Capacity market

A capacity market is a wholesale electricity mechanism that pays power generators and demand-response providers to guarantee available capacity. The capacity is guaranteed years in advance and paid for separately from the energy actually generated and sold, and the market is run by a grid operator such as PJM, ISO New England or the UK's National Grid ESO. Capacity payments exist to keep enough dispatchable supply on the system to cover peak demand and reserve margins, and large new data center campuses show up directly in these auctions as forecast load growth. PJM's capacity auction for the 2026/2027 delivery year cleared at roughly $329 per megawatt-day across most of its footprint, more than triple pre-2025 levels, a spike regulators and consumer advocates have linked substantially to AI and data center demand forecasts pulling forward reserve-margin requirements. Because capacity costs are charged to all retail electricity customers in the market, not just data centers, capacity-market price spikes have become a flashpoint in local opposition to new hyperscale campuses and a factor pushing operators toward behind-the-meter generation and colocated power deals.