Data Centers Could Add $5 Billion to $10 Billion in Costs to PJM Capacity Auction

What the watchdog found

Monitoring Analytics LLC, the independent market monitor for PJM Interconnection LLC and led by Joseph Bowring, warned in a Thursday report that PJM's capacity needs tied to planned data centers would tack on $5 billion to $10 billion for the delivery year beginning June 2029. The group says PJM's demand outlook includes data center projects that have hit delays or were canceled, which it argues is tightening the coming auction more than necessary.

The monitor also tallied $29.4 billion in "irreversible" costs from the last four capacity auctions. It criticized PJM for not implementing the broader policy commitment backed by governors and the White House "to ensure that data centers pay their own costs."

The broader backdrop and price signal

PJM has emerged as the central arena for meeting the needs of large data centers that sometimes draw electricity at city-like scales, while trying to prevent added pressure on customers already coping with higher utility bills. The midterm elections brought a surge of Democratic winners, driven in part by growing pushback to data centers nationally.

Within PJM's footprint - a 13 state system serving over 67 million residents spanning the Midwest to the mid Atlantic - higher capacity costs have pushed up the average wholesale price this year. The monitor says data centers alone lifted prices by 9.8 percent to $111.61 per megawatt-hour over the year's first nine months.

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How the auction could play out

PJM's capacity auction scheduled for next month will secure resources for the year that starts in June 2029. In plain English, capacity payments are like paying a retainer to generators and other suppliers so they are available during peak summer heat and deep winter cold.

Monitoring Analytics expects the auction to clear at the price cap, a view that independent power producers echoed on earnings calls over the past week. Clearing at the ceiling would push up costs for all customers.

PJM's response and what to watch for your portfolio

PJM spokesman Jeffrey Shields said the grid operator "fundamentally disagrees" with the claim it can rein in data center driven costs, arguing states and their utilities control those facilities. He added PJM has put forward proposals for states to assign costs from large load users back to those customers.

The monitor recommends delaying the annual auction until PJM can hold a special procurement focused on data centers. The bottom line for investors: auction outcomes shape wholesale power prices and capacity costs starting in mid 2029, which can ripple through utilities and energy exposed names in your portfolio.

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