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Regulatory Uncertainty, Opportunity Cost From Exports Among Reasons Cited By PJM For Shortfall In 2027-28 Base Residual Auction
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PJM has released a report on the capacity shortfall, compared to the target reserve margin, resulting in the 2027/2028 Base Residual Auction
Among other drivers, PJM cited "regulatory uncertainty" for the shortfall
PJM's report states, "PJM has endured a pervasive climate of regulatory volatility that also works to inhibit long-term capital investment.
This uncertainty manifests across multiple vectors: evolving renewable energy standards and policies that alter the
generation mix, persistent legal and permitting challenges facing natural gas pipeline infrastructure, and complex
disputes over transmission planning. Furthermore, the capacity market itself has been subject to frequent structural
revisions (many initiated by PJM), including the definitions and applications of the Minimum Offer Price Rule (MOPR),
the Market Seller Offer Cap (MSOC), and, more recently, capacity accreditation and risk modeling. Collectively, these
fluctuating variables create a risk premium that no single auction clearing price can easily overcome, as developers
are hesitant to commit billions in capital to a market where the fundamental rules are perceived to be in a state of flux."
PJM also cited the price collar adopted in the 2027/2028 Base Residual Auction, resulting in higher offers from certain capacity reflecting opportunity costs (from available prices in other markets via export)
The report states, "In the most recent auctions where the price collar was effectuated, the PJM price was below the value placed on
capacity by other regions for some locations and periods, which resulted in generation offers based on opportunity
costs from sales to neighboring regions and/or higher development costs from clearing in the auction. As noted,
several of these offers did not clear, contributing to the capacity shortfall. With the load growth fully realized, the loss
of capacity resources carries greater consequence for reliability, and those consequences must be considered in the
discussion of continuing or abandoning the cost collar."
PJM also cited surging demand, "downstream" interconnection bottlenecks, local permitting challenges, and global supply chain issues as drivers for the shortfall
Concerning corrective actions, PJM stated, "the [PJM] Board explicitly acknowledged that, on its own, the capacity market structure may not provide the
stable revenue streams needed to justify new investment in today’s volatile and uncertain investment environment.
Fundamentally, there are no short-term administrative fixes or market parameter adjustments capable of immediately
overcoming the physical realities of the projected shortfall. Because the constraints are rooted in the construction lead
times and global supply chain slowdowns, market reforms implemented today will primarily serve to secure reliability
for the future, rather than the immediate delivery years."
"Consequently, the PJM Board has directed staff to undertake
a comprehensive analysis in the first half of 2026 to determine how energy, reserve and capacity markets can be
evolved to provide cohesive incentives for investment. While the granular details of these reforms are yet to be
determined, the Board’s directive signals a fundamental pivot. PJM is moving beyond simple parameter adjustments
to a structural reevaluation of how the market values and retains the long-lived assets necessary for grid reliability," PJM said in the report
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February 9, 2026
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Copyright 2026 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com
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