Special Report - Upcoming Capacity Price Increase

April 23, 2025

As we approach Summer, Infinity Power Partners (IPP) wanted to ensure you knew of some significant movements that will increase your energy costs beginning in June/July. There is a lot of information below, but as you know, we prioritize education, and with this historic change, We didn’t want any detail overlooked. With that being said, our team is available anytime if you’d like to schedule a call to discuss further or for us to review with any of your team members.

Traditionally PJM, which is a regional transmission organization responsible for coordinating the wholesale electricity and transmission across many states including any meters in Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and DC holds an annual auction to determine the future pricing for your capacity costs. Capacity costs comprise a portion of your invoice (approximately 15%), but that varies meter to meter depending on how the energy is consumed and when. A capacity market exists to help minimize blackouts and ensure enough energy across the board on days when the grid is close to its maximum output, or its capacity.

Due to an ongoing battle between FERC (Federal Energy Regulatory Commission) and PJM officials over the process and fairness of these capacity auctions, PJM has delayed a full auction for a couple of years. The ongoing negotiations between FERC and PJM have also resulted in new pricing rules. The new pricing rule introduces a pricing “collar”, PJM has an auction cap of $325/MW and floor of $175/MW. Considering the high pricing from the most recent auction and the newly introduced pricing rules, suppliers we have talked to have indicated fixing capacity for future contracts would likely be in the $325/MW range, the maximum allowable price. Because of this, in general, IPP is recommending clients stay away from fixing capacity because of the hefty premium. If auction results are favorable our clients will be the beneficiaries of this, while fixing capacity at this point would have clients on the higher end of the pricing collar.

PJM's first full auction for the 2025/2026 capacity year resulted in prices that were twice as high as those in the last traditional auction held for 2021/2022. There was a plan for a supplemental auction this Spring to hopefully lower those rates, but that has been cancelled. The next scheduled auction is July 9 thru 16 for delivery 2026/2027 with results published July 22, 2025. You can read more about the exact results here.

There are three major takeaways from this auction.

1. Increased Rates—

Your utilities will increase the costs of your capacity rates, which are passed through directly on your invoice. Again, this change will vary for each meter, but the average expected increase is around 10% compared to last summer. Rates are still historically on the lower side overall, so we don’t expect pricing to go back to the peaks seen before, but there will be increases across the board.

2. Capacity Pricing—

IPP has had several conversations with suppliers to determine the best way to continue serving you to provide the strategy, savings, and budget certainty you need. We will now include a model in our pricing, which is an annual capacity reprice. Traditionally, we would sign a multi-year deal that had capacity fully fixed. However, with the uncertainty in the market, we will look to sign our multi-year deals where the energy price and the transmission are still fully fixed for the entire term, but the capacity will reset annually based on the price the utility provides. This gives you budget certainty for the annual planning, while keeping the door open for significant price decreases as PJM updates its capacity policies. The last thing we want is for anyone to overpay for their fixed energy costs.

3. 5 Coincident Peaks—

Every Summer, PJM finds the 5 days where our grid is at capacity and then determines what percentage of the usage came from your property to determine what you should pay. Thus, the lower your energy usage is during those times, the lower your overall cost will be for the future years. IPP is alerted to upcoming expected days that could be used for the 5 CP and will absolutely notify you as soon as we are. Anything you can do to curtail your energy usage during that day could lead to additional significant price decreases for your team. Here is a breakout of the 2024 5CP dates and rates.

We know rate hikes are always the last thing we want to hear about, but we certainly didn’t want anyone to be caught off guard. Please do not hesitate to reach out with questions or additional information you’d like to discuss. One of our suppliers, Freepoint Energy, put together a good document that further outlines the complications of the capacity market and where we are today. Soaring PJM Capacity Prices