Major US Power Sale to Show Depth of Grid’s AI Struggle
(Bloomberg) -- The biggest US grid operator is about to learn how tight power supplies may get in coming years as the data-center boom sparks unprecedented electricity demand growth.
PJM Interconnection LLC is scheduled to disclose results from a so-called capacity auction later Tuesday that sought supply commitments from power generators and other electricity suppliers for the June 2028-May 2029 period.
PJM, which serves 67 million customers across 13 states, failed in the previous two auctions to attract enough commitments to cover reliability requirements. This comes amid increasing anxiety and political furor over sky-high power bills and in the wake of a blistering heat wave that triggered record electricity demand.
Tuesday’s auction results will determine how much PJM will pay power generators to secure capacity starting in mid-2028. An emergency auction already has been scheduled for later this year to cover any shortfalls in supply commitments.
“The tightness the auction is meant to price is playing out live,” Evercore ISI analysts Nicholas Amicucci and Sharon Wang wrote in a note. The recent heat wave was a “timely reminder” of how burdened the system has become.
PJM is at a crossroads as the traditional pricing and supply structures intended to incentivize market participation by generators and other providers have proved inadequate to the task. Balancing the interests of ratepayers, power producers, political leaders, industrial customers and the hyperscalers driving data center development is an increasingly tricky proposition.
The price collar intended to keep costs down for consumers is capped at $325 per megawatt-day, marginally lower than the previous sale in December. That mechanism has come in for criticism as a disincentive to power plant construction.
“Another print at the top end of the price collar will only increase the pressure to push data center demand off the grid, even at the cost of servicing the AI economy,” said Peter Gardett, chief executive of Noreva, a pricing data and risk-assessment platform. “We are witnessing the beginning of the great data center migration.”
Supplies weren’t always so tight in the PJM region, but the expansion of artificial intelligence is forcing the grid operator to employ some radical solutions to make sure the lights stay on.
PJM Senior Vice President Adam Keech wrote in a blog post last month that recent auction results showed power demand is growing faster than new generation can be built, raising concerns about system reliability. The last auction in December saw households and businesses on the hook for a record $16.4 billion to secure power in the year starting June 2027, and fell short of procuring enough power to meet reliability requirements.
The biggest beneficiaries of the high prices tend to be independent power generators like Vistra Corp., Talen Energy Corp. and Constellation Energy Corp. All three saw their shares jump after the previous auction results.
Tuesday’s results will further raise the stakes of a key July 23 technical conference convened by the Federal Energy Regulatory Commission to discuss reforms of PJM’s governance amid heavy criticism that it’s not doing enough to meet the surge in data center demand while protecting consumers from rising costs.
“The challenges facing the electric system will not be solved overnight,” Keech wrote. “These challenges require longer-term solutions.”
(Updates with details of price collar from seventh paragraph.)
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