Amid Unprecedented Demand Growth, PJM Readies Ambitious Response—Will It Work?
I think it’s safe to say that PJM has never in its history been under so much public scrutiny, and the decisions it makes over the next few months will have massive implications for the entire 13 state region.
PJM is facing pressure from all 13 states it serves, as well as the White House, and is engaged in developing a series of unprecedented proposals potentially resulting in massive changes to markets and policy in a bid to stave off a looming crisis of affordability and reliability. In a March 25th stakeholders meeting, the PJM Board and its acting CEO, David Mills, implored participants to move more quickly on these proposals, stating that the grid operator serving over 66 million Americans is currently “on a collision course of time vs supply shortfall.” In response, PJM has put forth another “Expedited Interconnection Track” plan, and just last week released its “Reliability Backstop Procurement” proposal. These plans, which will require approval from the Federal Energy Regulatory Commission (FERC), along with other interrelated PJM initiatives, seek to address some of the many big issues facing PJM, but concerns are mounting around the potential unintended consequences of such dramatic market changes in such a short period of time.
As the clock keeps ticking on the imminent crisis, it’s unclear how these plans will impact the region’s resource mix–whether PJM’s draft proposals will lock in more large-scale fossil generation, which has proven to be too costly and too slow to market to solve the immediate challenges, or allow advanced energy solutions like battery storage, solar, wind, demand response, and distributed energy resources (DERs) to finally add meaningful resource diversity to the PJM grid mix. The answer to that question will have long-term repercussions for the PJM region, and the time to get things right is right now.
Where things stand in PJM today
The PJM Independent Market Monitor’s annual report on PJM’s markets documents the current problems. PJM’s last two capacity auctions showed a growing shortfall of generation compared to its reserve margin targets, causing wholesale power costs to jump 54% in one year, stating there are “clear warning signs” for grid reliability in PJM largely driven by data center development. The report went on to state that price impacts have been large and will continue to grow “until the issues associated with the additions of large data center loads are addressed.” PJM doesn’t have enough capacity to serve data centers, according to the Market Monitor, stating: “Large data center load additions have already had a significant and irreversible impact that will be paid through May of 2028 and will have additional significant impacts on other customers as a result of higher transmission costs, higher energy market prices and higher capacity market prices.”
For its part, PJM warned of these impending shortfalls three years ago. PJM has taken some steps to address the impending crisis, including implementation of its interconnection queue reforms and one-off interconnection fast tracks that are dominated by natural gas generation. But these efforts have not gone fast and far enough to bring on the supply that PJM so desperately needs in time to meet rapidly increasing demand.
Even if these actions were enough to bring the needed generation, PJM doesn’t have the transmission to support these hoped-for large scale generation projects. The needed transmission projects would take years to plan and build and face the same supply chain and siting and permitting obstacles faced by potential large natural gas generation projects. For example, PJM in March notified Constellation Energy, who has partnered with Microsoft to restart the Three Mile Island Unit 3 Nuclear plant to serve a data center with a planned in-service date of 2027, that it would take until 2031 to complete the required transmission upgrades. Constellation has since requested a waiver from FERC to achieve its proposed in-service date. While Constellation says it remains confident in the 2027 target, PJM’s announcement is indicative of the struggle to bring new resources online given transmission upgrade needs and timelines.
PJM finally acknowledged that incremental reforms pushed through the normal stakeholder process would be insufficient to solve its problems on time, and last October initiated a “Critical Issue Fast Path” process to address large load additions. After that process produced no consensus solutions, and at the direction of the PJM Board, Governors of the 13 PJM states, and the White House, PJM has undertaken an ambitious set of reforms on an even more ambitious timeframe. These include:
- Designing and implementing a “backstop reliability procurement” beginning in September of this year. PJM released its proposal April 10 (read on for more details) and plans to file a proposal with FERC in early June after an extremely abbreviated stakeholder process.
- Implementing an Expedited Interconnection Track, currently pending before FERC. This process would allow up to 10 projects annually to be studied outside the normal cluster process. Advanced Energy United was among the groups challenging the proposal at FERC, arguing that it will not solve PJM’s resource adequacy shortfall—and may actually make things worse.
