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The PJM Interconnection can’t seem to figure out supply and demand anymore, which could be good news for natural gas.
Here’s a dilemma: Large chunks of fossil fuel-powered energy generation are scheduled to fall off the U.S. electric grid in the next decade thanks to economic and regulatory pressures. Even larger chunks of renewable energy generation have not yet been approved to connect to the grid and may not be for years, if ever. Meanwhile, data centers and electrification have kicked off the first notable demand growth for electricity markets in over 20 years. On top of all that, the grid has become increasingly vulnerable to climate change-fueled disruptions, whether from solar power being knocked out by hail or natural gas lines freezing in an ice storm.
In some parts of the country, the solution to this dilemma is relatively simple. In much of the Southeast and -west, large utilities that own power plants are simply building more natural gas power plants. In California, regulators are mandating that utilities procure enormous amounts of energy storage, and have rejiggered residential solar rules to encourage more combinations of solar panels and batteries. And Texas is planning to lend billions of dollars at low interest rates to help finance natural gas plant construction.
Then there’s the PJM Interconnection, the 13-state electricity market serving much of the East Coast and Midwest, run by the country’s largest regional transmission organization. Despite PJM’s constant warnings about natural gas and coal generation retiring, it has not been able to bring new generating resources online in a reasonable timeframe. The grid operator — technically a non-profit — has neither the regulatory muscle nor the financial firepower to shape new energy generation to its preferences; its interconnection queue got so long, it instituted a two-year pause on reviewing new applications.
While many of PJM’s problems are unique to its particular circumstances, they’ve gotten so severe in recent months, it calls into question whether the decades-long project of structuring electricity generation, transmission, and distribution into something like a market is even working anymore.
“The whole premise is that a capacity market is about efficient entry and efficient exit,” Abe Silverman, an assistant research scholar at Johns Hopkins and former New Jersey utility regulatory official, told me. “We’re squeezing the tube on the entry side and letting very few new entrants in.”
According to PJM’s independent market monitor, at the end of last year, there were just over 7 gigawatts of natural gas projects in the queue, about half of which it expected to go into service eventually, while some 24 gigawatts to 58 gigawatts of coal and natural gas is expected to retire by 2030. There were over 200 gigawatts of renewables projects in the queue, the market monitor said, but only around 30 gigawatts that’s expected to go into service, and for the purpose of a capacity auction, only about 11 would count.
But for power market observers, the sirens really started going off at the end of July, when PJM held what’s called a capacity auction, which determines the price companies get paid to supply energy-generating capacity over and above forecasted peak demand in order to avoid blackouts. By the end of the five-day process, the cost of that capacity came out almost 10 times higher for than the previous PJM capacity auction — $14.7 billion, compared to just over $2 billion in 2022 — a signal that supply, demand, and reliability dynamics within PJM are seriously imbalanced.
That almost certainly means rate increases for consumers. In Maryland specifically, some residential electricity bills could rise anywhere from 2% to 24%, a monthly change of $4 to $18, according to the state’s Office of People’s Counsel.
What that almost certainly does not mean is a huge amount of new generation coming online. “In an efficient capacity market structure, the market starts sending higher price signals and generators start coming on-line,” Silverman told me. “Usually when you see high prices, you would expect more of a response from the supply side.”
In PJM, however, “new generation cannot come online quickly,” according to a letter from a group of consumer advocates in PJM states, therefore “the high capacity market prices are not an effective signal for new entry but instead a windfall for the owners of existing generation.”
Ironically, the high prices were due, in part, to PJM applying a formula it typically reserves for renewables to coal and gas plants, which “derates” the capacity they’re able to offer in times of stress, e.g. during a winter storm. Historically, coal and gas got high ratings because high winds and cold temperatures was considered unlikely to disrupt their production, while solar and wind scored much lower. But after 2022's Winter Storm Elliott, during which natural gas lines froze and caused a mass blackout, PJM knocked down the rating for combined cycle gas plants — the most efficient kind of gas plant, which recaptures heat exhaust to produce more power — from 96% to 79%, and for combustion turbine natural gas plants from 90% to 62%. Wind got a bump, while solar was rated down.
