In defense of PJM. Reap what you sow.
There has been a huge outcry regarding the dramatic (9x) price increase in the recent PJM capacity auction. Most PJM customers will be seeing double-digit increases in their electricity bills in 2025.
While there is finger pointing from all sides, this outcome is no surprise and just reflects how incentives and uncertainty impact efficient markets. The PJM capacity market sends a price signal to make sure that power generation will be there when needed and this is becoming more critical everyday as baseload power plants are being retired and load growth accelerating.
The problem is (and the prices reflect it), there is simply too much uncertainty around the ROI of a new dispatchable power plant, like natural gas. New EPA regulations requiring CCS on such plants and the continued onslaught of renewables and their structural and political preferential treatment, makes a new gas plant’s capacity factor highly uncertain and likely below that needed for the required rate of return. Resulting in a capacity shortage.
Free and deregulated markets will distort and fail to satisfy the needs of its’ customers when they are impacted by policy driven incentives and mandates. The PJM auction was not broken, rather it was simply the correct free market response to all available data.
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