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PJM auction prices rise due to data center demand, supply

shortfall

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Shares of power companies rise on auction results

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Environmental groups criticize PJM for slow renewable

energy

integration

(Adds quotes from analysts and environmental groups, data about

power supply shortfalls)

By Laila Kearney

July 22 (Reuters) - Prices out of the biggest U.S. power

auction, held by grid operator PJM Interconnection, cleared at

$329.17 a megawatt-day, roughly 22% higher than last year's

record-high levels as electricity demand continues to outstrip

supply, according to results released by the organization on

Tuesday.

A recent surge in U.S. power consumption driven by Big

Tech's data center demand has butted up against roughly a decade

of shrinking power supplies in PJM, North America's largest

power grid operator, leading to a supply shortfall that has

driven up prices in the capacity auction.

PJM's capacity auction determines what power plant owners in

the grid network, which covers one in five Americans, will be

paid to guarantee that they pump out electricity during times of

extreme demand to help avoid blackouts.

Shares of major power-producing companies that receive

capacity payments rose on the auction results. Talen Energy ( TLN )

shares were up over 9%, Constellation Energy ( CEG )

shares rose over 5%, and NRG Energy ( NRG ) climbed over 6% in

trading after the bell.

The payments are a sign of the energy supply and demand

balance in PJM, with higher prices typically acting as an

incentive for developers to build more power plants.

PJM's territory covers 13 states and the District of

Columbia, as well as the biggest concentration of data centers

in the world, including Virginia's "Data Center Alley."

The latest auction, which covers the year beginning next

summer, is showing signs of a continued supply crunch.

PJM attracted 2,669 megawatts of additional power

supplies, which will be added through upgrading existing power

plants and adding new ones, marking the first time in the last

four auctions that new generation was added.

The additions, however, represent only about half the

amount of new power demand PJM expects to see over the period

the auction covers.

While prices overall increased from last year, two zones

within PJM - covered by Baltimore Gas and Electric Company and

Dominion Energy ( D ) - saw price decreases.

"Rapid electricity demand growth continues to outpace

the rate of new generation," Evercore ISI analyst Nicholas

Amicucci said in a note of the higher prices.

BACKLASH

Year-ago auction prices shot up by more than 800%,

rising to $269.92 per megawatt-day from the previous year as

data center demand crept up. Prices from that auction began to

take effect last month, while the most recent results will

impact bills beginning next summer.

Those high payment prices, which are ultimately paid for by

the public, drew a backlash from state consumer advocates,

politicians and environmental groups, leading to several changes

at PJM.

PJM says it expects power bills for homes and businesses

will rise only 1.5% to 5% year-over-year as a result of the

latest auction results. Prices in BGE and Dominion may decline,

it said.

The types of power-generating capacity cleared through the

auction included 45% natural gas, 21% nuclear, 22% coal, 4%

hydro, 3% wind and 1% solar.

Environmental groups, which successfully sued over the

last PJM capacity results, said PJM has failed to quickly

connect new carbon-free renewable power like wind and solar.

"PJM has failed our communities through its refusal to

adopt substantive reforms, completely at odds with its mission

of providing reliable energy at the lowest cost to its

customers," said Jessi Eidbo, Sierra Club senior adviser.

PJM said it has approved the connection of 46,000 MW of

power plants, many of them solar, but those projects have not

yet been built for reasons outside the grid operator's control.