The explosive growth of data centers is reshaping the economics of the PJM Interconnection, America’s largest electricity market, driving up costs for consumers and prompting a scramble for solutions from regulators and the White House. A report released Thursday by PJM’s independent market monitor revealed that data center load growth is “the primary reason” for recent and expected capacity market conditions, including high prices.
Capacity prices – the cost of ensuring sufficient power supply – have surged in the PJM footprint, which covers all or part of 13 Mid-Atlantic and Midwest states, and the District of Columbia. These prices have risen from $29 per megawatt-day to around $330, costing ratepayers $46.7 billion over the past three auctions, a dramatic increase from the $8.3 billion spent in the three prior auctions, according to the market monitor.
The market monitor’s report detailed that existing and forecast data center load accounted for $23 billion of the increased costs over those three auctions. “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,” the report stated.
The surge in demand from data centers is not simply a matter of organic load growth, the market monitor emphasized. “It is misleading to assert that the capacity market results are simply just a reflection of supply and demand,” the report said. “The current conditions are almost entirely the result of large load additions from data centers, both actual historical and forecast.”
PJM Interconnection has responded to the crisis by filing proposals with the Federal Energy Regulatory Commission (FERC) to stabilize the capacity market and accelerate the development of new generation. One proposal would extend a temporary price collar, setting a floor and ceiling on capacity prices at approximately $175/MW-day and $325/MW-day for the 2028/2029 and 2029/2030 auctions. The other proposal aims to create an “Expedited Interconnection Track” for large, ready-to-build generation resources of at least 250 MW, streamlining the approval process to roughly 10 months.
These filings are part of a broader strategy to address tightening reserve margins and maintain reliability as demand surges, complementing ongoing efforts to develop reliability backstop procurements and new frameworks for managing large-load interconnections tied to data center expansion.
The White House and governors of PJM states have similarly called for a special auction to procure $15 billion of new generation, with a proposal outlining the auction’s structure expected in April, according to an analyst at Jefferies.
The market monitor, however, has promoted its own solution: requiring data centers to either bring their own generation online or face mandatory supply curtailment during peak demand. This approach, the report argued, aligns with principles agreed upon by the White House and PJM governors, as well as a “ratepayer protection pledge” signed by major artificial intelligence companies.
In unusually forceful language for a technical report, the market monitor asserted the importance of preserving the market-like structure of PJM and ensuring equitable access to the grid. “All loads should be served,” the report concluded. “All loads should be served reliably. The process for adding large data center loads should be transparent. All loads should benefit from competitive markets.”
