Brace for Higher Electricity Bills as Demand Outpaces Supply at a Rapid Rate
The price of electricity is playing a larger role in the cost of doing business. Those who haven’t already felt the impact will notice the increase in their electric bills very soon. What is happening to cause this now, and why are the spikes more significant than they have been in the past?
You may have heard words like “Capacity Auction” and “PJM.” Let’s dissect them.
Capacity Auctions
Capacity auctions exist to ensure that electricity is readily available when customers need it – whether it’s for manufacturers ramping up equipment at 6am, or homeowners flipping on light-switches at 6pm. Grid operators need to make sure there’s enough capacity to meet peak demand during the hottest or coldest times of the year.
The Problem: Power plants need incentives to stay online (many are not constantly running). Older coal and gas plants are being retired and shutting down, even though the grid needs them for reliability. Combine that with the onshoring of manufacturing for semiconductors and new battery plants adding large loads to the grid, plus forecasts showing data centers doubling power use by 2030, and we see that supply isn’t coming online fast enough to keep pace.
The Solution: Capacity auctions. The auctions exist not only for generating electricity, but also for power sources being available in the future. Think of a retainer fee: the grid pays power plants to guarantee they’ll be running in two to three years. The faster the deployment time for generating energy, the better.
How Capacity Auctions Work
Grid operators need to estimate how much power will be needed in the future (often two to three years out). Power plants bid into an annual auction, offering their capacity at a certain price. The auction sets a “clearing price” – the price per megawatt-day for capacity in that year. Utilities and retail electricity providers must buy enough capacity credits for their customers. They pass these costs onto the customer as seen in the “capacity” or “generation” line items on electricity bills.
PJM
PJM, a regional transmission organization (or RTO), holds the annual auctions to keep the energy outlook fresh for our region. This allows new resources to enter and gives retiring plants a chance to exit. PJM is the primary grid operator of Ohio, Kentucky, Pennsylvania, and parts of Indiana and Illinois. They manage the transmission grid (the highway system for electricity) to ensure reliability. In short, PJM is the traffic controller and referee for electricity. Think of PJM’s annual capacity auction as an insurance policy: they make sure consumers have enough supply ready to avoid blackouts three years from now. The cost of that insurance is what everyone is paying now, a result of recent auctions.
PJM zones in dark orange: including Duke Energy OH and KY, AEP, AES, FirstEnergy, east Kentucky Power Cooperative
Why it Matters More Now
As demand continues to rise, the latest capacity auctions have cleared at much higher prices, meaning utilities will pass on those costs to ratepayers.
Capacity costs are baked into the generation charge on electricity bills (usually a separate line item). Consumers will not see “PJM Capacity Auction” on the bill, but the utility company will certainly adjust its charges. For large commercial users, capacity charges can be significant, especially since they’re tied to peak demand usage. A single hot afternoon spike in usage can lock in high costs for the next year.
Future Outlook
Studies show that demand growth over the next 10 years could exceed that of the last three decades combined1. With limited supply to meet demand, there will certainly be higher prices. As power producers look at how and when they can deploy energy, renewables continue to win compared to nuclear and natural gas fired generation. While all forms of energy will be needed, deployment times matter more now than ever.
The One Big Beautiful Bill Act, signed into law by President Trump, issued expiration dates for the 30% federal tax credits on commercial solar projects. 100% Bonus Depreciation has been restored, so projects already under construction and those completed by 2027 with the tax credits have the best economics. Despite changes to the incentives, solar continues to be the cheapest form of generating electricity. Utilities, independent power producers, and commercial facilities are using this readily available technology as it helps control their long-term costs.
In times of uncertainty, renewable energy allows owners to predict a portion of their electricity costs. While higher bills from utility companies is inevitable, thinking outside of the conventional energy box helps when it comes to managing and reducing operational costs - much like diversification of an investment portfolio.
NextEra’s graph outlines rapidly increasing electricity demand after decades of stagnation, deployment timelines by different generation types, and the Estimated Costs of Generation in 2030:
- Projected demand is unpredictable
- Supply will be slow to catch up. When demand exceeds supply, price goes up.
- Not only is there an issue with getting equipment (such as natural gas fired generation turbines being 4-5 year lead time) but interconnection queues are extremely long. Prices are expected to increase sharply for the next several years.
- Solar and Wind will get more expensive without the tax credits and new laws…but it will still be much lower than new natural gas. Over the past several years, the cost to build to gas plants has skyrocketed, so when supply does come online, it will be expensive.
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Monica Niehaus
- August 28, 2025
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