In other words, “PJM doesn’t view all these megawatts as reliably as they did before Elliott,” Nicolas Freschi, a senior associate at Gabel Associates, which does energy and environmental consulting for federal agencies, told me. That meant some 26 gigawatts of projected coal and gas capacity disappeared from the auction, according to S&P Global Commodity Insights.
The environmental activist community has long argued that gas is less reliable than utilities and the public seem to think it is, and that this should be taken into account with grid planning. The gas derating was “a good thing,” Claire Lang-Ree of the Natural Resources Defense Council told me, “because that means what we're paying for in this auction is actually reliable. It's a truing-up of the system.”
At the same time, she acknowledged, the auction result was “a bad thing insofar as it was the driving cause of the price spike,” which also means huge payouts for power companies.
“Despite the decrease in capacity credit, the higher capacity prices will impact the capacity revenue received for projects in PJM, generally increasing it,” S&P analysts wrote in August. By way of example, S&P looked at one natural gas plant in Ohio and found that its project per-megawatt-hour net revenue in 2026 would increase by 40%.
Morgan Stanley estimated that major power producers such as Texas-based Vistra and Maryland’s Constellation Energy would see a boost to their earnings before interest, taxes, and amortization of $700 million to $800 million each.
And yet in both Texas and PJM, many analysts (not to mention the gas industry) still see gas as the solution to a shortfall exacerbated by gas’s documented vulnerability. That’s due to its ability — at least on paper — to generate large amounts of power at any time of day.
So far, however, only one power producer with a large natural gas fleet, Calpine, has publicly indicated that it will aggressively pursue development in PJM. Calpine operates a 76-facility fleet that includes 66 fossil fuel-fired plants from California to Massachusetts. “The PJM market needs and values reliable, dispatchable, non-duration-limited power” the company said in a press release. (These are all industry code words for natural gas.) Calpine said it was “accelerating its PJM electricity generation development program following market signals indicating higher demand for reliable power,” and that it was looking at “multiple new locations in the PJM region, particularly in Ohio and Pennsylvania.”
Other companies have been more cautious. “It is only one auction, of course, and not long enough out in the future to be starting a new project,” Vistra chief executive Jim Burke said in an August earnings call. Morgan Stanley analysts noted that because the next auction is in December, “we don't foresee enough time to build significant new generation capacity. There are only 18 months between the auction and the start of the delivery year, which doesn’t leave time for permitting, interconnection queue timing, and construction because they are behind.”
S&P forecast that only one natural gas project under construction in Ohio could possible bid into the next auction. And while stock and bond analysts are more focused on the prospects for new natural gas plants, they are not particularly optimistic they’ll come online any time soon. “Merchant newbuilds remain marginal under our assumptions, indicating price signals may need to improve further to incent merchant new entry,” Guggenheim analyst Shahriar Pourreza wrote in a note.
Todd Snitchler, the head of the independent power generator trade group Electric Power Supply Association, noted to me that the July auction price was “coming off a record low,” and that the “abnormally” low prices in the previous two auctions — which were then followed by a lengthy delay — “suggested that assets should be leaving, and not coming on” — a trend PJM and other electricity market overseers have been warning about for years.
“One auction does not make a trend make,” Snitchler said.
If prices stay high, however, some analysts think power producers will eventually start trying to build new natural gas plants in PJM. “Investors don’t want to start building extremely expensive projects until they’re sure this price environment is sustainable,” Freschi told me.
Instead of beckoning new gas construction, clean energy and ratepayer advocates want PJM to focus on interconnection reform so that its existing queue — which is overwhelming renewables — can finally make its way onto the grid.
In a statement to Heatmap, PJM said its new system of evaluating projects in groups instead of on a first-come, first-served basis will lead to 230,000 megawatts being processed over the next three years. The PJM spokesperson also pointed to Calpine's announcement as a sign that the capacity auction was bringing new investment.
