Keep an eye on your electric bill. It is probably about to jump higher. A lot higher.
How much will it go up? That depends on where your manufacturing activity happens, and many other variables, so the increases will vary for different customers. But those increases could be huge.
When will you see the increase? Some grid operators such as Midcontinent Independent System Operator (MISO) have already implemented various capacity charge increases – with more to come soon. PJM Interconnection (Pennsylvania, New Jersey, Maryland) will begin applying higher capacity charges starting in June 2025.
What is behind the increase?
The “capacity cost” of electricity is rising, very high. Capacity refers to the amount of electricity generating capacity that is instantly available from the grid to meet power demands from consumers, and it is dwindling to concerning levels across the grid.
The North American Electric Reliability Corporation (NERC) has been warning about this trend for years. Two of the largest grid operators, PJM and MISO have been doing the same, and both grid operators saw dramatic price increases in their most recent capacity auctions.
The cost of capacity for PJM rose from $2.2 billion to $14.7 billion, an increase of almost 570%.
For the latest MISO capacity auction, on an annual basis prices cleared at $217/MW/day for its northern and central regions and at $212/MW-day for its southern region. The price for summer 2025 jumped from $30/MW-day to $666.50/MW-day.
Some experts expect similar high capacity prices will continue in the future, because new baseload generators take an average of six years to build.
There is a major difference between the PJM and MISO markets. Much of the PJM territory is deregulated, while most of MISO remains regulated. Utilities in deregulated markets (where you can shop for electricity) do not own generation assets and they must purchase their electricity from the grid. If utilities in regulated markets have generating assets, they only need to purchase power from the grid when they don’t have enough capacity available.
Basically, the amount of electric generation is decreasing while electricity demand is increasing. Electric grid operators run the grid and wholesale power markets in their territories. Utilities purchase power from the wholesale market when they need it, and the base price charge is determined when the grid operator conducts a wholesale price auction. To greatly simplify what happens in this process, during an auction various electric generation companies submit what price they are willing to accept for power they will supply to the grid, which then establishes wholesale market prices.
The number of generation assets available has been decreasing steadily, for many reasons. Of particular concern is the dwindling number of “baseload” generators – those that can run essentially all the time, and called upon at short notice to add power to the grid. Large coal- and natural gas-based power plants account for much of the baseload power currently available, but many of those units have been retired – without equivalent alternative power sources ready for use. And that trend continues.
Wind and solar generation have been preferred in recent years for most new projects because of their low emissions (as well as tax incentives offered for those new developments.)
However, such operations function intermittently, by definition: the wind must blow and the sun must shine. These assets can provide considerable power to the grid but are not considered as reliable as baseload power.
Impact on manufacturing
The capacity cost is assessed by the grid operator to the wholesale electric marketplace. Anyone purchasing wholesale power will probably have to pay for the increase. Utilities in deregulated markets (where you can shop for electric supply), must purchase their power from the wholesale market because they are not allowed to operate generation resources; it is seen as a conflict of interest. So, customers in deregulated areas may see larger increases in capacity costs than in regulated areas.
Due to the size and nature of this cost increase, many energy suppliers will be passing these additional charges through to customers — even those currently on fixed-rate contracts. This is possible because most supplier agreements include “Change in Law” provisions, allowing suppliers to adjust pricing when regulatory or market structures change. This cost increase is likely to have an impact on all customers, whether they are in a third-party supply contract or with the local utility.
What can you do?
• Treat it as a supply chain increase. Because virtually all of your competitors may be facing a similar price increase, passing along the cost may be appropriate. However, this may provide an opportunity to achieve a market advantage to pursue alternative energy solutions.
• Hybrid electric supply contracts. New electric energy contracts may provide various levels of relief and price certainty. Power suppliers now offer combinations of fixed-price and capacity pass-thru options. But many suppliers are also risk-averse and will charge a premium to reduce your risk of future price increases, so … review contract offers very carefully.
• Reduce consumption. The cheapest electricity is that which you don’t use. Establish aggressive energy-efficiency measures throughout your organization.
• On-site generation. We are past the time when diesel generators would be relied on only for emergency back-up power supplies. Modern gensets can use natural gas / propane for much cleaner operation, and they can be coupled to industrial-scale battery systems, rooftop solar arrays, etc. The key for manufacturers adopting these systems is to use them at the time when it is most profitable to do so. Specialized control software can help to accomplish that.
Designed for long-term operation, modern genset systems can also be used for emergency power back-up too. Grid capacity issues, storms, etc., may result in brownout / blackout events and on-site generation could allow you to continue manufacturing operations. Significant revenue loss and production delays can be avoided.
I have long been an advocate of on-site electric generation. G&W Electric is an excellent example of a state-of-the-art “microgrid”. I should note that most medium and small metalcasting facilities can use similar but scaled-down systems.
Systems can be provided for virtually any size industrial / commercial organization, but are particularly suitable for most metalcasters. We would be happy to review your requirements and prepare a complementary custom proposal to meet your needs.
Finally, be sure to check your electric bill each month. The amount of the increased capacity cost can vary depending on when you use the power, how much you use and many other variables.