INSIGHTSSERIES
Power & Utilities | Wholesale Markets
April 7, 2025
PJM’s Price Cap and Floor Proposal for Capacity Auctions Raises Concerns Over Market Distortion
The temporary measure, intended to address uncertainty in the capacity market, has sparked concerns over its potential to distort market signals, increase costs, and hamper investment.
PJM Interconnection LLC, which operates the grid across 13 states and the District of Columbia, has proposed a price cap and floor for its upcoming capacity market auctions for the 2026/2027 and 2027/2028 delivery years. Though intended as a temporary measure to restore stability to the…Read the full report
Key Takeaways
- PJM has proposed a price cap and floor for its next two capacity market auctions in order to reduce volatility of clearing prices and decrease uncertainty around market revenues.
- Opponents of the proposal have largely criticized the introduction of a price floor, saying it would artificially increase prices if suppliers are willing and able to sell adequate capacity to meet the region’s needs at prices below the floor.
- Supporters view the proposal as a temporary measure to bring stability to the capacity market.
