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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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Congressional Democrats will have to trust the administration to allow renewables projects through. That may be too big an ask.
How do you do a bipartisan permitting deal if the Republicans running the government don’t want to permit anything Democrats like?
The typical model for a run at permitting reform is that a handful of Republicans and Democrats come together and draw up a plan that would benefit renewable developers, transmission developers, and the fossil fuel industry by placing some kind of limit on the scope and extent of federally-mandated environmental reviews. Last year’s Energy Permitting Reform Act, for instance, co-sponsored by Republican John Barrasso and Independent Joe Manchin, included time limits on environmental reviews, mandatory oil and gas lease sales, siting authority for interstate transmission, and legal clarity for mining projects. That passed through the Senate Energy and Natural Resources Committee but got no further.
During a House hearing in July, California Representative Scott Peters, a Democrat, bragged that a bill he’d introduced with Republican Dusty Johnson to help digitize permitting had won support from both the Natural Resources Defense Council and the American Petroleum Institute — two advocacy groups not typically speaking in harmony. (He’s not the only one taking a crack at permitting reform, though: Another bipartisan House effort sponsored by House Natural Resources Committee chairman Bruce Westerman and moderate Maine Democrat Jared Golden would limit when National Environmental Policy Act-mandated reviews happen, install time limits for making claims, and restrict judicial oversight of the NEPA process.)
But unless Democrats trust the Trump administration to actually allow renewables projects to go forward, his proposal could be dead on arrival. Since the signing of the One Big Beautiful Bill Act on July 4, the executive branch has been on the warpath against renewables, especially wind. With the Trump administration’s blessing, OBBBA restricted tax credits for renewable projects, both by accelerating the phaseout timeline for the credits (projects have until July of next year to start construction, or until the end of 2027 to be placed in service) and by imposing harsh new restrictions on developers’ business relationships with China or Chinese companies. Mere days after he signed the final bill into law, Trump directed the Internal Revenue Service to write tougher guidance governing what it means to start construction, potentially narrowing the window to qualify still further.
“I think all of this fuzz coming out of the Trump administration makes trust among Democrats a lot harder to achieve,” Peters told me this week.
In recent weeks, Trump’s Department of the Interior has issued memos calling for political reviews of effectively all new renewables permits and instituting strict new land use requirements that will be all but impossible for wind developments to meet. His Department of Transportation, meanwhile, insinuated that the department under the previous administration had ignored safety concerns related to radio frequencies while instituting onerous new setback requirements for renewables development near roadways.
Peters acknowledged that bipartisan permitting reform may be a heavy lift for his fellow Democrats — “a lot of Democrats didn’t come to Congress to make permitting oil and gas easier,” he told me — but that considering the high proportion of planned projects that are non-emitting, it would still be worth it to make all projects move faster.
That said, he conceded that his argument “loses a lot of force” if none of those planned non-emitting projects that happen to be solar or wind can get their federal permits approved. “How can I even make a deal on energy unless I get some assurance that will be honored by the President?” Peters told me.
Other energy and climate experts broadly supportive of investment-led approaches to combatting climate change still think that Democrats should push on with a permitting deal.
“All of this raises the importance of a bipartisan Congressional permitting reform bill that contains executive branch discretion to deny routine permits for American energy resources,” Princeton professor and Heatmap contributor Jesse Jenkins posted on X. “Seems like there's a lot of reasons for both sides to ensure America's approach to siting energy resources doesn't keep ping-ponging back and forth every four years.”
But permitting reform supporters are aware of the awkward situation the president’s unilateral actions against renewables puts the whole enterprise in.
“The administration’s recent measures are suboptimal policy and no doubt worsen the odds of enacting a technology-neutral permitting reform deal,” Pavan Venkatakrishnan, an infrastructure fellow at the Institute for Progress, told me.
At the same time, he argued that Democrats should still try to seek a deal, pointing to the high demand for electrons of any type. Not even the Trump administration can entirely choke off demand for renewables, so permitting reform could still be worth doing to ensure that as much as can evade the administration’s booby traps can eventually get built.
“Projects remain at the mercy of a burdensome regulatory regime,” Venkatakrishnan said. “Democrats should remain committed to an ambitious permitting deal — the best way to reduce deployment timelines and costs for all technologies, including solar-and-storage.”
Venkatakrishnan also suggested that Democrats could, in a bipartisan deal, seek to roll back some of the executive branch actions, including the Interior memo subjecting wind and solar to heightened review or the executive order on the definition of “begin construction.” There would be a precedent for such an action — the 2024 Manchin-Barrasso permitting reform bill attempted to scrap the pause on liquified natural gas approvals that the Biden administration had implemented. But then of course, that didn’t ever become law. (Manchin and congressional Republicans were able to clear the way to permitting a specific project, the Mountain Valley Pipeline in a larger bipartisan deal.)
What could unlock a deal, Yogin Kothari, a former congressional staffer and the chief strategy officer of the SEMA Coalition, a domestic solar manufacturing group, told me, would be the Trump administration getting actively involved. “The administration is probably going to have to lead,” Kothari said. “It’s going to be up to folks in the administration to go to the Hill and say, We do need this, and this is what it’s going to mean, and we’re going to implement this in good faith.”
