Is PJM Set to Beat the Heat?

Last June, PJM Interconnection experienced a heat dome that had average temperatures hovering near the low 90s Fahrenheit for multiple days. This event caused major grid stress and led the RTO to issue alerts to prepare generation and transmission facilities for an increase in demand as customers tried to manage the heat. However, after the resulting price spike last year, realized average summer temperatures were noticeably lower than Summer 2024 temperatures, resulting in PJM’s grid remaining largely untested following the heat dome. In this Energy Market Insight, we will explore how the PJM grid may respond to higher summer temperatures and increasing baseload from Data Center Alley.

What’s going on with pricing?

High prices are oftentimes a signal that more power is needed in a region. This takes place in two ways: price differentials across nodes signal congestion between load zones within an ISO, whereas uniformly high prices signal a need to generate enough energy through the region to meet demand. Pricing has revealed that PJM has already seen both congestion and generation strain in May through early June of this year, as some individual LMP nodes have averaged over $500/MWh, a significant number when compared to the RTO average of just over $190/MWh during this same time period.

Rising load

Part of reason for this pricing trend is the increase in load seen across PJM, but more specifically in the Dominion (DOM), Alleghany Power (AP), and Potomac Electric Power Company (PEPCO) load zones. Comparing this year’s load in these regions to last year’s load, we see it has been consistently trending higher despite May’s average temperatures being down by over one degree compared to last year. Furthermore, the Dominion load zone saw average peak hourly load increase by 1.3 GW year-over-year. This can be seen in greater detail when looking at load versus temperature across the three regions, as average load is up by about 1.4 GW while controlling for average daily temperatures.

New generation

One way to address the demand growth mentioned above is through new generation. However, except for one utility-scale battery addition, the only generation additions reaching commercial operations since last June across DOM, AP, and PEPCO have been 900 MW of new solar-generation facilities. Solar in Virginia averages a 26% capacity factor in the summer, meaning these new additions to the grid could average less than 300 MW of new generation. This would leave a 300 MW deficit in comparison to year-over-year load increases to be overcome through either increased imports, running the existing fleet at higher capacity factors, or demand response. Without more new generation or transmission upgrades, it is likely that high prices will continue across these transmission zones throughout the summer.

Conclusion

PJM has had to engineer new solutions to address the difficult challenges presented by continued, rapid load expansion in recent years. How effective those solutions are, especially as the summer weeks continue, could result in PJM becoming an example for how ISOs and RTOs can adapt to a new world of rapidly growing power demand. FactSet Energy expects to see at least some results shortly, as another heat wave just passed through PJM over the Fourth of July weekend.

Be sure to check back in for more Energy Market Insights as we continue to cover how power markets will attempt to meet ongoing load expansion amid rising summer temperatures.

This blog post is for informational purposes only. The information contained in this blog post is not legal, tax, or investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.