“We need investment in real projects that can get connected to the grid quickly, as opposed to the speculative projects that have clogged the queue in the past,” the spokesperson said. “Our reformed interconnection process encourages projects with the best chance of being built, and we are weeding out some of those that have been hanging on for years past receiving an interconnection agreement from PJM and who have not moved to construction.”
“Generators should submit their new project queue positions today,” the spokesperson added.
But like so many projects clogging the queue, these reforms are speculative, and in the end the restructured market, where new supply supposedly responds to high prices, simply may not work on its own terms. Some of this is due to policy in PJM states — you’re unlikely to be able to build a new natural gas plant in Democratic-controlled states like Maryland, New Jersey, or Illinois, and Guggenheim’s Pourreza wrote that “any new gas generation will be clustered in [Pennsylvania, Ohio, and West Virginia],” which could both lead to lower capacity prices in some areas and a more unbalanced market as new gas capacity becomes concentrated geographically.
But even in areas that are famously friendly to fossil fuels and have less complicated market and interconnection processes, demand for new gas has not smoothly resulted in gas plant construction. In Texas, which has closest thing to a free electricity market that exists in the United States, the state has had to turn to a multibillion low interest rate financing program to entice developers to build new natural gas plants.
May that be a warning to regional transmission planners everywhere. As S&P analysts wrote, “High prices signal the need for new generation, but do not guarantee it.”
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Investing in red states doesn’t make defying Trump any safer.
In the end, it was what the letters didn’t say.
For months — since well before the 2024 election — when asked about the future health and safety of the clean energy tax credits in the Inflation Reduction Act, advocates and industry folks would point to the 20 or so House Republicans (sometimes more, sometimes fewer) who would sign on to public statements urging their colleagues to preserve at least some of the law. Better not to pull out the rug from business investment, they argued. Especially not investment in their districts.
These letters were “reassuring to a lot of folks in clean energy and climate communities,” Chris Moyer, the founder of Echo Communications and a former staffer for longtime Senate Majority Leader Harry Reid, told me.
“I never felt reassured,” Moyer added.
Plenty of people did, though. The home solar company Sunrun, for instance, told investors in a presentation earlier this monththat a “growing number of Republicans in Congress — including 39 overall House members and four Senators — publicly support maintaining energy tax credits through various letters over the past few months.” The company added that “we expect a range of draft proposals to be issued, possibly including draconian scenarios, but we expect any extreme proposals will be moderated as they progress.”
Instead, the draft language got progressively worse for the residential solar industry, with the version that passed the House Thursday morning knocking billions of dollars off the sector, as tax credits were further squeezed to help make room for other priorities that truly posed an existential threat to the bill’s passage.
What Sunrun and others appear to have failed to notice — or at least publicly acknowledge — is that while these representatives wanted to see tax credits preserved, they never specified what they would do if their wishes were disregarded. Unlike the handful of Republicans who threatened to tank the bill over expanding the deduction for state and local taxes (each of whom signed one of the tax credit letters, at some point), or the Freedom Caucus, who tend to vote no on any major fiscal bill that doesn’t contain sizable spending cuts (so, until now, every budget bill), the tax credit Republicans never threatened to kill the bill entirely.
Ultimately, the only Republicans to outright oppose the bill did so because it didn’t cut the deficit enough. All of the House Republicans who signed letters or statements in support of clean energy tax credits voted yes on the legislation, with a single exception: New York’s Andrew Garbarino, who reportedly slept through the roll call. (He later said he would have voted for it had he been awake.)
“The coalition of interests effectively persuaded Republican members that tax credits were driving investment in their districts and states,” Pavan Venkatakrishnan, an infrastructure fellow at the Institute for Progress, told me in a text message. “Where advocates fell short was in convincing them that preserving energy tax credits — especially for mature technologies Republicans often view skeptically — should take precedence over preventing Medicaid cuts or addressing parochial concerns like SALT.”
