Solmar Insights
PJM Interconnection’s board has announced plans to conduct a one-time backstop capacity auction this September to address a 6.8 GW capacity shortfall, driven by soaring demand from data centers and other large electricity users. The plan also introduces targeted curtailment protocols for new data centers and similar large loads that lack their own dedicated power sources, aiming to safeguard grid reliability as regional power demand accelerates.
Key figures
6.8 GW capacity shortfall in latest auction
70 GW projected large-load growth through 2038
One-time backstop auction set for September 2026
Backstop auction mechanics
The PJM board’s decision for a backstop capacity auction follows a substantial gap revealed in the operator’s most recent capacity market auction, leaving a 6.8 GW shortfall for the delivery year beginning mid-2028. This backstop auction, planned for September 2026, is tasked with procuring enough additional generation resources or demand-side assets to guarantee grid reliability across PJM’s 13-state Mid-Atlantic and Midwest service territory plus the District of Columbia. The move underscores both the scale of near-term load growth and the urgency PJM faces in meeting capacity obligations under the rapid expansion of large-scale digital infrastructure.
In capacity markets like PJM’s, grid operators forecast demand years ahead and procure commitments from generators and demand resources to ensure there is ample supply, especially during peak conditions. When the standard auction fails to secure enough commitments, reliability backstop auctions serve as a safety net. For portfolio investors and asset owners, these secondary procurements typically set the price of marginal capacity and can send signals about the true cost of rapid demand growth.
PJM staff will now move to prepare a Federal Energy Regulatory Commission (FERC) filing before the end of July, seeking approval to formally run this additional procurement. Approval timelines will be closely watched by market participants as capacity prices set in these auctions affect contracted revenues for generation developers and load-serving entities.
According to market analysts, the scope and ambition of the backstop procurement target are noteworthy, reflecting the unprecedented pace and concentration of load increases from hyperscale data center and other large-load developments, notably in Northern Virginia and neighboring regions.
New curtailment rules for data centers
A parallel proposal from PJM’s board targets the growing cluster of large electricity users, primarily new data centers, who do not provide their own power generation or sign direct contracts to secure additional supply. Under the proposed policy, when grid demand approaches emergency conditions, these “unbacked” new loads will be subject to curtailment to protect grid reliability for existing consumers and essential services.
This rule is a departure from previous market practice, where all loads were treated equally in most capacity scenarios. The mechanism is designed to limit the allocation of reliability risk and cost increases to retail customers who are not driving demand growth, while incentivizing developers of new digital infrastructure to bring their own generation (e.g., onsite renewables or contracted supply) or to coordinate long-term power purchase agreements (PPAs).
PJM’s board stressed that existing consumers “should not bear higher capacity costs caused by new large loads that do not bring, or otherwise contract for, the new supply necessary to serve them.” This approach intends to shield retail and wholesale rates from the volatility introduced by unplanned hyperscale development, while guiding new entrants toward grid-neutral, self-supplied operating models.
The distinction between self-supplied and grid-dependent loads is expected to become more prominent as regional utilities balance reliability needs against the expansion of artificial intelligence compute, cloud, and colocation campuses. The curtailment protocol will also increase operational visibility for grid operators and utilities when planning for resource adequacy and demand response in contingency events.
Long-term demand projections
PJM’s own outlook identifies a potential for 70 GW of new large-load growth through 2038. This rapid multi-decade expansion scenario far outpaces historic grid planning trajectories in the eastern U.S., with digital infrastructure and electrification trends as principal drivers.
The concentration of hyperscale campus proposals around Northern Virginia, closer to major data center clusters in Loudoun County and surrounding areas, has already led to protracted interconnection queues and growing stress on existing substations and transmission infrastructure. PJM’s forecast feeds into regional planning and resource adequacy models, highlighting the need for both new clean generation and flexible peaking assets.
By excluding future large-load projects that lack dedicated supply from capacity demand forecasts, PJM expects to moderate upward pressure on capacity prices in future years. Leading equity analysts have signaled that this could stabilize procurement costs for utilities and load-serving entities, as market-clearing prices become less exposed to the boom-and-bust cycle of hyperscale buildouts.
This mechanism could also make it more complex for “pure growth” data center projects to access grid capacity without clear offtake or self-supply strategies, which could in turn drive changes in development timelines and procurement strategies for hyperscalers and colocation operators.
Implications for utilities and investors
The PJM proposals are expected to be filed with FERC before the end of July, setting in motion a formal regulatory review that will be closely scrutinized by utilities, private equity, and infrastructure funds. Analysts at ClearView Energy Partners have noted that FERC’s response to these plans will influence a range of capital investment decisions, development timelines, and how risks of system adequacy shortfalls are allocated between ratepayers, developers, and asset owners.
For investor-owned utilities and independent power producers, clarity on these rules could impact where, how, and when to deploy capital for new generation projects, as well as how to structure contracts with new ‘unbacked’ data center customers. Prioritizing transmission expansion and local reliability upgrades may also become higher-stakes components of capital planning over the next investment cycle.
Developers seeking to build new large loads within PJM territory will need to factor in the increased likelihood of curtailment unless they bring new power supply to the table. This may become a differentiator in offtake negotiations with power providers and shape how digital infrastructure projects are underwritten by financial sponsors.
The outcome of FERC’s review is likely to ripple into broader U.S. grid policy debates, especially as other independent system operators (ISOs) and regional transmission organizations (RTOs) grapple with similar large-load integration challenges, policy-driven resource retirements, and increasingly dynamic load profiles.
Next steps and market reaction
The PJM board’s proactive approach builds on and aligns with stakeholder processes carried out earlier in 2026, though the scale of the backstop auction and explicit curtailment criteria are significant escalations given the current pace of new load additions. According to regional market participants, the uncertainty surrounding FERC approval timelines and auction pricing may inject volatility into contract negotiations and capex planning through late 2026 and into 2027.
Industry observers are watching how these new protocols might influence prospective data center siting decisions, the appetite for behind-the-meter clean energy projects, and interest in long-term power contracts that bundle RECs or capacity products. The board’s directive to PJM staff to exclude unbacked new loads from future capacity forecasts will likely impact competitive dynamics among both legacy utilities and merchant generation developers.
How quickly grid operators, utilities, and digital infrastructure providers can coordinate new supply development, especially amid local transmission constraints, will be a central factor in how quickly high-growth data center clusters proceed toward full buildout.
Stakeholders anticipate further stakeholder engagement and detail from PJM once the FERC filings become public, with attention focusing on implementation mechanics, curtailment trigger thresholds, and auction participation criteria for new capacity resources.
What this means for buyers
Buyers and developers of digital infrastructure in PJM now face stronger incentives to secure dedicated power arrangements or risk future curtailment during tight system conditions. The backstop auction could alter capacity prices and contract terms for utilities, with implications for the economics of new build projects and renewals alike. Investors should assess the need for bespoke generation or long-term PPAs as new data center projects may not be guaranteed grid access on the same terms as legacy loads. The evolving rules are set to influence not just development timelines but also risk allocation in purchase and sale agreements, joint ventures, and capacity procurement strategies within PJM territory.
