The latest capacity auction results from PJM Interconnection, the largest grid operator in the United States, reveal a stark reality: the surge in artificial intelligence and data centers is pushing the American power system to its limits.
In the 2027/2028 Base Residual Auction concluding on December 17th, the generation capacity price in the PJM market climbed to $333.40 per megawatt-day (MW-day). This price not only shattered the record set in July but also hit the price cap approved by the Federal Energy Regulatory Commission (FERC). In stark contrast, the average price from 2017 to 2024 was a mere $108 per MW-day, a dramatic increase that underscores the intensifying scramble for power resources.
However, the most startling data from the auction report lies hidden in its appendices. Report details indicate that if the price cap were removed, the simulated market clearing price would actually have been as high as $529.80 per MW-day. This implies that in a completely unregulated market environment, the massive demand from data centers would have driven electricity prices nearly 60% higher than the current "capped" price.
In its analysis of the auction, Goldman Sachs pointed out that while the price met expectations, the procured supply once again failed to meet reliability requirements, heightening market concerns about resource adequacy. With reserve margins declining and a lack of new capacity additions, the U.S. power market is facing a difficult trade-off between "AI development" and "grid stability," with future electricity bills exposed to significant upside risk.
The rapid expansion of the U.S. data center industry is significantly tightening the power market. Data shows that in November, the monthly addition to U.S. data center power demand capacity was 1.6 GW (a 4% month-on-month increase), far exceeding the average monthly growth of 0.26 GW seen between 2017 and 2024, bringing the total U.S. data center capacity to 44.6 GW.
The PJM market, which covers key areas including Virginia's "Data Center Alley," is the epicenter of this demand surge. Among all regional power markets, PJM saw the largest capacity addition at 0.45 GW, with Virginia alone contributing 0.27 GW. This rapid demand growth directly contributed to the spike in real-time electricity prices last summer and is now driving up capacity prices.
Despite the strong demand, the supply-side response has been unusually sluggish. Goldman Sachs notes that while there are promises to revive nuclear power, the actual commissioning of new capacity is slow. In this auction, only about 350.7 MW of new generation and about 423.6 MW of uprated capacity were procured, with a total cleared capacity of approximately 134,747 MW. This reflects that even high prices have not effectively stimulated significant new capacity to enter the auction.
The core risk revealed by this PJM auction lies in the "shadow price." Simulation data in the report's appendices show that, without the regulator-imposed price caps and floors, all prices for 2027/2028 (except for the DOM LDA region) would have cleared at $529.80 per MW-day.
This figure is not only 60% higher than the actual clearing price but also significantly above the $388.57 per MW-day simulated for the 2026/2027 auction. This means that, under similar conditions, the expansion of data centers pushed the potential power cost 40% higher within a single year.
More worryingly, even under the hypothetical scenario of no regulation and prices soaring to $529.80, the grid would only have attracted approximately 800 MW of additional cleared capacity compared to the current level. This indicates that the largest U.S. grid system is facing a physical, hard constraint—even with much higher prices, it cannot conjure up the tens or even hundreds of GW of new power required for the AI and data center cycle in the short term. Estimates suggest that without price controls, associated wholesale power costs would have increased by $9.9 billion.
The auction results further confirm the deterioration of grid reliability metrics. In this auction, the reserve margin dropped from 18.9% in the previous auction to 14.8%, falling about 5 percentage points short of the 20% target reserve margin. The decline in this key metric directly signals supply tightness.
Goldman Sachs analysis noted that while an increase in the Effective Load Carrying Capability (ELCC) value (from 69% to 92%) drove 1,847 MW of demand response in this auction, factors like increased battery resources did not fundamentally reverse the supply shortage. The resource type mix of cleared generation remained largely consistent with the previous auction, indicating structural stagnation.
Goldman Sachs warned that the next auction, scheduled for June 2026 (for the 2028/2029 delivery year), faces significant uncertainty, as it currently has no FERC-mandated price caps or floors set.
If the current simulated uncapped price growth rate persists, the price for PJM's next auction could potentially reach the low-to-mid $600s per MW-day, effectively doubling from current levels. Goldman Sachs believes that if the next auction proceeds without a cap and market tightness continues, it would have an extremely negative impact on utility bills. As market observers have noted, unless structural changes occur before next year's auction, the U.S. could face a dilemma in 2026 of choosing between "AI development" and "air conditioning (AC) usage."
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