PJM Interconnection, the largest electricity grid operator in the United States, said fundamental operational changes are needed within years rather than decades as rising demand from data centers, cloud computing, and artificial intelligence places increasing strain on the regional power system.
In a white paper released this week, PJM warned that its current approach to balancing electricity supply and demand is no longer sustainable.
“The current situation is not tenable,” David Mills wrote in the report’s foreword.
PJM oversees electricity markets and transmission operations across a large portion of the eastern United States, including Northern Virginia, one of the world’s largest concentrations of data centers.
The operator historically managed one of the country’s lowest-cost electricity systems, but growing demand and delays in connecting new power projects have increased pressure on the grid and drawn criticism from utilities, businesses, regulators, and politicians.
Utilities Question PJM’s Ability To Adapt
Not all utilities are convinced PJM can reform quickly enough.
American Electric Power is reportedly considering leaving PJM altogether.
“The current state of PJM’s performance and stakeholder approval process does not give me great confidence that these issues will be resolved anytime soon,” Bill Fehrman said during an earnings call Tuesday.
Fehrman added that the market structure worked effectively when electricity supply exceeded demand but argued conditions have changed substantially.
Demand growth from AI infrastructure and cloud computing has accelerated electricity consumption across PJM’s territory.
At the same time, the organization paused applications in 2022 for new power generation projects seeking connection to the grid because of a growing backlog in interconnection approvals.
Project Backlog Continues Growing
PJM said many interconnection requests involved duplicate proposals submitted across multiple regions by developers seeking faster approvals.
Still, the scale of the backlog became substantial.
According to the report, more than 300 gigawatts of projects were waiting in the queue in 2022. Of those, only 103 gigawatts eventually signed agreements, while just 23 gigawatts have actually connected to the grid so far.
Many developers withdrew projects instead of waiting through the approval process.
After PJM reopened applications, companies submitted more than 800 new interconnection requests totaling roughly 220 gigawatts of generation capacity.
The demand surge coincides with broader changes in the power sector, including rapid growth in renewable energy and battery storage projects.
Solar and battery systems can often be deployed significantly faster than natural gas plants, while shortages of gas turbines have delayed some planned projects until the early 2030s.
The report also noted that turbine prices have risen sharply amid increased demand tied to hyperscale data center expansion.
PJM Proposes Three Possible Paths
The white paper outlined three potential approaches for reforming the electricity market.
One proposal would require utilities and power suppliers to make larger and longer-term supply commitments beyond the current three-year structure.
A second option would alter reliability guarantees, potentially allowing lower-paying customers to face power interruptions before higher-priority customers.
The third proposal would move PJM closer to a real-time electricity pricing model where supply and demand influence prices more directly while still retaining elements of long-term contracting.
Each option presents challenges.
Longer-term commitments may prove difficult for suppliers given rapid changes in technology and equipment costs.
The second option could create divisions between customers receiving different levels of reliability service, an issue likely to attract political opposition amid rising electricity bills.
The third option attempts to balance short-term market flexibility with long-term stability, though some utilities remain dissatisfied with the available choices.
The report arrives as politicians increasingly discuss electricity price controls and utilities question future participation in the regional market structure.
Featured image credits: Wikimedia Commons
For more stories like it, click the +Follow button at the top of this page to follow us.