The Inflation Reduction Act itself was, after all, advanced on a party-line basis, as was Biden’s 2021 American Rescue Plan. Combined, those two bills received a single Democratic no vote and no Republican yes votes.
In the end, Moyer said, Republican House members in the current Congress were under immense political pressure to support what is likely to be the sole major piece of legislation advanced this year by President Trump — one that contained a number of provisions, especially on SALT, that they agreed with.
“There are major consequences for individual house members who vote against the president’s agenda,” Moyer said. “They made a calculation. They knew they were going to take heat either way. They would rather take heat from clean energy folks and people affected by the projects.”
It wasn’t supposed to be this way.
White House officials and outside analysts frequently touted job creation linked to IRA investments in Republican House districts and states as a tangible benefit of the law that would make it politically impossible to overturn, even as Congress and the White House turned over.
“President’s Biden’s policies are leading to more than 330,000 new clean energy jobs already created, more than half of which are in Republican-held districts,” White House communications director Ben LaBolt told reporters last year, previewing a speech President Biden would give on climate change.
Even after Biden had been defeated, White House climate advisor Ali Zaidi told Bloomberg that “we have grown the political consensus around the Inflation Reduction Act through its execution,” citing one of the House Republican letters in support of the clean energy tax credits.
One former Biden White House climate official told me that having projects in Republican districts was thought by the IRA’s crafters to make the bill more politically sustainable — but only so much.
“A [freaking] battery factory is not going to save democracy,” the official told me, referencing more ambitious claims that the tax credits could lead to more Democratic electoral victories. (The official asked to remain anonymous in order not to jeopardize their current professional prospects.) Instead, “it was supposed to make it slightly harder for Republicans to overturn the subsidies.”
Congresspeople worried about jobs weren’t supposed to be the only things that would preserve the bill, either, the official added. Clean energy and energy-dependent sectors, they thought, should be able to effectively advocate for themselves.
To the extent that business interests were able to win a hearing with House Republicans, they were older, more traditionally conservative industries such as nuclear, manufacturing, agriculture, and oil and gas.The biofuels industry (i.e. liquid Big Agriculture) won an extension of its tax credit, 45Z. The oil and gas industry’s favored measure, the 45Q tax credit for carbon sequestration, was minimally fettered. Nuclear power was the one sector whose treatment notably improved between the initial draft from the House’s tax-writing committee and the version voted on Thursday. Advanced nuclear facilities can still claim tax credits if they start construction by 2029, while other clean energy projects have to start construction within 60 days of the bill’s passage and be in service by the end of 2028.
“I think these outcomes are unsurprising. In places where folks consistently engaged, things were protected,” a Republican lobbyist told me, referring to manufacturing, biofuels, and nuclear power, requesting anonymity because they weren’t authorized to speak publicly. “But assuming a project in a district would guarantee a no vote on a large package was always a mistake.”
“The relative success of nuclear is a testament to the importance of having strong champions — predictable but notable show of political might,” a second Republican lobbyist told me, who was also not allowed to speak publicly about the bill.
But all hope isn’t lost yet. The Senate still has to pass something that the House will agree with. Some senators had made noises about how nuclear, hydropower, and geothermal were treated in the initial language.
“Budget reconciliation is, first and foremost, a fiscal exercise,” Venkatakrishnan told me. “Energy tax credits offer a path of least resistance for hitting lawmakers’ fiscal targets. As the Senate takes up this bill, the case must be made that the marginal $100 billion to $200 billion in cuts seriously jeopardizes grid reliability and energy innovation.” Whether that will be enough to generate meaningful opposition in the Senate, however, is the $600 billion question.
A loophole created by the House Ways and Means text disappeared in the final bill.
Early this morning, the House of Representatives launched a full-frontal assault on the residential solar business model. The new language in the budget reconciliation bill to extend the Tax Cuts and Jobs Act passed Thursday included even tighter restrictions on the tech-neutral investment tax credits claimed by businesses like Sunrun when they lease solar systems to residential buyers.
