up those resources has skyrocketed—by a factor of almost seven—to a record high level. Electricity bills for the 65 million people in the region could increase by as much as 29% starting in June 2025—and it may be only the beginning unless swift action is taken by PJM.

PJM says the higher prices are driven by three factors--

-- Generator retirements—mainly due to natural gas plants outcompeting coal fired power plants—have decreased available supply.

-- Increasing peak load (overall growth in electricity demand, as I pointed out here, may be overestimated).

-- The implementation of FERC-approved market reforms that better reflect reliability risks posed by extreme weather.

There is a fourth, unstated reason behind the price spike which, as the Natural Resources Defense Council has said, was foreseeable and preventable—the lack of a clean energy transition in PJM.

The auction resulted in this generation mix for the June 2025-May 2026 delivery year:  48% gas; 21% nuclear; 18% coal; 5% demand response; 4% hydro; 2% other resources; 1% solar; and 1% wind/

PJM is severely overreliant on fossil fuels—especially natural gas-fired generation. Indeed, the unreliability of natural gas plants during extreme weather events, as weighed by PJM’s new FERC-approved reliability risk model, appears to be a major contributing factor to the cost increase.

The energy mix saddling PJM customers and their wallets reflects a failure to adequately plan and act to diversify the resource mix to ensure an affordable and reliable power grid.

Massive amounts of clean energy generation and storage projects are backlogged in PJM. Renewables and storage comprise over 97% of proposed new generation projects in the PJM queue.

But as reported here, a 2023 report from Americans for a Clean Energy Grid awarded PJM a grade of “D+” for its process of building new transmission lines necessary to connect new generation sources to the grid.

Further, in 2022, PJM paused its interconnection process and stopped approving new generation projects for almost two years while it developed a proposal for FERC-ordered reforms to ease entry of new generation resources.

FERC rejected PJM’s initial proposal last year and finally approved a revised one in July.

PJM now says that they expect to process about 72,000 MW of new generation resources from the queue in 2024 and 2025; however, about 38,000 MW that have cleared the queue have not been built due to challenges beyond PJM’s control, including financing, supply chain, siting, and permitting issues.

PJM has analyzed the impacts of a clean energy transition, and in a report released in July, found that a grid powered by as much as 93 percent carbon-free electricity could still be reliable, and that this is achievable as soon as 2035.

PJM needs to urgently implement that vision of a decarbonized grid to ensure reliability and protect consumers—and the planet.

It must go all out to enable and rapidly scale up clean energy generation as well as more flexible demand-side resources.

It should also facilitate demand side innovations like this very promising UK startup that’s looking to gain a U.S. foothold.

Policymakers in PJM states must demand those actions from PJM. They must also get to work with their Federal counterparts on the urgent grid governance reforms—at both Federal and regional levels—identified in this essential Kleinman Center whitepaper.

There’s no time to lose. The next auction is in December.

John Quigley is a senior fellow at the Kleinman Center for Energy Policy and previously served on the Center’s Advisory Board. He served as Secretary of the PA Department of Environmental Protection and of the PA Department of Conservation and Natural Resources.

Resource Links:

-- Pennsylvania’s Electric Grid Is Dependent On One Fuel To Generate 59% Of Our Electricity; Market Moving To Renewables + Storage  [PaEN] 

-- PJM Makes Multiple Reliability-Focused Improvements To Prepare For Winter To Deal With 70% Natural Gas, Other Generator Nonperformance In 2022   [PaEN]

-- PJM Reports Natural Gas Power Plants Were Over Half The Forced Outages During Winter Storm Gerri In January; Special Procedures Used For Gas Generators Raised Questions About Market Impacts   [PaEN]

-- New NERC Winter Reliability Assessment Finds Elevated Risk Of Blackouts In Extreme Weather Conditions; Natural Gas Supplies Still Vulnerable To These Conditions With 'Devastating Consequences'   [PaEN]

-- US EIA Report Shows How Winter Storms Have Reduced US Natural Gas Production, But Disruptions Can Happen Any Time Of The Year   [PaEN]

Related Articles This Week:

-- PJM Electricity Auction Price 9 Times Higher Than Previous Auction-- $269.92/MW-Day For 2025/26 Delivery Compared To $28.92/MW-Day In 2024-25; Extreme Weather Risk Big Factor    [PaEN]

-- PennFuture: Dramatic PJM Electricity Price Increases Due To Forced Outages Of Gas Power Plants; Huge Backlog Of New Generation Projects; Demand Growth Driven By Data Centers, Cryptocurrency Mining  [PaEN]

-- Natural Resources Defense Council: The Cost Of Slow-Walking Clean Energy Can Be Seen In Latest PJM Electricity Prices  [PaEN]

-- Kleinman Center For Energy Policy: The High Price Of Failing To Transition To Clean Energy In PJM Footprint; Next PJM Auction Is In December - By John Quigley, Senior Fellow, Kleinman Center  [PaEN]

-- DEP Awards $15+ Million In PA Electric Grid Resilience Grants To Prevent, Shorten Power Outages In Rural Electric Systems; Fall Grant Round Planned  [PaEN]

-- DEP Awards $2.3 Million To Schools, Businesses, Local Governments Switching To Zero- Or Low-Emission Vehicles; Now Accepting Applications  [PaEN]

-- PA Solar Center, Philadelphia Solar Energy Assn., Partners Host Aug. 14 Webinar To Get Eligible Schools Ready To Apply For The New PA Solar For Schools Grants  [PaEN]

-- Allegheny County Health Dept. Accepting Applications For $5 Million In Local Climate Resiliency And Adaptation Project Grants [PaEN]

NewsClips This Week:

-- Utility Dive: PJM Capacity Auction To Lead To Double-Digit Rate Hikes For Exelon Utilities: CFO  [PECO]

-- Utility Dive: FirstEnergy Seeks Alternatives To PJM Capacity Market’s Dramatically Higher Prices To Bolster Power Supply

-- Meadville Tribune: National Fuel Natural Gas Rates Rising More Than 11% Aug. 1

-- Utility Dive: PJM Electric Capacity Prices Hit Record Highs, Sending Build Signal To Generators-- $14.7 Billion Up From $2.2 Billion In Last Auction

-- Bloomberg: PJM Interconnection Auction Results In Record Wholesale Electric Price Increases

-- Renewable Energy World: Energy Prices At PJM Capacity Auction Skyrocket 9x: Oh, That’s Not Good

-- Reuters: PJM Power Auction Results Yield Sharply Higher Prices

-- S&P Global: PJM Power Capacity Auction Clears At Record High Price Of $269.92/MW-Day For Most Of Footprint

-- Power Magazine: PJM Capacity Auction Prices Surge Over Nine-Fold, Signal Urgent Need For New Power Generation

-- RTO Insider: PJM Capacity Prices Spike 10-Fold In 2025/26 Auction

-- Bloomberg: Almost 20% Of Americans Face Prospect Of Higher Energy Bills

[Posted: August 3, 2024]

8/5/2024