What happens when your pair soaring electricity demand with retiring fossil fuel plants, sluggish renewable energy growth, and a grid increasingly vulnerable to extreme weather? A perfect storm for power shortages. Many regions are facing this dilemma, but one operator is particularly concerning: PJM.
The PJM Interconnection, the largest grid operator in the U.S., serves 65 million people across 13 states and the District of Columbia. But today, PJM is struggling to integrate the megawatts needed to keep up with surging power demand from data centers, manufacturing plants, and electrification. The consequences? Delayed projects, rising electricity costs, and threats of state withdrawals—most notably from Pennsylvania, which is considering pulling out over frustrations with PJM’s market design.
If more reforms aren’t implemented soon, consumers will face higher energy prices, states will lose out on economic development, and grid reliability will be at risk.
So what’s wrong with the queue?
One of the biggest roadblocks to adding new generation is PJM’s overwhelmed queue and complex interconnection process. At the close of 2023, PJM had 225 GW of proposed generation waiting for approval, more than the grid’s entire peak demand of 165 GW. However, only 10 GW made it into service between January 2022 and September 2024. PJM’s slow and outdated interconnection system has prevented new supply from coming online, leading to higher prices of up to 24% across the region. According to a report from Grid Strategies prepared for Advanced Energy United, more proactive transmission planning and interconnection reforms may have saved consumers up to $7 billion.
Historically, PJM has used a time consuming first-come, first-served study process. Recently, it has switched to a first-ready, first-served clustered cycle approach to speed up approvals (similar to other operators). However, the backlog could still take years to clear and new interconnection requests will still take about 700 days to process.
Roadblocks for Dispatchable Gas
To provide dispatchable power in the short term, natural gas still remains the best option. This is especially true in light of the recent uptick in energy demand from 24/7 applications like data centers and AI. But gas-fired generation faces a series of additional setbacks.
Environmental policies and state-level opposition to fossil fuel projects have created uncertainty around permitting and financing for gas generation. Gas also faces competition from renewables and storage, which receive federal and state incentives, while gas projects face higher scrutiny. This has made it harder for gas generation to secure approvals and long-term contracts. Even if a gas plant gets approved, fuel delivery remains a problem. Pipeline expansions in PJM’s territory—particularly in New Jersey, Maryland, and New York—have been blocked by state regulators and environmental opposition. Without new pipelines, gas plants in PJM risk fuel shortages during winter peaks, as seen during 2022’s Winter Storm Elliott, when gas supply issues contributed to PJM’s near-grid collapse.
Considering rising demand, the best policy for the environment is a shift from coal to gas. If markets like PJM aren’t sufficiently rewarding dispatchable power, we will end up under building gas while still using more coal anyway. This is already happening, with PJM increasing its coal-fired power purchases for the first time in 3 years.
Pennsylvania’s Threatens to Leave in Light of Market Design Failures
Pennsylvania, PJM’s largest power producer (generating 20% of PJM’s electricity), is so frustrated that lawmakers have threatened to exit PJM’s market altogether. Governor Shapiro has warned that without reform, the state could pursue its own reliability mechanisms—a move that would further fragment the grid. The governor recently settled a lawsuit against PJM over capacity market pricing, which resulted in lowering the auction price cap from over $500/MW-day to $325/MW-day.
This is more than just an issue for Pennsylvania. PJM’s July 2024 Base Residual Auction (BRA) for the 2025/2026 delivery year saw prices skyrocket from $28.92/MW-day in the prior auction to $269.92/MW-day. This volatility makes investors wary of committing to projects with uncertain future revenues.
The Consequences: Rising Prices, Lost Investments, and Blackout Risks
If PJM doesn’t act quickly to reform its grid operations, the consequences will be severe. Electricity prices will surge as supply fails to keep up with skyrocketing demand. States will lose critical investments—data centers, factories, and high-tech industries will relocate to regions with more reliable power. Meanwhile, blackout risks will grow as coal and nuclear retirements outpace the addition of new gas plants and energy storage.
The Path Forward: How PJM Can Keep the Lights On
To keep power flowing, PJM must take decisive action, including:
Fast-Track Interconnection Reforms – Improved cluster studies to streamline backlogged projects and penalize delays that stifle new generation. Already, the newly approved Reliability Resource Initiative (RRI) fast-track process has drawn in 26.6 GW of proposals from 94 different applicants.
Stabilize Capacity Market Rules – Provide clearer investment signals to ensure adequate, long-term power supply.
Collaborate on Gas Infrastructure – Work with states to secure fuel for dispatchable generation, ensuring grid resilience during extreme weather.
Without change, PJM will not be able to meet the energy demands of the future. The real question is whether reforms will arrive in time—or if businesses and states will abandon PJM altogether.
For more in the world of energy, keep an eye out for next month’s issue of Electric Buzz!
