Aug 23, 2025
How High Must Prices Climb Before New Power Plants Get Built?
There is potential trouble brewing in the wholesale energy market. Based on this year's auction prices, some are speculating that wholesale costs could more than double next year. Prices could be stabilized by building new power generation plants. But those with the money to invest have been reluctant thus far. How high will wholesale prices have to go before things change?
The average consumer has no idea what it takes to get electricity from a power generation plant to the outlets and devices in their home. So when a consumer notices a price increase on his bill, it is easy to blame utility company greed. They don’t know what is going on behind the scenes.
An Incredibly Complex Environment
The energy industry is an incredibly complex environment. Powering our homes and businesses is not as simple as building a power generation plant and running some wires. Not only are power generation and transmission challenging from an engineering aspect, but there are also multiple layers of complex regulations and industry standards to comply with.
Consider PJM Interconnection, LLC (PJM), a regional transmission organization (RTO) and independent system operator (ISO) responsible for moving electricity across all or portions of thirteen states and the District of Columbia. Earlier this year, their wholesale prices set a new record at $329/MW-day. Wholesale prices would have climbed higher had the government not stepped in and put a cap on things.
In some of the states controlled by PJM, utilities are not allowed to own generation plants. So this creates a three-tiered system. One company generates the power and sells it to PJM. PJM turns around and sells it to utilities, who then deliver it to customers. And just as with any other product on the market, keeping prices in check requires a stable and robust supply chain.
New Plants Aren't Being Built
It would seem that conditions are right for many more power plants being built across the country. And yet the number of new plants currently in the pipeline is not nearly enough to meet demand. Those who could invest in new plants are choosing not to do so because they perceive their risks as being too high.
If anything, power plant owners are looking to expand their current operations where possible. But doing so relies on RTOs doing their part to accept increased capacity. And even when new plants are being built, RTOs do not seem to be in a rush to get them connected to the grid.
There is some speculation that a doubling of wholesale prices could finally turn things around. Getting closer to the $700/MW-day threshold would represent enough of a return to push investors to jump back in. That may be so, but can consumers afford what would ultimately become astronomically high utility bills?
AI Is Fueling the Fire
While the powers that be attempt to work out the many difficulties preventing increased power generation capacity, there is another problem looming on the horizon: a growing dependence on artificial intelligence (AI). The truth is that AI is only fueling the fire.
A single data center built to handle AI can consume as much energy as a major city. Now that AI is out of the wild and into the marketplace, modern culture cannot get enough of it. It is not going away. Therefore, we need to find a way to increase capacity.
Will wholesale prices double next year? And if so, will that be enough incentive to increase investment in more power generation? Time will tell. It's going to be a bumpy ride.
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