concepts
PJM capacity market (Reliability Pricing Model)
Definition. PJM Interconnection — the regional transmission organization (RTO) covering 13 Mid-Atlantic and Midwest states + DC — operates a forward capacity auction called the Reliability Pricing Model (RPM). Generators are paid not only for the electricity they produce in the spot market, but also for being available to produce, three years in advance.
How the auction works
- Annual auction (Base Residual Auction). PJM forecasts peak load three years out, sets a target reserve margin, and auctions off the resulting capacity requirement.
- Locational price. Prices clear by sub-region (Locational Deliverability Areas) — so a generator in a constrained zone (e.g., near data centers) clears at a higher price than one in a surplus zone.
- Three-year forward. The 2025 auction set prices for delivery year 2027/2028. This gives generators visibility on revenue for assets they're considering retiring or restarting.
Why it matters now
The July 2024 BRA cleared at $269.92/MW-day for most of PJM — roughly 8× the prior year's clearing price — driven by: - Coal retirements - Slow new-build (mostly gas) hitting permitting and interconnection delays - Hyperscaler-driven load growth forecasts
The July 2025 BRA cleared near the price cap again, suggesting persistent scarcity. For a 1 GW dispatchable generator, $270/MW-day annualized is ~$98M/year in capacity revenue alone, separate from energy sales.
This is the structural force re-rating PJM-region generators (CEG, VST, TLN). The capacity market is paying them, three years forward, for the privilege of staying operational.
How to track
- PJM publishes results at pjm.com
- Companies disclose expected capacity revenue in 10-K MD&A
- Watch for: (a) demand curve adjustments by FERC, (b) capacity additions clearing in the auction, (c) demand response participation rate changes
Falsification risks for the AI-power thesis
If the PJM capacity market clears materially lower in 2026/2027 (e.g., back to $50-100/MW-day), several thesis pillars weaken: - The capacity revenue tailwind for CEG/VST disappears. - The implied signal of scarcity is wrong. - New gas additions or demand-response programs may have closed the gap.
This is operationalized as Falsifier T001-F3 ("PJM capacity auction clears far below 2025 levels for two consecutive years").