PJM Interconnection LLC has proposed revisions to its lucrative, multi-billion-dollar annual capacity auction that could significantly benefit renewable resources competing in the market. The auction, used by the grid operator to lock in future capacity supplies to ensure grid reliability, has become a key revenue stream for wind and solar generators in the region.

The revisions center on Effective Load Carrying Capability (ELCC) class ratings, a calculation used to set the amount of capacity each resource type can offer, and in turn earn, in the capacity market, as based on its contribution to grid reliability during periods of peak demand. Under this system, resources that provide substantial capacity during periods of high demand and low overall output, such as dispatchable generators, receive higher class ratings. This enables a greater percentage of their project capacity to be sold in the auction.

While class ratings for renewables are expected to decline in the coming years – as increased penetration reduces their contribution to system reliability – PJM proposed in its June 19 guidance a more gradual reduction for the 2027/2028 to 2035/2036 Delivery Years, compared to a 2024 proposal. If these revised class ratings are finalized, they are likely to soften the blow on market revenues for participating renewable resources and mitigate losses for PPA prices. PJM typically finalizes the class ratings prior to the auction, in February or March.

Wind resources were among the biggest winners in the latest proposal. For the 2027/2028 Delivery Year, PJM set the ELCC class rating for onshore wind at 41%. That’s an upward revision of 8 percentage points from PJM’s preliminary guidance issued in April 2024, and it matches the class rating set for the auction for the 2026/2027 Delivery Year. In this scenario, a 100 MW wind generator would be able to sell 41 MW of capacity into the auction.

Compared to PJM’s 2024 guidance, solar resources saw modest gains in their 2027/2028 Delivery Year class ratings, increasing by 1 percentage point each to between 7% and 9%. However, this still represented a decline from the 2026/2027 Delivery Year class ratings.  

Marginal ELCC ratings, introduced for the 2025/2026 delivery year, are notoriously volatile, changing year-to-year. They are calculated using a load forecast model, a combination of actual historical performance and experienced weather changes, as well as the assumed future resource mix. It aims to provide more accurate compensation to capacity suppliers.

The boost in values comes as PJM faces a capacity shortfall as soon as 2026 even as power demand is soaring. It also comes as Congress weighs a speedy phase-out of federal subsidies for renewable resources, a move expected to significantly curtail new deployments of wind and solar generators. The higher forecasted consumption combined with lower-than-expected renewable penetration could drive further changes to the class ratings.

While renewable generators typically earn most of their revenue via PPAs, the energy market, and RECs, the capacity market represents a significant source of income for resources in PJM. This was especially the case for the auction for the 2025/2026 Delivery Year when capacity prices rose to a record high. If PJM’s draft class ratings are finalized, the resulting slower decline could extend the number of years that the annual auction remains a crucial source of revenue for these generators.