Energy inflation important barometer! AI electricity consumption surges, the largest power grid auction price in the U.S. hits a new high, households and businesses foot the bill
PJM, which operates a power grid covering 13 states and serves nearly one-fifth of the U.S. population, stated that its latest auction to ensure power supply will cost consumers $16.4 billion. Results released on Wednesday showed that the average daily cost of these power supplies rose from $329.17 per megawatt to $333.44 per megawatt. The rapid growth in electricity demand, concentrated in the region with the most data centers in the U.S., is squeezing power supply and driving up prices
From New Jersey to Chicago, households and businesses in this region are about to face record-high electricity costs, as the power costs of the largest electric grid in the U.S. are rapidly rising due to a surge in electricity demand driven by artificial intelligence.
PJM Interconnection LLC, which operates the grid covering 13 states and serves nearly one-fifth of the U.S. population, stated that its latest auction to ensure power supply will impose a cost of $16.4 billion on consumers.
This mechanism, known as the "capacity auction," is used to determine the compensation that power generators can receive for being on standby to provide electricity during the annual period starting in June 2027. The results announced on Wednesday showed that the average daily cost of this electricity supply rose from $329.17 per megawatt to $333.44. Households and businesses will bear these costs through their monthly electricity bills.
This marks the third consecutive record auction result for PJM, making it an important barometer of energy inflation. As this grid region houses the most data centers in the U.S., the rapid growth in electricity demand is squeezing power supply and driving up prices. According to data from Monitoring Analytics LLC, the federal-designated regulator for PJM, the electricity demand from data centers directly increased costs by 45% in the last auction.
The biggest beneficiaries of this auction will be independent power producers. As the AI boom drives a surge in electricity demand, the stock prices of these companies have risen significantly, including Constellation Energy, Talen Energy, NRG Energy, and Vistra.
In after-hours trading on Wednesday, Vistra's stock rose by 2.2%, and Talen Energy's stock increased by 3.3%.
Despite the soaring costs, this auction failed for the second consecutive year to secure enough power supply to meet projected demand. According to grid reliability requirements, a 20% reserve capacity rate is needed, but this auction only achieved 14.8%.
Stu Bresler, Vice President of Market Services and Strategic Execution at PJM, stated during a conference call with reporters on Wednesday, "We are short on supply. The vast majority of the new demand in this auction came from data centers."
