The following article was originally published in the Ohio Capital Journal and published on News5Cleveland.com under a content-sharing agreement.
Ohioans can expect their electric bills to keep going up. Last year’s auction to ensure the grid operator serving Ohio could meet demand saw capacity prices shoot up more than 830%. In the most recent auction, prices rose even higher.
When the 830% increase came down last year after an auction held by electric grid operator PJM Interconnection, Pennsylvania Gov. Josh Shapiro sued.
As part of the settlement, PJM agreed to cap the price for the auction that concluded last week. Regardless, the capacity auction price rose even higher, hitting the cap laid out ahead of time by regulators.
Power producers will get paid $329.17 per megawatt/day. That’s up from roughly $270 per megawatt/day in the previous auction.
“These prices are reflecting the fact that the resource adequacy crisis is real in PJM,” Jon Gordon, director of Advanced Energy United explained.
At bottom, the auction is meant to match supply and demand. Higher auction prices serve as a price signal to encourage more power generation, but PJM has a massive backlog of power plants waiting to connect to the grid. That interconnection queue has been closed to new projects since 2022.
“It’s pretty hard to bring new generation resources online when the process for doing so is closed for new generation,” Gordon explained.
Last year’s auction price only began showing up on consumers’ energy bills this June. The latest auction prices take effect next year. That means Ohioans, and most energy consumers across PJM’s 13-state footprint, aren’t likely to see energy prices come down anytime soon.
Johns Hopkins University Research Scholar Abe Silverman explained, “We have less generation on the grid today than we need given all the load growth, and so whether the price impacts are affecting you today or tomorrow, they’re definitely coming, because we are just sort of entering this very, very tight market.”
PJM itself says the new capacity auction prices could push some consumers’ bills another 1.5% to 5% higher when they take effect next year. Although it also claims “it is possible that consumers in some areas could see a drop in retail rates.”
How does the capacity auction work? Or not work?
To make sure PJM has adequate power when demand peaks, it holds a regular auction where producers commit a given amount of power. PJM compares it to a mall parking lot — they’re doing the energy equivalent of making sure there’s enough space come Black Friday.
With the most recent auction landing at $329 per megawatt/day, a hypothetical 1-megawatt power plant would get a little more than $120,000 ($329 x 365 days). If the plant can’t meet its commitment, PJM imposes fines.
Importantly, the capacity pricing isn’t for the energy itself, it’s a kind of insurance policy to make sure the grid has plenty of power. Silverman said capacity costs make up about 20% of a typical consumer’s bill, and the overall price tag for the latest auction will come out to about $16 billion.
Like Gordon, Silverman said rising capacity prices are a product of delays in getting new plants up and running.
“It’s like the interconnection queue is the class of graduating seniors from college who are going to take the jobs as you know, some of us start to retire,” he explained.
For several years that wasn’t a problem as demand stayed flat.
“Then all of a sudden, the data center load growth started kicking in, and we found ourselves desperately needing that next generation of resources,” he said.
PJM acknowledged “electricity demand is growing rapidly,” and noted its forecast for the auction year put peak demand 5,400 megawatts higher, “driven largely by data center expansion, electrification and economic growth.”
Spokesman Jeff Shields added there are roughly 63,000 megawatts of additional power PJM expects to study and approve over the next year and a half.
At the same time, Shield contends a significant challenge in meeting demand falls outside PJM’s control.
Currently there are 46,000 megawatts-worth of PJM approved projects — the majority of them solar and wind — stymied by the nuts-and-bolts challenges of actually building power plants.
Many of those projects are waiting on permitting and siting decisions from federal, state or local governments.
Additionally, tariffs are raising the prices of raw materials, and surging demand has created bottlenecks for essential equipment like turbines.
What do we do?
To power companies, the next steps are obvious: build, build, build. For instance, Todd Snitchler, president and CEO for the Electric Power Supply Association has claimed in recent years that state and federal policy favoring renewable energy — or “political interference” — “led to the premature retirement of essential generation.”
“When allowed to function, competitive electricity markets are the most effective way to deliver affordable, reliable power,” he said. “But a reliable grid isn’t free. Resources must be fairly compensated to stay available when they’re needed most.”
Much of the power waiting to come online comes from renewable sources like wind and solar. Skeptics worry about shifting the balance toward sources that rely on inconsistent environmental factors.
Earlier this year, PJM got approval for a fast-track process, effectively allowing some gas, battery, and nuclear projects to jump to the front of the line.
Evergreen Action Deputy State Policy Director Julia Kortney said leaving clean energy in limbo is costing consumers.
“PJM has failed to incorporate clean energy into the grid while its fossil fuel, utility, and transmission members are making record profits off the lack of competition and customers pay more for less,” she said.
The Natural Resources Defense Council has said part of the explanation for rising capacity costs is PJM better accounting for the unreliability of gas-fired plants.
Defense council Senior Advocate for Climate and Energy Tom Rutigliano nodded to the state siting and permitting hurdles PJM referenced that are keeping previously approved projects sidelined.
“Bringing just a fraction of these projects into service will ensure more affordable and reliable electricity,” he said.
While much of the marketplace is focused on increasing supply, Environmental Law & Policy Center Managing Attorney Rob Kelter said states need to work harder on reducing demand.
“These results underscore the urgent need for Ohio to invest in energy efficiency and demand response — proven, cost-effective tools that can quickly reduce demand, ease pressure on the grid, and lower costs for all utility customers across the state,” he said.
Demand response programs allow large consumers to cut deals with power companies agreeing to power down if demand peaks in return for a lower energy bill.
“With these continued price increases,” Kelter added, “the (Public Utility Commission of Ohio) has to do more to help Ohioans use less.”