This would require a delicate balancing act — the Trump administration would have to think there’s enough in a deal for their favored energy and infrastructure projects to make it worth perhaps rolling back some of their anti-renewables campaign.
“The administration is going to have to convince Democrats that it’s not permitting reform just for a subset of industries,” i.e. oil, gas, and coal, “but it is really technology neutral permanent reform,” Kothari said. “On the Senate side, it comes down to whether seven Senate Democrats feel like they can trust the admin to actually implement things in a way that is helpful across the board for energy dominance.”
One reason the administration itself may have to make commitments is because Congressional Democrats may not trust Republicans to stand behind legislation they support and vote for, Peters told me.
“Obviously we’d have to get some face-to-face understanding that if we make a deal, they’re going to live by the deal,” he said.
Peters pointed to the handful of Republicans who successfully negotiated for a longer runway for renewable tax credits, only to see Trump move almost immediately to tighten up eligibility for those tax credits as reason enough for skepticism. He also cited the cuts to previously agreed-upon spending that the Trump administration pushed through Congress on a party line vote as evidence that existing law and deals aren’t necessarily stable in Trump’s Washington.
“If we do a deal — Republicans and Democrats in Congress, the House and Senate, get together and make an agreement — we have to have assurance that the President will back us,” Peters told me.
No bipartisan deal is ever easy to come by, but then historically, “everybody lives by it,” he said. “I think that may be changing under this administration, and I think it makes everything tougher.”
And more of the week’s most important conflicts around renewable energy.
1. Sussex County, Delaware – The Trump administration has confirmed it will revisit permitting decisions for the MarWin offshore wind project off the coast of Maryland, potentially putting the proposal in jeopardy unless blue states and the courts intervene.
2. Northwest Iowa – Locals fighting a wind project spanning multiple counties in northern Iowa are opposing legislation that purports to make renewable development easier in the state.
3. Pima County, Arizona – Down goes another solar-powered data center, this time in Arizona.
4. San Diego County, California – A battery storage developer has withdrawn plans to build in the southern California city of La Mesa amidst a broadening post-Moss Landing backlash over fire concerns.
5. Logan and McIntosh Counties, North Dakota – These days, it’s worth noting when a wind project even gets approved.
6. Hamilton County, Indiana – This county is now denying an Aypa battery storage facility north of Indianapolis despite growing power concerns in the region.
They don’t have much to lose, Heiko Burow, an attorney at Baker & Mackenzie, tells me.
This week, since this edition of The Fight was so heavy, I tried something a little different: I interviewed one of my readers, Heiko Burow, an attorney with Baker & Mackenzie based in Dallas, Texas. Burow doesn’t work in energy specifically – he’s an intellectual property lawyer – but he’s read many of my scoops over the past few weeks about attacks on renewable energy and had legitimate criticism! Namely, as a lawyer who is passionate about the rule of law, he wanted to send a message to any developers and energy wonks reading me to use the legal system more often as a tool against attacks on their field.
The following conversation has been abridged for clarity. Let’s dive in.
So Heiko, you reached out to me after my latest scoop about how the Trump administration is now trying to create national land use restrictions on wind projects through the Department of Transportation. In your email, you said the Trump administration “cannot invent a setback requirement by executive fiat.” What does this mean?
Something you need to understand from my point of view is, there’s all these things coming out of the White House, the executive. Like the setback requirement: If the law says they have the right to do that, then okay. But the viewpoints of the administration do not replace the law.
There’s no requirement in the law that the Secretary of Transportation can require a setback. He can’t just come in and say here’s a required setback. The government can only do what the law allows a government to do.
For example, a CEO can’t come into a company and say all the contracts are null and void. The president, in the same way, can’t say everything that’s legally binding is no longer legally binding. There are two ways that creates a problem: one is that it is a breach of contract, and the courts will say there’s a different remedy for that. But there’s also a constitutional problem with that.
Why did you reach out to me about this story, in particular?
I’m just concerned about the environment, and our country, and our democracy.
As someone who works with corporations navigating the legal system under Trump, why do you think companies – like renewable developers – aren’t suing left and right in this moment?
I think they’re timid.
It’s not just companies – it’s stakeholders in general. In 2017, there was pushback on Trump. That is missing. Look at the tech industry – and a lot of investments in renewable energy come from the tech area – and how they lined up with Trump on Inauguration Day.
That is fear. I’d say other stakeholders too are now ruled by fear.
As someone who advises companies in other areas of law, what posture do you think renewable energy companies should take?
Band together. Renewable energy companies, you don’t have much to lose. He’s persecuting you.
I know people stay under the radar, like community solar entities that he could have forgotten about. But he didn’t forget about them. So they need to band together and fight.
Everybody’s just lying low and being afraid. But how much more can renewable energy companies lose? Right now they’re still surviving, because the business case for renewable energy works and states are supporting it. But they’re quiet about it on the national level.
If people start believing what Trump says is the force of law, then it’ll just be that way. And I don’t see a coordinated response to that.