While the earlier language from the Ways and Means committee eliminated the 25D tax credit for those who purchased home solar systems after the end of this year (it was originally supposed to run through 2034), the new language says that no credit “shall be allowed under this section for any investment during the taxable year” (emphasis mine) if the entity claiming the tax credit “rents or leases such property to a third party during such taxable year” and “the lessee would qualify for a credit under section 25D with respect to such property if the lessee owned such property.”
This is how you kill a business model in legislative text.
“Expect shares of solar companies to take a significant step back,” Jefferies analyst Julien Dumoulin-Smith wrote in a note to clients Thursday morning, calling the exclusion “scathing.” Investors are “losing the now false sense of security that we had 'seen the worst' of it with the initial House draft.”
Joseph Osha, an analyst for Guggenheim, agrees. “Considering the fact that ~70% of the residential solar industry is now supported by third-party (e.g. lease or PPA) financing arrangements, the new language is disastrous for the residential solar industry,” he wrote in a note to clients. “We believe the near-term implications are very negative for Sunrun, Enphase, and SolarEdge.”
Shares of Sunrun are down 37.5% in mid-day trading, wiping off almost $1 billion worth of value for its shareholders. The company did not respond to a request for comment. Shares of fellow residential solar inverter and systems Enphase are down 20%, while residential solar technology company SolarEdge’s shares are down 24.5%.
“Families will lose the freedom to control their energy costs,” Abigail Ross Hopper, chief executive of the Solar Energy Industries Association, said in a statement, in reference to the last-minute alteration to the investment tax credit.
When the House Ways and Means Committee released the initial language getting rid of 25D by the end of this year but keeping a limited version of the investment tax credit, analysts noted that Sunrun was an unexpected winner from the bill. It typically markets its solar products as leases or power purchase agreements, not outright sales of the system.
The reversal, Dumoulin-Smith wrote, “comes as a surprise especially considering how favorable the initial markup was” to the Sunrun business model.
“Our core solar service offerings are provided through our lease and power purchase agreements,” the company said in its 2024 annual report. “While customers have the option to purchase a solar energy system outright from us, most of our customers choose to buy solar as a service from us through our Customer Agreements without the significant upfront investment of purchasing a solar energy system.”
The new bill, Dumoulin-Smith writes is “‘leveling the playing field’ by targeting all future residential solar originations, whether leased or owned.” The bill is “negative to Sunrun with intentional targeting of the sector.
Last year, Sunrun generated over $700 million from transferring investment tax credits from its solar and storage projects. The company said that it had $117 million of “incentives revenue” in 2024, which includes the tax credits, out of around $1.4 billion in total revenue.
But the tax credits play a far larger role in the business than just how they’re recognized on the company’s earnings statements. The company raises investment funds to help finance the projects, where investors get payments from customers as well as monetized tax credits. Fund investors “can receive attractive after-tax returns from our investment funds due to their ability to utilize Commercial ITCs,” the company said in its report. Conversely, the financing “enables us to offer attractive pricing to our customers for the energy generated by the solar energy system on their homes.”
Morgan Stanley analyst Andrew Perocco wrote to clients that “this is a noteworthy change for the residential solar industry, and Sunrun in particular, which dominates the residential solar [third-party owned] market and has recognized ITC credits under 48E.”
Current conditions: A late-season nor’easter could bring minor flooding to the Boston area• It’s clear and sunny today in Erbil, Iraq, where the country’s first entirely off-grid, solar-powered village is now operating • Thursday will finally bring a break from severe storms in the U.S., which has seen 280 tornadoes more than the historical average this year.
1. House GOP passes reconciliation bill after late-night tweaks to clean energy tax credits
The House passed the sweeping “big, beautiful” tax bill early Thursday morning in a 215-214 vote, mostly along party lines. Republican Representatives Thomas Massie of Kentucky and Warren Davidson of Ohio voted no, while House Freedom Caucus Chair Andy Harris of Maryland voted “present;” two additional Republicans didn’t vote.
