Soaring US power auction prices set to spur new projects

This week, what will price jumps in U.S. capacity auctions mean for power plant developers? Market experts give us their insight as surging AI demand tightens the demand-supply outlook.

Also below, Trump culls offshore wind funding, Hitachi plans to invest $1 billion in U.S. grid manufacturing and a new gas plant is planned for Pennsylvania data center.

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Soaring US power auction prices set to spur new projects

Price jumps in several U.S. capacity markets signal greater revenue opportunities for power plant developers as AI demand squeezes the market and increases energy costs for consumers.

Power capacity auction prices for 2026-2027 in the PJM power network hit the maximum price approved by regulators, highlighting how prices have soared over the last two years on the back of rocketing demand from data centers.

Capacity auctions are forward markets where generators are paid to make generation available during peak demand times.

PJM is the biggest U.S. regional transmission organisation (RTO) and serves 67 million people spread across 13 states in the eastern U.S. plus the District of Columbia. The area includes the greatest concentration of data centers in the United States in northern Virginia.

System demand will hike by 32 GW by 2030 and 30 GW of this will be from data centers, PJM forecasts. Other drivers include vehicle and building heating system electrification and manufacturing growth.

PJM capacity auction prices soared from $28.92/MW-day for the entire region for 2024-2025 to $269.92/MW-day for 2025-2026 everywhere except the BGE and Dominion zones, which cleared at $466.35/MW-day and $444.26/MW-day respectively. Prices for 2026-2027 came in at the FERC-approved cap of $329.17/MW-day for the entire PJM footprint, representing a 22% rise for most zones but falls of 29% for BGE and 26% for Dominion because of the cap.

Rising capacity prices come as data center development outpaces new power generation infrastructure. New power generation and transmission can take five years or more to complete and data centers can be developed faster.

Capacity in US grid connection queues

Source: Lawrence Berkeley National Laboratory (Berkeley Lab)

Higher capacity prices boost the business case for new power generation as well as keeping existing fossil fuel plants online, Brynna Foley, Associate, Research at data provider Enverus, told Reuters Events.

Higher capacity prices allow developers of power generation and storage “to secure a larger, more predictable revenue stream from the capacity market, making it easier to attract financing," she said.

Deployment of new capacity in PJM has been slower than in some markets and energy storage developer Fullmark Energy anticipates "increased pipeline development throughout PJM as a result of these [capacity market] signals," Chris McKissack, CEO of Fullmark Energy, said.

Midwest leaps

An equivalent auction in the MISO market in the Midwest earlier this year also saw large price increases. The price for summer 2025 rocketed to $666.50/MW-day, up from $30.00/MW-day for summer 2024.

ISO-New England saw more moderate price increases due to slower data center growth. Forward capacity auction prices were $3.58/kW-month for 2027-2028, up from $2.55 to $2.59/kW-month in last year's auction for 2026-2027. Demand in ISO-New England is forecast to rise by 11% by 2034 on the back of electric vehicle and heating needs “after two decades of flat or declining energy demand,” a spokesperson for ISO New England told Reuters Events. 

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Texas is also a key area of data center growth but the deregulated Texas ERCOT market does not hold capacity auctions and wholesale prices have yet to soar on the back of the AI revolution and remain the lowest in the United States. Texas has seen rapid growth in solar, wind and battery storage capacity with developers reporting shorter times for grid connection approvals than in many other markets.

U.S. demand for battery storage has soared on the back of solar and wind deployment but the development of storage has been held back in some markets due to a lack of incentive mechanisms such as capacity markets.

The generating capacity cleared through PJM's latest auction included 45% natural gas, 22% coal, 21% nuclear,  4% hydro, 3% wind and 1% solar. Battery storage represented less than 1% of total cleared capacity and some developers may be focusing on other incentives such as ancillary services markets where asset owners are paid to help maintain grid reliability and stability.

Consumer impact

PJM residential retail rates could increase 30% to 60% by 2030 as a result of rapid data center demand growth, consultants at ICF said in August.

The capacity market accounted for 7% of total PJM wholesale electricity costs in 2024 but this share is likely to increase significantly for 2025 based on the high auction prices, Jeff Shields, PJM Senior Manager, External Communications, told Reuters Events.

Download our exclusive report: Soaring US Power Demand Opens New Paths for Developers.

The price of long-term power purchase agreements (PPAs) with commercial offtakers and utilities are influenced by a number of drivers and developers will factor in capacity payments over a longer period when negotiating prices, Foley noted.

However, the auction highlighted the tightness in the market. There is a growing imbalance in supply-demand nationwide, “based on unprecedented demand growth coupled with generator retirements and the slow rate of development of new generation resources," Shields said.

“Until supply increases, that imbalance will exert upward pressure on overall wholesale costs,” he said.

Reporting by Neil Ford

Editing by Robin Sayles

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