Is your business prepared for the PJM capacity cost increases?

On June 1, 2025, electricity customers across the PJM region will face sharp increases in capacity charges, a key component of electricity pricing that ensures enough power is available during peak demand.

Following PJM’s 2024 Base Residual Auction, capacity charges will rise by as much as 29%, adding more than $0.012 per kWh for some users. For large energy consumers, this could result in six-figure increases to annual electricity costs.

Historically, capacity made up about 6% of the supply portion of an electricity bill. With the new rates, that could exceed 15%, significantly increasing total supply costs.

‍

Why are capacity prices increasing?

Three key trends are driving this surge in costs:

1. Decreasing supply – A wave of planned retirements of older generation units, particularly coal-fired plants, is tightening availability.
   
   
2. Rising demand – Increased energy needs from EV charging infrastructure, data centers, and commercial growth are pushing demand higher than expected.
   
   
3. Higher fuel prices – Natural gas, a major fuel source for electricity generation, has seen cost increases that are now reflected in capacity pricing.
   
   

This combination of supply constraints and growing demand has led to the most significant capacity cost increase in recent memory - and it’s unlikely to be the last. PJM plans to continue holding modified auctions for future delivery years, meaning these elevated rates could persist or even rise through 2030.

What can you do?

While these cost increases are unavoidable, they don’t have to blindside your business. Your capacity charge depends on how and when you use electricity, giving you room to strategically manage costs. Options include:

• Reducing your capacity tag
  
  
• Joining a demand response program
  
  
• Optimizing contract terms
  
  
• Lowering overall usage
  

‍

Let Arise Energy help plan your energy strategy

Understanding and managing capacity costs is becoming essential for energy-intensive organizations. Whether you're budgeting for 2025 or preparing for future auctions, we can help you reduce your exposure and take control of your energy spend.

Contact our team at support@ariseenergy.com to discuss your strategy.