Prices out of an annual energy auction held by PJM Interconnection, the largest grid operator in the U.S., cleared at $329.17 a megawatt-day, 22% higher than last year’s record-high levels, according to results released by the organization on Tuesday.
A recent surge in U.S. power consumption driven by Big Tech’s data center demand has butted up against roughly a decade of shrinking power supplies in PJM, leading to a supply shortfall that has driven prices in the capacity auction to new heights.
PJM’s so-called capacity auction determines what power plant owners in the grid network that covers one in five Americans will be paid to guarantee that they pump out electricity during times of extreme demand, which typically happen on the hottest or coldest days of the year.
Shares of major power-producing companies in PJM rose on the auction result news. Talen Energy shares up over 9%, Constellation Energy up over 5% and NRG Energy up over 6% in trading after the bell.
The payments are a sign of the energy supply and demand balance on the grid, which spans 13 states and the District of Columbia, with higher prices typically acting as an incentive for developers to build more power plants.
PJM’s territory covers the biggest concentration of the world’s energy-intensive data centers in Northern Virginia’s “Data Center Alley” and other fledgling hubs that require massive amounts of electricity faster than power plants are connecting to the grid.
Year-ago auction prices shot up by more than ninefold, rising to $269.92 per megawatt-day from the previous year as data center demand crept up.
Those high payment prices, which are ultimately paid for by the public, drew a backlash from state consumer advocates, politicians and environmental groups, leading to several changes at PJM.
The capacity cleared through the auction was 45% natural gas-fired power, 21% nuclear, 22% coal, 4% hydro, 3% wind and 1% solar.
(Reporting by Laila Kearney in New York and Noel John in Bengaluru; Editing by Aurora Ellis)