The PJM capacity crisis: what industrial energy consumers need to know

Imagine the following scenario: your company's Energy Procurement Manager just spent the morning explaining to the CFO why next year's electricity budget needs to increase by double digits. A tough sell, but if you are operating within the PJM territory this conversation has become all too familiar.

The numbers are unambiguous. PJM's capacity price for 2025/2026 increased almost tenfold compared to the previous period, with some regions seeing even more dramatic increases. For 2026/2027 prices are even higher in most areas, hitting the price cap implemented by FERC. If your company operates facilities across the East North Central and Mid-Atlantic states, these costs are already affecting your bottom line.

In an era of unprecedented energy market volatility, information is your most powerful asset. This short blog article gives you a glimpse into our upcoming White Paper, which equips you with practical strategies and insights into the new market challenges.

The market reality

Two forces are colliding across North America and within PJM specifically: demand expectations are increasing exponentially while supply is not keeping pace. On the demand side, data centers are by far the largest culprit. The AI boom in North America accounts for half of the growth in electricity demand to 2030. Meanwhile, retirements of dated coal-fired power plants are putting strain on the grid during peak moments. The production capacity is stagnating or even reducing in the short to medium term.

Why industrial facilities face unique exposure

Your operations require consistent, reliable power to maintain production, quality, and safety standards. This inflexibility creates unique vulnerability to market volatility.

The complexity extends beyond operational constraints. Different industries have vastly different load profiles, peak demand patterns, and capacity obligations. Your Peak Load Contribution (PLC) – determined by your average contribution during PJM's top 5 peak demand hours – directly impacts next year's capacity charges. With capacity prices at historic highs, managing these coincident peaks has become critical for cost control.

This is neither a temporary nor easily solved market anomaly. The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, refocuses on fossil-fueled and nuclear solutions with two main consequences in the short term: tax credits for renewables will be removed by 2027 instead of phasing out through 2032, and the Prohibited Foreign Entity clause aims to reduce reliance on specific foreign supply chains.

Adjusting to the new policy climate will take time and will likely result in a supply-demand imbalance by 2027. As the IRA incentives phase out and new policy constraints take effect, the renewable pipeline will likely slow significantly, exacerbating supply constraints.

PJM operates across a vast territory, but impacts are far from uniform. Location matters more than ever for industrial facilities. A manufacturing plant in western Pennsylvania faces different challenges than a data center in northern Virginia or a chemical facility in Ohio. Understanding these regional variations is crucial for developing effective procurement and operational strategies.

Beyond procurement: strategic energy management

The temptation is to treat rising energy costs as purely a procurement problem. While procurement excellence remains important, the current situation demands a more strategic approach. Energy is becoming a more significant factor in operational decisions.

Companies that can shift load, invest in Battery Energy Storage Systems (BESS), or participate in demand response programs may find new revenue streams that partially offset rising costs. Others are exploring Power Purchase Agreements (PPAs) and Virtual Power Purchase Agreements (VPPAs). These can be a viable solution to support sustainability goals, but come with risks – financial or otherwise – that need to be assessed thoroughly.

Budget cycles are closing in weeks, not months. IRA incentive windows close in months, not years. Developers are pushing hard to meet deadlines and still profit from IRA incentives before the policy landscape shifts. Those incentives will be significantly adapted after 2026, creating compressed windows for securing advantageous renewable agreements.

Risk management is no longer optional

Many large organizations still operate on short-term indexed or fixed-price electricity contracts with no hedging strategy in place. This represents a complete shift in mindset that needs to happen across organizations. Risk management is the way to mitigate volatility moving forward.

Electricity wholesale markets continue to show increased volatility and upward pressure. Reliability concerns create recurring market reactions as the story enters and exits media coverage. Each time this topic reemerges, markets react by pricing in a higher risk of future supply shortfalls.

Three structural shifts have made risk management essential: capacity markets have demonstrated that waiting is expensive, forward curves show bullish sentiment through 2027 and beyond, and the supply-demand imbalance is not temporary.

As the longer term is already sitting at high percentiles, opportunity hunting for favorable rates is not looking promising. Together with increased capacity costs, the market's message is unambiguous: expect elevated prices and high volatility through 2027 and beyond.

The path forward

The decisions you make in the coming months will shape your organization's energy costs and risks for years to come. Companies moving now gain two advantages: they can protect current budgets before further escalation, and they build organizational capability before the next market disruption.

Our upcoming White Paper dives deep into the PJM capacity crisis, offering industrial energy buyers a strategic roadmap. From budget planning techniques to renewable energy evaluation frameworks, peak management optimization to comprehensive risk mitigation approaches, it equips industrial energy consumers with the knowledge needed to make informed decisions in an increasingly complex energy landscape.

The energy markets are changing rapidly. The question is whether your organization will shape its energy future proactively or react to cost increases as they arrive. Those advantages compound over time.

Keep an eye out for the White Paper coming soon.