News Alert! PJM’s capacity prices for 2025/2026 have skyrocketed to $269.97/MW-day, up $220 from current $50 levels.
What Are Electricity Capacity Costs?
Electric capacity costs are fees paid to the electric grid (PJM) to ensure power plants remain operational to meet demand, even during periods when prices are low and the plants are unprofitable. These costs act like an insurance premium for grid stability, guaranteeing that there is always enough electricity available to meet consumer demand.
You might not be aware, but these capacity costs make up about 30% of your electric supply costs, whether you are with an electric supplier or the utility company. This significant portion of your electric bill ensures the reliability of the power supply, safeguarding against outages and maintaining consistent energy availability.
Why Are Capacity Rates Increasing?
Capacity prices are going up because several power plants are retiring, there’s more demand for electricity, and new rules are factoring in risks from extreme weather. These changes mean higher costs to ensure there’s enough power during peak times.
This year, fewer power plants were available to bid in the auction (6,600 MW lower than the last auction), and the expected peak demand for electricity increased (153,000 MW vs. 150,000 MW). As a result, the tighter supply and higher demand have led to significantly higher prices.
Here is a chart reflecting the recent auction results:
What Does This Mean For Your Electric Bill?
Starting in June 2025, the average commercial customer will see their electric bill increase by an extra 2 cents per kWh, potentially leading to a 20-30% rise depending on current rates. This means a significant jump in costs for businesses, impacting overall operating expenses.
Even if energy prices stay stable or decrease, consumers will still face these higher costs since they are based on demand, not the price of electricity. This points to a very expensive future for energy consumers, emphasizing the need to explore cost-saving alternatives.
Here is an outline of current prices vs. future prices:
How You Can Mitigate Price Risk
Avoiding future capacity prices will be challenging for most commercial businesses as capacity tags have already been set. Exploring ways to reduce peak demand and hybrid energy supply products could be a solution to reducing expenses. Puleo Energy can help you navigate future capacity costs and explore electricity price structures to avoid inevitable energy price increases. Contact us today to learn how we can assist you in securing a more stable and cost-effective energy future.