- Complying with FERC’s December 2026 Show Cause Order requiring that PJM set clear rules for co-located load and generation, including the creation of three new transmission service options and new rules for behind-the-meter generation (BTMG). United was among many groups that protested both the BTMG changes and PJM’s proposed terms and conditions for co-location, noting that they will undermine the usefulness of the new transmission service options and disrupt ongoing BTMG investments that could bring needed flexibility and resource adequacy to the region.
- Designing and implementing a “connect and manage” paradigm for new large loads. This proposal reflects an acknowledgement that PJM cannot bring on enough capacity quickly enough to meet growing load needs and would enable PJM to manage through this time of shortfall by setting clear load shed protocols that aim to minimize disruption to existing, non-large load customers. The extent to which this approach will enable and reward demand-side flexibility and create opportunities for DERs remains to be seen.
- Pursuing further reforms to the load forecast to ensure the region is planning for the right level of load growth, given the high cost of over-procuring and over-building.
- Undertaking a comprehensive review of market incentives to identify what reforms might be needed in the medium-to-long term to maintain reliability and resource adequacy. PJM is working on this review behind-the-scenes and is currently anticipating a mid-year release that will feed into a stakeholder process.
What’s in PJM’s Reliability Backstop Procurement Proposal
In a surprise move, PJM Interconnection is proposing that instead of holding a one-time auction this September it will kick off the backstop process by hosting a process for facilitating bilateral contracting between power suppliers and large load customers that would begin in September of 2026 and go until March 2027. If needed, PJM would then initiate a second phase of the plan, purchasing any remaining needed capacity through a more traditional central procurement process.
PJM says it believes this two-phase approach meets the request of the regional Governors, and is targeting 14.9 GW, though that amount is subject to change after a review by utilities. States will also have a key role in implementation, given that Electric Distribution Companies and Load Serving Entities are actually responsible for setting targets and allocating costs to large load customers.
PJM has initiated an accelerated Critical Issue Fast Path (CIFP) process to allow for stakeholder review of the new PJM proposal. It remains to be seen what feedback stakeholders will have about the plan, and whether power suppliers, large-load customers, and the average household will be better served through this process.
The benefits of diversifying the resource mix
The key question as PJM facilitates bilateral contracting and runs the backstop procurement is what kinds of resources will show up to serve the demand, and in what quantities. As I discussed in my recent blog on February 4th, the PJM region has long relied on fossil-based generation (i.e. natural gas and coal) but if it continues to rely on those kinds of solutions to solve today’s challenges, it will not meet the moment. The problem is that rapidly shifting economic conditions have caused prices for new natural gas plants to spike and, worse still, supply chains for critical components of new gas plants are snarled, resulting in delays of 5 to 7+ years just to get the critical components needed to construct new gas plants that PJM needs immediately.
A recent study from Synapse Energy Economics shows that the expected frequency of outages in 2030 could be reduced by 97%, at a much lower cost, with advanced energy technologies, offering a cumulative cost savings of $178 billion, or 20%, relative to business as usual in PJM. The study looks at a scenario that deploys an ambitious yet realistic mix of advanced energy solutions – wind, solar, battery storage, demand response, energy efficiency, and alternative transmission technologies. The reliability improvements and cost savings are dramatic, but also logical, given the increased resource diversity that deployment of more advanced energy would bring to the currently very gas-dependent PJM region.
Everything all at once
Many PJM observers agree that this crisis calls for an “everything all at once strategy” when it comes to bringing on new supply and managing peak demand. PJM CEO Mills also stated in a March 25th stakeholder meeting that it needs “bold and prompt action – not incremental” to deal with this crisis. I’m confident that PJM could meet the moment if the combination of bilateral contracts, backstop procurement, and connect and manage drive significant new investment in wind, solar, battery storage, demand response, energy efficiency, and alternative transmission technologies, giving these resources the opportunity they deserve, and that consumers require.