PJM Capacity Prices Prove Need for VPPs

The sharp increase in PJM capacity prices for the grid operator’s next delivery year demonstrates the value of balancing supply and demand with existing resources.

Rising more than 800%, PJM capacity prices have reached record highs as North America’s largest wholesale electricity market grapples with tightening supply and escalating demand. Generator capacity is being retired faster than it is replaced, and demand growth is accelerating as electricity usage surges for artificial intelligence, data centers and electric vehicles.

Fortunately, we can quickly and affordably balance the grid today without the lengthy waits and large investments needed to build physical power plants. Virtual power plants (VPPs) that include grid services like demand response can supply capacity now by aggregating distributed energy resources (DERs) and dispatching them together.

VPPs offer a cheaper and faster-to-market alternative because they use existing, low-cost DERs, including batteries, EVs, smart thermostats and other controllable devices and loads, to keep the lights on when the grid is stressed. If we were to triple the current scale of VPPs in the U.S. to 80-160 GW by 2030, as the U.S. Department of Energy hopes, we could reliably support load growth such as that in PJM while avoiding $10 billion in annual grid costs.

VPPs Help the Grid

PJM’s total cost to load for 2025/26 is $14.7 billion, given that capacity prices rose to $269.92/MW-day from $28.92/MW-day for 2024/2025. The grid operator attributed the sharp increase to generator retirements, increased electricity demand and market reforms, including Federal Energy Regulatory Commission (FERC)-approved regulations for improved reliability risk modeling for extreme weather and accreditation that more accurately values each resource’s contribution to reliability.

Such factors are not limited to PJM. Grid operators across the country struggle to balance supply and demand, particularly during critical conditions like extreme weather.

For example, in its 2024 Summer Reliability Assessment, the North American Electric Reliability Corporation warned that markets served by the Midcontinent Independent System Operator (MISO), ISO New England and Electric Reliability Council of Texas (ERCOT) could face summer electricity shortages in extreme summer conditions. When pressed in such instances, grid operators and utilities can use flexible customer DERs for handling grid disruptions.

With extreme weather such as heatwaves increasingly severe and frequent, VPPs can multiply the benefits of DERs by aggregating and dispatching them across types, customers and locations. VPPs including demand response have proved to be a reliable resource during grid emergencies year-round.

Customers Benefit from VPPs

VPPs also provide value for energy users who help the grid with their DERs. Customers can earn revenue, reduce energy costs and help the environment.

There are increasingly more opportunities for customers to benefit, and the potential rewards are growing as well. While grid operators have long relied on large energy users like commercial and industrial customers to reduce their loads during emergency conditions by paying them to participate in capacity markets, today’s grid must adapt to shifts in supply or demand more frequently and quickly to remain balanced and avoid blackouts.

This increasing need for flexibility shows up in all services that grid operators now use—including energy, capacity, ancillary services and bespoke programs. Although ancillary services alone rarely make economic sense for customers, once they’re participating in capacity, it often makes sense to add on ancillary services to increase rewards.

Flexible participation programs require customers to react more frequently than in the emergency capacity markets, but they can earn additional revenue streams by participating. Industries with larger, more flexible loads are particularly well suited to earning more money from flexible participation.

For example, big-box retailers with multiple sites in multiple states can widely help the grid with their flexible loads, like by adjusting their lighting or HVAC systems without interrupting operations or inconveniencing customers or employees.

Flexible interruptible computing loads are also valuable, including those for data centers, crypto miners and AI loads. Whatever the industry, the most flexible of demand response programs reward customers with more revenue for curtailing their resources in reaction to grid needs in seconds, not hours.

So, while capacity prices in PJM surge and other grip operators similarly struggle to balance rapidly changing supply and demand, existing customer DERs can efficiently improve grid reliability. Embracing VPPs saves money for grid operators, provides revenue for customers and delivers clean, affordable and more reliable energy for all.

To learn more about VPPs and how CPower can help you monetize your energy assets while supporting sustainability, improving grid reliability and increasing energy resiliency, call us at 844-276-9371 or visit CPowerEnergy.com/contact.