On July 31, 2024, PJM, the regional transmission organization responsible for coordinating wholesale electricity movement in Ohio, announced a significant increase in capacity charges that will begin on June 1, 2025. This change will likely lead to rate increases for many customers, which we will discuss in detail in this post.
What Are Capacity Charges?
Capacity charges are one component of the energy bill that ensures that the grid remains reliable by meeting customer demand. Recent shifts in the capacity of the PJM grid (due to increasing energy demand, the retirement of outdated power plants, and a change in how the reliability of different power plants is measured) led to a major jump in the capacity price when the auction was held at the end of July this year. The PJM cost of capacity will increase from ~$29/MW-day to $270/MW-day – this 800% capacity charge will affect different customer types in different ways, but the general trend will raise costs.
PJM Commercial Energy Increase
Commercial electricity consumers in Ohio have already experienced rising rates in the past few years. This increase in capacity charges will likely result in further increases, especially for those with competitive contracts from CRES providers. The exact amount each customer’s bill goes up will vary based on their energy usage patterns and supplier but will likely range between 1-4 cents per kWh. A business with a very steady energy load (such as a factory with a continuous 24-hour process) might see a modest increase of 1.4 cents per kilowatt hour, a company with highly variable demand (such as a welding operation) could experience increases at the higher end of the range.
Timing and Future Auctions
These new capacity charges will take effect on June 1, 2025. Though we don’t know about the official timing, businesses should expect to see these increases reflected in their energy bills around that time at the latest. Businesses with a multi-year CRES contract may still be exposed to these rate jumps if their supply contract has a “regulatory change clause” allowing for an adjustment in the long-term rate. While this rate hike is significant by itself, it is likely to be followed by another one, as the next capacity auction is scheduled for December 2024, setting the capacity charge for the year beginning on June 2026.
The Solar Solution
For commercial entities, installing an onsite solar energy system is a strategic way to hedge against rising utility costs. By investing in solar, you can lock in a portion of your energy rates for the next 25-30 years, safeguarding your business against future rate hikes.
If your business could have locked in the cost of materials at 2018 prices for the next 25-30 years – would you have? Going solar represents doing just that – locking in prices for your electric bill.
As energy costs continue to climb, now is the time to secure your company’s financial future by exploring solar solutions that insulate your organization from this energy volatility.
