The largest and most common US power auctions are set up to give you an early glimpse into what the AI boom costs consumers.
PJM Interconnection LLC, the largest grid in the United States and home to the world’s largest data center, is set to release the results of its annual power sale on Tuesday. The auction decides to determine the amount of money the generator payable for its generation capacity at new and existing power plants. This is also an indicator of how expensive consumer utility bills are.
Last year, PJM raised supplies at a record $14.7 billion, but this year similar costs per megawatt could result in payments of between $13 billion and $16 billion. Recent analysis from independent market monitors by grid operators shows that the rising price tags are due to booming demand from data centers. It raises concerns that consumers, not technology companies, will take the brunt of the brunt.
The explosive energy consumption of AI data centers “essentially leads to a massive transfer of wealth from existing and residential customers,” said Maryland adviser David Rapp, who is an advocate for residential utility consumers.
Americans across the country are already working on utility billing as aging infrastructure and more extreme weather boost operating costs and energy demand. PJM is becoming a test case for AI’s greedy energy needs. At the same time, the Trump administration’s recent rollback of renewable tax incentives means that many of the large queues of electricity projects awaiting construction will become more expensive, making the hit worse for consumers.
The biggest US grid power costs skyrocket amid ai boom
Payment for the generator went 600% to $14.7 billion at auction last year
Last year’s auction, which saw costs rise by about 600%, created a political fire that ultimately led the PJM and the governor of Pennsylvania, agreeing to set up both the price floor and the cap for the first time at the auction. Barclays PLC analyst Nicholas Campanella said this year’s results will similarly “put the foot on policymakers’ feet.”
PJM declined to comment.
Supply costs increased to around $270 per megawatt per day last year, with Baltimore nearby being home to Virginia, the world’s largest data center. Maryland has earned $16 to $20 capacity on consumer monthly bills with Exelon Corp.’s Baltimore Gas & Electric Utility Tacking. However, the utility reached contracts with regulators to pass these costs in the spring and fall, preventing them from being added to the already high summer bill. We see that capacity costs decrease below the upper limit in both Maryland and Virginia.
But matching or exceeding last year’s prices is a boon for independent power producers such as Talen Energy Corp., Constellation Energy Corp., Vistra Corp., and especially NRG Energy Inc., for a $12 billion deal to buy power plants in PJM’s territory. Overall, these companies agree to spend more than $34 billion to buy gas generators to supply data centers. Meanwhile, lower auction prices can cause the sale of these publicly available generators, but utilities with discount ratings such as Exelon, Ppl Corp. and FirstEnergy Corp. can see stocks rise.
The new priced floors and caps leave room for increasing costs across the grid, ensuring there is no extreme breakout zone. The difference between the floor and the cap is about 1.5 gigawatts, said Mac McFarland, CEO of Talen. Looking ahead for years, he said, “We’re ‘constructive’ about the price of capacity,” he discussed the deal on a July 17 call.
PJM said the expected peak demand for its system and the reserve required will require an additional 146.1 gigawatts. However, he said that if a direct contract with a retail power provider meets some of that demand, PJM may only need 134.5 gigawatts. This means that the auction costs a minimum of $8.7 billion. (Gigawatts are usually enough to drive 800 homes with PJM.)
These capacity auctions are usually held three years ago and provide time for new power plants to be built, especially those running with natural gas. This year is two years behind schedule, with only projects already under construction likely to be built within the next 11 months. Consumables could start to get nervous due to PJM’s forecasts showing a significant increase in demand growth after 2028.
“If you don’t see new builds and demand continues to increase, you can see that prices will rise even further,” Campanella said.
