PJM Power Costs Surge as Capacity Prices Spike on Data Center Demand
Wholesale electricity costs in the PJM Interconnection territory increased significantly in Q1, driven by rising capacity prices, transmission congestion, and growing demand from data center expansion. The Independent Market Monitor for PJM noted that data center demand, particularly in Northern Virginia, contributed to non-competitive capacity market auctions and higher power costs.
Wholesale electricity costs across the PJM Interconnection territory climbed sharply during the first quarter, rising 75.5% from a year earlier to $136.53 per megawatt-hour, according to a report by Monitoring Analytics, the Independent Market Monitor for PJM. This surge reflects increasing pressure on the nation’s largest wholesale electricity market, driven by artificial intelligence infrastructure, electrification trends, and tighter reserve margins.
Independent Market Monitor Joseph Bowring stated that capacity market auctions for the 2025/2026, 2026/2027, and 2027/2028 Delivery Years were not competitive, primarily due to forecast demand from data centers. The report tied much of the upward pressure to projected electricity demand growth from large-scale data center development, especially in PJM markets serving Northern Virginia. Total capacity costs saw a nearly 400% year-over-year increase, significantly contributing to the overall wholesale power price hike.
Additionally, the report highlighted worsening transmission congestion costs across the PJM system, with total congestion charges paid by customers increasing more than 300% year over year to approximately $2 billion. Monitoring Analytics argued that flaws in PJM’s Financial Transmission Rights market structure have prevented customers from fully recovering congestion-related revenues. Despite these concerns regarding the capacity market, Bowring concluded that PJM’s energy market remained broadly competitive during the quarter.