PJM Capacity Auction Preview: Will Prices Reach the Ceiling Again?

As the industry turns its eyes toward the upcoming release of the PJM Base Residual Auction (BRA) results for the 2027/2028 delivery year, the market is bracing for what looks increasingly like a “new normal” of scarcity pricing.

We are witnessing a growing separation between installed infrastructure and recognized reliability. The story of the last two auctions has not been a lack of assets on the ground, but rather a fundamental shift in how PJM values them. As we approach the 2027/’28 auction, the data suggests that the reliability gap is widening, and clearing prices are poised to test the regulatory price ceilings yet again.

The Price of Scarcity

The pricing signals sent by the last two auctions have been clear—more firm capacity is needed. As illustrated in the chart below, capacity prices have skyrocketed, rising over 1,000% from the 2024/’25 to the 2026/’27 delivery period. This extreme volatility is not merely a function of market noise; it is a structural signal of weakening reserve margins. The region needs more capacity, but the market is struggling to provide it.

This year, PJM responded to the volatility by instituting price caps on its auctions covering the 2026/27 and 2027/28 delivery years to prevent price gouging due to scarcity. This mechanism sets a maximum price that capacity can clear at in those auctions, even if the theoretical market-clearing price would be higher. In the latest auction, prices hit the administrative ceiling of roughly $329/MW-day in all zones. Without this cap, PJM estimated that capacity prices could have reached just under $390/MW-day.

The ICAP vs. UCAP Divergence

To understand the price spike, one must look at the Installed Capacity (ICAP) and Unforced Capacity (UCAP) in PJM’s market. ICAP is the total installed generating capacity of a resource, while UCAP is that same capacity adjusted to account for expected forced outages or deratings, reflecting its true availability during peak demand. The UCAP value is critical since, before each auction, PJM sets a specific reliability target that is the total amount of UCAP required to serve forecast peak load and maintain the desired reserve margin.

Over the last few auction cycles, the market has seen a widening spread between these two metrics. Despite the total installed capacity increasing by 24 GW from 2024/’25 to the 2026/’27 delivery year, the amount of accredited capacity that cleared (UCAP) declined by 13 GW.

This divergence is driven by PJM’s implementation of Marginal Effective Load Carrying Capability (ELCC) accreditation. In simple terms, PJM has become stricter about how much “credit” it gives resources for being available during peak stress events. We are seeing a scenario in which the physical grid is growing, but the accredited grid is shrinking. As a result, the cleared capacity could not cover the mandate of the latest auction, missing the reliability requirement by 314 MW.

The Accreditation Cliff

The impact of these accreditation changes has been uneven and, for some asset classes, severe. The table below highlights the dramatic impact of these rule changes on each resource class rating. It contrasts the “status quo,” a counterfactual showing what 2025/’26 auction ratings would have been using PJM’s historical methodology, against the actual, sharply reduced ratings enforced under the new framework.

The reductions are stark:

• Solar: Fixed-tilt solar ratings have plummeted from 30% to just 7% for the 2027/’28 delivery year. Tracking solar has seen a similar collapse, falling from 50% to 8%.
• Storage: 4-hour storage, once viewed as a highly reliable capacity resource, has seen its rating drop from 80% to now 58%.
• Thermal: Even traditional thermal assets have not been immune—PJM’s gas fleet capacity was effectively reduced from 100 GW to 74 GW under the new ratings.

This creates a challenge for the upcoming auction, as renewable developers are bringing megawatts online, but those megawatts are being deeply discounted. To replace 100 MW of retiring thermal capacity, the grid now requires vastly more renewable capacity than previously calculated to achieve the same reliability value.

Outlook for 2027/’28

Looking toward the upcoming results, the fundamental drivers that caused the price spike in the 2026/’27 auction remain largely unchanged. The ELCC ratings for 2027/’28 have effectively locked in a lower UCAP value for the renewable fleet, while thermal retirements continue to erode the baseline of firm capacity. With supply constrained by accreditation math and demand remaining resilient, the clearing mechanics suggest that the auction will once again be tight. Market participants should prepare for clearing prices that either hug or hit the price ceiling once again.

For continued analysis and expert insights into the shifting dynamics of the PJM market, be sure to check back in for more FactSet Energy Insights.

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