Energy prices have risen 76% on America’s largest power grid, and the regulator is pointing the finger

The largest electric grid in the United States, PJM Interconnection, has seen prices nearly double over the past year, according to a report published yesterday by Monitoring Analytics, an independent market watchdog that serves as a kind of watchdog for the PJM grid. The culprit? Data centers.

Wholesale prices for one megawatt-hour of electricity rose to $136.53, compared to $77.78 at the same time last year. Crain’s Chicago Business was first to report the rise. Monitoring analyzes pointed the finger at data centers and PJM’s failure to adequately handle rising demand.

The market watcher didn’t pull any punches. “The price impacts on customers were too large to be reversed,” Monitoring Analytics wrote. “Pricing impacts will be greater in the near term unless data center load-related issues are addressed in a timely manner.”

The PJM is a ready target for such criticism. In 2022, as data center construction was accelerating, the grid operator temporarily halted orders for new generating sources, citing a years-long backlog. It has only recently begun accepting new applications. At the same time, electricity demand from data centers has risen dramatically. PJM’s network includes northern Virginia, a part of the country full of data centers.

The rising prices remind us of a deeper problem: The US power grid was not designed to meet the electricity demands of the AI-driven economy, and the gap between what the grid can provide and what industry needs is widening.

The monitoring analysis was straightforward that without increased demand from data centers, “the capacity market would not have experienced the same tight supply and demand conditions, and the same high prices that were observed.”

“The current supply of capacity at PJM is not sufficient to meet demand from large data center loads and will not be sufficient for the foreseeable future,” she added.

Watchdog analyzes blamed PJM’s lack of transparency in decision-making and delays of much-needed software upgrades. “These upgrades have been delayed for several years and have no specific expected implementation date,” the report said.

This report comes on the heels of an official report issued by PJM Interconnection, which examined the future of the network in which it operates. The white paper proposed three paths forward, but none appealed to one of the region’s largest utilities, AEP, which threatened to leave the PJM network altogether.

Likewise, Analytics Monitor was not impressed with PJM’s white paper. The group said the JM was using the crisis as an “excuse” to tear up the way its electricity market works. “The fundamental elements of PJM’s market design remain strong,” she said, suggesting instead that the grid operator had bungled its response to increased demand. The solution “starts with recognizing that the source of current problems is data center load,” he said. In other words, it’s data centers, stupid.