PJM Power Grid Faces Capacity Challenges, Surging Prices, Due to AI Demand

Electricity prices across the PJM Interconnection, the largest US power grid, are expected to surge over 20% this summer, driven by soaring AI demand from data centers and AI technologies that outpace the construction of new power plants.

Laila Kearney of Reuters reports that PJM, which covers 13 states and serves 67 million customers, is under pressure from stakeholders, including Pennsylvania Governor Josh Shapiro, to act more quickly and transparently to control costs and expand capacity.

The trouble began when PJM’s annual capacity auction saw prices spike by more than 800%. The increase is passed to consumers through their electricity bills.

Such auctions set rates for generators to provide power during summer heat waves, peak, and other high-stress situations. In theory, higher auction prices incentivize new power generation; however, PJM delays, regulatory backlogs, and external factors, including local opposition and financing issues, have combined to prevent new plants from coming online quickly enough to replace aging infrastructure.

Now, with power demand from data centers expected to rise by 32 gigawatts by 2030, PJM has lost more generation capacity than it has added over the last decade.

Within five years, the company expects 32 gigawatts of increased AI demand, with all but two of those gigawatts coming from data centers.

Critics argue that PJM has worsened the problem by pausing new plant applications and delaying key auctions, despite approving 46 gigawatts of projects that remain stalled for reasons beyond the company’s control.

PJM’s CEO is stepping down, and the board leadership has already changed, leading to growing stakeholder frustration.

Lawyers with clients in utilities, data infrastructure, and real estate should monitor this evolving energy crisis. They should position themselves to assist in navigating grid interconnection challenges, zoning and permitting disputes, and contract implications tied to volatile electricity markets.

Regulatory developments, particularly those related to capacity markets and the integration of renewable energy, present both risks and opportunities in the energy sector.