The bill will effectively kill the Inflation Reduction Act, as my colleague Emily Pontecorvo has written — although the Wednesday night manager’s amendment included some tweaks to how, exactly, as well as a few concessions to moderates. Updates include:
The bill now heads to the Senate — where more negotiations will almost certainly follow — with Republicans aiming to have it on President Trump’s desk by July 4.
2. FEMA cancels 4-year strategic plan, axing focus on ‘climate resilience’
The combative new acting administrator of the Federal Emergency Management Agency, David Richardson, rescinded the organization’s four-year strategic plan on Wednesday, per Wired. Though the document, which was set to expire at the end of 2026, does not address specific procedures for given disasters, it does lay out goals and objectives for the agency, including “lead whole of community in climate resilience” and “install equality as a foundation of emergency management.” In axing the strategic plan, Richardson told staff that the document “contains goals and objectives that bear no connection to FEMA accomplishing its mission.”
A FEMA employee who spoke with Wired stressed that while rescinding the plan does not have immediate operational impacts, it can still have “big downstream effects.” Another characterized the move by the administration as symbolic: “There are very real changes that have been made that touch on [equity and climate change] that are more important than the document itself.”
3. Energy Department redirects Puerto Rican rooftop solar investment to upkeep of fossil fuel plants
The U.S. federal government is redirecting a $365 million investment in rooftop solar power in Puerto Rico to instead maintain the island’s fossil fuel-powered grid, the Department of Energy announced Wednesday. The award, which dates to the Biden administration, was intended to provide stable power to Puerto Ricans, who have become accustomed to blackouts due to damaged and outdated infrastructure. The Puerto Rico Electric Power Authority declared bankruptcy in 2017, and a barrage of major hurricanes — most notably 2017’s Hurricane Maria — have destabilized the island’s grid, Reuters reports.
In Energy Secretary Chris Wright’s statement, he said the funds will go toward “dispatching baseload generation units, supporting vegetation control to protect transmission lines, and upgrading aging infrastructure.” But Javier Rúa Jovet, a public policy director for Puerto Rico’s Solar and Energy Storage Association, added to The Associated Press that “There is nothing faster and better than solar batteries.”
4. EDF, Shell, and others to collaborate on hydrogen emission tracker
The Environmental Defense Fund announced Wednesday that it is launching an international research initiative to track hydrogen emissions from North American and European facilities, in partnership with Shell, TotalEnergies, Air Products, and Air Liquide, as well as other academic and technology partners. Hydrogen is an indirect greenhouse gas that, through chemical reactions, can affect the lifetime and abundances of planet-warming gases like methane and ozone. Despite being a “leak-prone gas,” hydrogen emissions have been poorly studied.
“As hydrogen becomes an increasingly important part of the energy system, developing a robust, data-driven understanding of its emissions is essential to supporting informed decisions and guiding future investments in the sector,” Steven Hamburg, the chief scientist and senior vice president of EDF, said in a statement. Notably, EDF took a similar approach to tracking methane over a decade ago and ultimately exposed that emissions were “a far greater threat” than official government estimates suggested.
5. The best-selling SUV in America will now be available only as a hybrid
Toyota
The bestselling SUV in America, the Toyota RAV4, will be available only as a hybrid beginning with the 2026 model, Car and Driver reports. The car will be available both as a conventional hybrid and as a plug-in that works with CCS-compatible DC fast chargers, meaning “owners can quickly fill up its battery during long road trips” to minimize their fossil fuel mileage, The Verge adds. The RAV4 will also beat the Prius for electric range, hitting up to 50 miles before its gas engine kicks in.
Toyota’s move might not come as a complete surprise given that the automaker already introduced a hybrid-only lineup for its Camry. But given the popularity of the RAV4, Car and Driver notes that “if you ever wondered whether or not hybrids have entered the mainstream yet, perhaps this could be a tipping point.”
Nathan Hurner/USFWS
The Fish Lake Valley tui chub, a small minnow threatened by farming and mining activity, could become the first species to be listed as endangered under the second Trump administration.