February 2025 Volume 7

ENERGY

SKYROCKETING CAPACITY COSTS AND THEIR IMPACT ON YOUR ENERGY SPEND By Nancy Gardner

O n July 20th, 2024, PJM - the across 13 states - announced the results of its annual Base Residual Auction (BRA) for the 2025-2026 delivery year (06/01/25 05/31/26). This auction sets the capacity prices that power providers must pay to ensure reliable electricity supply. –As a result, PJM reported a 750% WEIGHTED AVERAGE INCREASE in capacity costs compared to the prior year. This will have a significant impact on your organization's energy bills. Prices are stated in dollars per megawatt day ($/MW-d). What does this mean for you? • Capacity costs, which typically • Your third-party supply agreements and utility tariffs include provisions to pass through changes in capacity costs, so you will see these increases reflected in your energy bills regard less of your energy buying strategy. • This dramatic rise in capacity prices is driven by several factors, including Regional Transmission Organiza tion that manages the electric grid account for 7-8% of your total elec tricity spend, are set to rise substan tially. fewer power plants bidding into the auction, forecasted growth in electricity demand, and regulatory changes. FAQs What is the Expected Cost Impact?

DEO&K, MAAC, Eastern MAAC, and DPL-South were consolidated into RTO.

How can you mitigate the impact? While the capacity price increase is unavoidable, there are steps you can take to manage the other half of the capacity cost equation - your electricity demand: • Implement Demand Response programs to reduce usage during peak hours • Deploy energy management software to optimize your facilities' energy consumption • Explore load shifting, energy efficiency, and energy storage solutions to lower your Peak Load Contribution (PLC) values Transparent Energy is here to help. As your trusted energy partner, we can analyze your portfolio, identify cost-saving opportunities, and develop customized strategies to mini mize the impact of these capacity cost increases. Contact us today to learn more. If you’d like to learn more about capacity auctions, please refer to the following FAQs. Nancy Gardner Transparent Energy Email: ngardner@transparentedge.com Phone: 732-288-5126

Why Did Capacity Costs Increase? PJM sited three primary drivers of higher capacity prices: 1. Fewer offers into the auction - due to power plant retirements, the number of assets entering bids into the auction was less than in prior years. 2. Forecast growth - increasing reliance on electricity in the transportation, data center, and heating sectors is expected to drive demand growth. 3. FERC implemented several market reforms including measures to adjust for extreme weather and verify each resource's ability to perform as intended.

Nearly every third-party supply agreement covering electricity rates within the PJM service territory includes language to adjust for changes in capacity costs relative to the results of the annual Base Residual Auction. Utility supply tariffs are similarly struc tured to pass through any cost increases or decreases relating to capacity auction prices. In 2024, capacity has accounted for an average of 7-8% of total electric supply costs. Considering the RTO-average increase from $28.92 to $269.92 (+833%), that figure is set to increase substantially.

FIA MAGAZINE | FEBRUARY 2025 10