Solmar Insights
The PJM Board of Managers has directed the operator to implement two major filings with federal regulators in response to sharp growth in large load interconnections, a widening supply-demand gap, and deteriorating affordability in the regional grid. PJM seeks to use a novel Reliability Backstop Procurement and a facilitated bilateral contracting process to close a 6,831 GW capacity shortfall, aiming to ensure resource adequacy for 67 million residents and support sustained digital and industrial infrastructure growth.
Key figures
70 GW projected load growth by 2038
15 GW of generation retired since 2022
6,831 GW shortfall in most recent capacity auction
Cost cap of $555/MW-day for backstop procurement
Resource adequacy under pressure
PJM, the nation’s largest grid operator covering the mid-Atlantic and parts of the Midwest, faces accelerating demand from large loads, including data centers and industrial facilities. The region anticipates 70 GW of new large load growth by 2038, outpacing the pace of new power plant development. This comes in the context of 15 GW of capacity retirements since 2022 and a recent auction that fell 6,831 GW short of reliability requirements.
The Reliability Requirement, which PJM uses to determine secure capacity levels under extreme system conditions, is intended to keep the likelihood of outages below one event per decade. The Board’s letter outlined that without new actions, the risk profile for system interruptions increases as demand from new loads runs ahead of supply replenishment.
PJM’s analysis indicates that the confluence of rising power needs and falling supply poses acute risks, especially given the time required to site, permit, and construct substantial new generation. These headwinds amplify the urgency for both market-based and central procurement interventions to ensure a balanced and reliable grid.
Given these figures, the region’s capacity markets and interconnection processes are under new scrutiny from both institutional buyers and developers, especially those planning large-scale investments in digital infrastructure and industrial decarbonization projects.
Board-mandated reliability filings
The PJM Board directed two distinct FERC filings. The first authorizes a Reliability Backstop Procurement, a centrally managed auction targeting the recent capacity deficit, with a concurrent process to enable bilateral agreements between buyers and new resource owners. The second filing introduces an operational tool to manage the large load growth, including mechanisms to protect reliability during periods of capacity constraint.
The Board emphasized these are near-term measures, designed to provide immediate stability to PJM’s reliability outlook while longer-term market reforms play out in parallel through the ongoing stakeholder process. This responds to calls from utilities, developers, and large industrial offtakers for more aggressive action on the grid’s supply-demand balance.
The Board’s letter recognized the risk that capacity costs could spike for end users if not carefully controlled. The decision to limit backstop procurement costs to $555 per MW-day reflects an intent to balance incentivizing new supply with managing consumer impacts.
Both filings underscore PJM’s dual mandate: sustaining reliability for tens of millions and mediating the affordability effects of significant investment in new resources necessary to support both legacy and emerging large load customers.
Mechanics of the backstop procurement
PJM’s Reliability Backstop Procurement is slated as a one-time event between September 30 and October 21, with contract commitments for up to 15 years finalized before the December 2029/2030 capacity auction. Key eligibility criteria are strictly defined: Only genuinely new power resources with added installed capacity (ICAP) and maximum facility output (MFO) may compete. New or transferred Capacity Interconnection Rights are required if sourcing from resources announcing or undergoing deactivation as of April 10, 2026. Projects that missed commitments in the 2028/2029 auction are also included.
Non-traditional resources, such as new demand response and distributed energy aggregations, may participate if aggregators can verify specific site-level commitments throughout the term. This opens significant opportunity for distributed energy developers to compete alongside conventional and utility-scale projects.
PJM will cap aggregate procurement costs at $555/MW-day, seeking to catalyze investment without runaway cost exposure for ratepayers. If the bilateral matchmaking process succeeds in bringing new supply online, the target procurement volume in the backstop auction will decrease for each MW matched privately.
This procurement mechanism combines classic central auction elements with state-supported bilateral contract facilitation, presenting unique opportunities for new project financing structures and long-term power purchase arrangements outside of the traditional RPM structure.
Bilateral contract facilitation
The parallel bilateral contracting initiative began with a formal request for proposals on June 9. PJM anticipates initial matches between buyers, such as data center operators, large industrials, or utilities, and project sponsors in August, with the process running into early next year. Facilitating direct commercial agreements at scale is expected to help jumpstart resource buildout without the long delays seen in recent grid interconnection cycles.
This process aims to mitigate the risk of over-procurement. Every MW contracted bilaterally directly reduces the system’s central procurement requirement, likely lessening the price pressure in the backstop auction and broadening participation among investors seeking long-term price certainty.
For buyers, especially those with time-sensitive expansion plans, the facilitation process could accelerate interconnection timelines by providing an alternative path for bringing new resources onto the grid. For developers, it offers earlier revenue visibility and potential for bankable offtake agreements, improving financing conditions in a market challenged by volatility and delays.
PJM’s managed matchmaking distinguishes itself from standard bilateral PPA markets by offering formal coordination and vetting, which may be particularly relevant for large-scale infrastructure requiring stringent reliability standards and clear contractual terms.
Affordability, cost allocation, and market signal
The Board has been clear that escalating costs cannot simply be socialized across consumers. With rapid demand growth and the need for substantial new investment, the long-term sustainability of capacity markets rests on aligning cost responsibility more directly with the parties driving new load, namely, hyperscale data centers, AI clusters, and new industrial demand.
Stakeholder debate remains ongoing about how to allocate the cost of resource adequacy enhancements, especially when beneficiaries (such as data center developers) bring atypical load profiles that amplify regional constraints. The Board’s approach suggests a willingness to support state policymakers and other authorities in structuring equitable cost recovery and assignment for the expansion-related grid spend.
The dual-path solution of centralized procurement and bilateral facilitation is designed to provide both a safety net for grid reliability and a market signal for private investment. How costs are ultimately borne will set crucial precedents for other RTO and ISO regions experiencing similar demand surges.
For energy investors, project sponsors, and offtake buyers, the rapidly changing resource adequacy landscape underscores both new business risk and opportunity for strategic alignment with grid priorities, especially as regulatory filings and cost allocation debates intensify in coming quarters.
What this means for buyers
Large load developers, data center operators, and institutional buyers in PJM should track both the centralized backstop procurement and the upcoming bilateral facilitation for new capacity. These pathways may present rare opportunities for early-stage project sponsorship and structured long-term supply agreements. The $555/MW-day cost cap and expedited RFP matching process can both influence pricing and contractual certainty for large energy offtake, potentially reducing the risk of future grid bottlenecks for digital and industrial customers. How PJM allocates these costs will have ripple effects on siting, investment, and procurement strategy for all major stakeholders.
