Why MD Energy Prices are Set to Spike in 2025

The energy sector is abuzz with discussions about PJM’s recent capacity auction and its impact on ratepayers and stakeholders. Energy prices are set to spike in 2025, particularly in Maryland, with BGE territory being the hardest hit. This surge is primarily due to demand significantly outpacing supply. This post will explore the factors behind this trend and offer strategies to navigate this challenging landscape.

The Core Issue:

PJM, the largest grid operator in the U.S., oversees the electricity supply for Midwestern and mid-Atlantic states, including the District of Columbia. PJM’s July capacity auction reached unprecedented levels, with customers expected to pay $14.7 billion for capacity in the 2025/26 delivery year, a sharp increase from $2.2 billion in the previous auction, raising alarm in the industry.

PJM determines capacity prices by the amount of electricity customers use and the peak demand they require. Historically, ensuring electricity availability on demand has been challenging, hence the use of capacity pricing to guarantee sufficient supply during these peak times such as during heat waves.

At the heart of this issue is the stark imbalance between supply and demand.

Impact on Consumers:

What does this mean for energy consumers? Following the June auction, Maryland’s state ratepayer advocate projected electricity price increases between 2% and 24%, depending on the utility.

While prices are set to rise across PJM’s territory, Maryland and Northern Virginia will bear the brunt due to several factors:

1. Dependence on Distant Energy Sources: The farther a generator is from a load center, the more unreliable and costly it becomes, driving up capacity prices. Maryland, for instance, consumes 40% more energy than it generates in state.
2. Negative Generation Replacement Rate: The retirement rate of old generators is outpacing the deployment of new ones. PJM has faced criticism for its slow interconnection approval process for new projects which could fill the gap.
3. Reliability Must Run Contracts: PJM has kept two Talen Energy power plants in Southern Maryland operational under reliability must run contracts, adding costs to Maryland ratepayers’ bills. PJM did not count these plants in the capacity auction, depressing the apparent supply.
4. Rising Demand: After two decades of flat energy demand, recent years have seen an increase driven by new population centers, EVs, building electrification, increased manufacturing, and large datacenters. National energy demand is projected to rise 57% by 2050, with the Mid-Atlantic expecting a 68% increase in the same period.

Potential Solutions:

The June capacity auction signals a clear need for new energy generation. However, the speed and manner of deploying these resources will determine future costs for consumers in PJM’s territory.

In response to the need for new generation, PJM approved a $5 billion package of transmission projects last December, adding to other recent plans and bringing the total price tag to about $6.4 billion. The transmission upgrades consist mainly of building new wires to transport energy into the East Coast from farther west.

Critics have called this plan opaque; stakeholders only had 18 days of review. David Lapp, Maryland’s ratepayer advocate on the people’s council said PJM has failed to adequately explain the true need for these projects opposed to alternative solutions. This made it impossible for the public to understand how their costs should be shared and whether the cost allocation will be “just and reasonable.” For example, in a lawsuit after the record-breaking capacity auction, environmental groups, states and grid monitors said PJM’s failed to count certain resources when setting prices, including renewable resources.

Many proposed projects are located far from load centers, exacerbating the Mid-Atlantic’s reliance on out-of-state generators. Transmission crossing state boarders also sets up a messy fight over who is responsible for paying for these upgrades. This not only affects reliability but also increases the cost of new transmission infrastructure. Finally, these projects aim to meet the demand of today but will not come online until 2028. The rapid increase demand and interconnection delays throw doubt on their capacity to meet the expected demand of the future.

Alternative Solutions:

The capacity auction has sparked debate and litigation among energy experts, policymakers, and advocacy groups. But what can rate payers do now? One options, solar PV, is more pertinent now then ever.

Installing solar panels on commercial buildings can either meet the building’s energy needs directly or feed energy into the grid, benefiting the local community. This increases generation capacity, reduced demand pressure on the grid, lessens the need for hefty transmission upgrades, and lowers electricity bills for consumers.

New Columbia Solar has over 8 years of experience helping CRE owners either lower their energy bills through Power Purchase Agreements or become Clean Energy Champions hosting a community solar system on their roof. Both options allow building owners to boost the property’s NOI without Capex on their end. These localized solutions allow business and communities to increase their energy supply and lower costs without waiting on PJM and the investor owned utilities to catch up to problems of their own making.