Coal Zoom | PJM Grid Tackles AI Power Costs in Race to Avoid Shortfalls

PJM Grid Tackles AI Power Costs in Race to Avoid Shortfalls

November 4, 2026 - The PJM grid network, which operates across all or parts of 13 states and the District of Columbia, will see the fastest growth in power generation in the U.S. in 2026 and 2027 as developers respond to surging power demand from new data centers.

Power generation in PJM is forecast to rise nearly 2.6% in 2026 and 5.3% in 2027, when it will reach 975.5 billion kilowatt hours, the U.S. Energy Information Administration (EIA) ?said in September. Natural gas generation will drive the increase in 2026, while a mix of natural gas, coal, and wind generation is planned in 2027.

Despite rising power generation, PJM is battling to secure enough electricity for the coming winters as power ‌developers face long approval processes and global equipment shortages.

“PJM is pursuing a multi-pronged strategy to address an emerging supply and demand gap,” PJM spokesman Jeff Shields told Reuters Events.

Only 25 GW of the more than 100 GW of generation projects that have received grid connection agreements since 2020 have been built, Shields said.

Projects have been held back by state-level permitting delays, supply chain backlogs and financing issues, "none of which is controlled by PJM,” he said.

PJM hosts the world's highest concentration of data centers in Virginia and expects total electricity demand to increase by up to 30 GW by 2030. A major uncertainty is the actual pace of growth in data center deployment as developers have faced local opposition and connection delays, and PJM efforts to control grid additions and allocate costs have failed to gain federal approval.

Tight system margin forecasts have led to soaring power prices in capacity auctions designed to secure dispatchable power over peak demand periods.

Rapid load growth has increased the chance of winter shortages in the PJM network, Abe Silverman, Assistant Research Scholar at the Ralph O'Connor Sustainable Energy Institute, at Johns Hopkins University, said.

To help prevent widespread outages during extreme conditions, PJM can use emergency procedures to reduce power consumption from large load customers.

If this winter is relatively mild and there are no widespread plant outages, the PJM network should avoid shortages because we are "at our or near our reliability criteria,” Silverman said.

However, surging demand will squeeze system margins for the following winters unless generation can be accelerated or data center demand is reduced during peak times.

PJM’s most recent capacity auction for delivery 2028/2029 resulted in a 6.8 GW shortfall below the system’s Reliability Requirement while the 2027/2028 auction resulted in a 6.5 GW shortfall. The reliability requirement measures the amount of power needed to ensure resource adequacy during peak conditions and the 2026/2027 auction came in 139 MW above grid needs.

“The chance of having an outage late next winter is substantially greater than it is this winter,” Silverman said.

CHART: Cleared MW (UCAP) by type, capacity year (July 2026 auction)

The impact on prices will be widely felt as capacity market payments have risen sharply in recent years.

The Reliability Backstop Procurement (RBP) auction proposed by PJM, which is slated to take place in March 2027, will have a price cap of $555/MW-day for new generation for 2028/29, far higher than the $325/MW-day price cap in the Base Residual Auction (BRA) that took place in July.

“Coming into this winter, we will have extremely high electric bills,” Silverman said.

Hyperscaler headache

PJM's initiatives include a new Reliability Backstop Procurement (RBP) auction, a one-time procurement of new capacity to address resource adequacy challenges.

PJM on October 29 filed an amended proposal for the RPB to the Federal Electricity Regulatory Commission (FERC) after the commission labelled an earlier version as “unjust and unreasonable,” in part because it failed to properly assign the financial costs of the new backstop power to data centers.

The earlier version of the RPB would have allowed PJM to acquire energy from power companies on behalf of data centers and that would have led to higher costs for other consumers, said Joe Bowring, ‌the President of Monitoring Analytics, the Independent Market Monitor for PJM since 1999.

PJM should instead require all data centers to bring their own power generation online or participate in an auction where they "commit to entering into bilateral contracts with whatever generation is procured on their part,” Bowring said.

New generation should match data center power consumption “locally and for the duration of power," he said.

CHART: Projects in the first cycle of reformed PJM grid connection process

Through the new proposal, PJM intends to allocate the costs of the RBP to Electric Distributors (EDs) based on how Large Loads in each service area contributed to the capacity shortfall in the BRA for 2028/29, Julia Criscuolo and Scott Niemann, analysts at market research group ESAI Power, told Reuters Events.

“Although it will ultimately depend on how the EDs pass on the costs to data center customers, this approach should result in the data centers bearing the cost of buying capacity in the RBP to cover the shortfall,” they said.

“PJM now proposes that cost allocation to load serving entities will be based on Large Load growth between the actual summer peak load in 2026 and the forecast for the 2028/2029 Delivery Year,” the grid operator said in its October 29 filing.

“For this time period, electric distribution companies will be required to provide PJM firm Large Load growth,” it added.

Installing power

PJM's efforts to accelerate the construction of large generation resources included the approval in early October of three projects totaling 2.1 GW under its Expedited Interconnection Track (EIT), which aims to get new generation online within three years.

Engie was selected to build an 860 MW storage project in Pennsylvania, and an 800 MW storage project in Ohio, while LS Power will add 455 MW to its 810 MW gas-fired Hunterstown power plant in Pennsylvania.

PJM’s Reliability Resource Initiative (RRI) is a one-time fast-track process for shovel-ready generation projects that can contribute to reliability quickly. This initiative has resulted in 41 projects representing approximately 8 GW of generation whose studies will be completed at the end of 2026, Shields said.

PJM has also encouraged data centers and other large-load customers to sign bilateral deals to secure power for their facilities.

Google in October signed a 20-year power purchase agreement (PPA) with Constellation to expand nuclear capacity by 890 MW at six operational sites in the PJM network. The deal highlights how expanding existing facilities can be a fast way of bringing more generation online.

Historically, the construction of large nuclear reactors has been marred by cost overruns and delays and new natural gas combined cycle power plants have taken several years to come online in the PJM grid.

Upgrading existing power generation facilities can bring additional capacity online in under two years and distributed energy resources, such as creating virtual power (VPP) plants, can be deployed even faster, Silverman noted.

VPPs aggregate distributed energy resources such as batteries, electric vehicles and smart thermostats. They can manage tens of thousands of devices in unison, maximizing the amount of available power at any given time, and allowing utilities to effectively use underutilized grid infrastructure.

Google and Voltus on October 22 agreed to expand their VPP agreement for the PJM network to over 1 GW.

But whether these solutions will be fast and large enough to offset system shortfalls is a "very hard question to answer,” particularly as it is unclear if "data center expansion is speeding up or slowing down," Silverman said.