Data Centers Drive PJM Electricity Prices Up Nearly 75%

The largest electrical grid in the U.S., the PJM Interconnection, saw prices nearly double over the last year, according to a report published yesterday by Monitoring Analytics, an independent market monitor that serves as a sort of watchdog for the PJM grid. The culprit? Data centers.

Wholesale prices for one megawatt-hour of electricity rose to $136.53, up from $77.78 at the same time last year. Crain’s Chicago Business was first to report on the spike. Monitoring Analytics pointed the finger at data centers and PJM’s failure to handle their surging demand adequately.

The market monitor pulled no punches. “The price impacts on customers have been very large and are not reversible,” Monitoring Analytics wrote. “The price impacts will be even larger in the near term unless the issues associated with data center load are addressed in a timely manner.”

PJM is a ripe target for such criticism. In 2022, just as data center construction was ramping up, the grid operator paused applications for new generating sources, citing a years-long backlog. It only recently started accepting new requests. Meanwhile, electricity demand from data centers has risen dramatically. The PJM grid includes Northern Virginia, a part of the country that is thick with data centers.

The price spike is a reminder of a deeper problem: The U.S. power grid was not designed for the electricity demands of an AI-driven economy, and the gap between what the grid can deliver and what the industry needs is widening.

Monitoring Analytics was direct that without rising demand from data centers, “the capacity market would not have seen the same tight supply demand conditions, the same high prices observed.”

It added that “the current supply of capacity in PJM is not adequate to meet the demand from large data center loads and will not be adequate in the foreseeable future.”

Monitoring Analytics blamed PJM’s lack of transparency in decision-making and for delaying much-needed software upgrades. “These upgrades have been delayed by multiple years and have no firm expected implementation date,” the report said.

The report comes on the heels of a white paper released by PJM Interconnection, which examined the future of the grid it operates. The white paper suggested three paths forward, but none of those appealed to one of the region’s largest utilities, AEP, which has threatened to leave the PJM grid altogether.

Monitoring Analytics was similarly unimpressed with PJM’s white paper. The group said that PJM was using the crisis “as a pretext” for tearing up the way its power market works. “The core elements of the PJM market design remain robust,” it said, suggesting instead that the grid operator had bungled its response to surging demand. The solution, it said, “starts with the recognition that the source of the current issues is data center load.” In other words, it’s the data centers, stupid.