Steve Doremus is head of energy markets and market development at Enel North America.
For more than a decade, electricity demand across America remained remarkably flat. Grid operators planned around predictable consumption patterns, capacity markets functioned with modest price variations, and the fundamentals of electricity economics felt stable and well-understood.
That era is over.
S&P Global forecasts unprecedented load growth in the U.S. over the next decade, potentially reaching 5,139 TWh in 2035, 25% more than last year’s demand. This explosion of demand is driven primarily by data centers and the proliferation of artificial intelligence — energy-intensive operations that require massive amounts of electricity around the clock.
The surge of electricity demand is already underway and is significantly affecting market prices. PJM Interconnection’s capacity market auction for the 2025-2026 delivery yearcleared record-high prices of $269.92/MW-day for much of the PJM footprint, compared with $28.92/MW-day for the 2024-25 auction — nearly a tenfold increase that represents the highest prices in the market’s history.
This was no fluke. Weeks after the first 2025-2026 electricity bills started hitting mailboxes, the 2026-2027 auction results arrived. These results hit the market price cap of $329.17/MW-day, setting yet another record.
When capacity costs spike this dramatically, everybody pays attention. The average homeowner or small business owner could be forgiven for not knowing about the PJM capacity auction process — or even about PJM at all. But with prices rising and politicians taking notice, what was once a niche issue for energy wonks is now a mainstream concern.
PJM has clearly entered the era of load growth. And the reality is supply is not being built and interconnected fast enough to keep up with it. While much has been said about the drivers of this growth and the need for new generation to meet it, we too often treat load as a fixed factor. For this market to adapt to the load growth era, we need to reimagine electricity demand as a dynamic and flexible factor.
Demand response — programs that pay businesses to reduce electricity consumption during peak demand periods — offers a valuable alternative to costly new generation for grid operators. This transformation is creating significant opportunities for energy users that can adjust their electricity consumption when the grid needs it most.
The new grid reality
Disruption is the new normal. Even when grid operators project confidence about summer reliability, we all know to expect the unexpected, like a heat wave, equipment failures, or a powerful storm. As a result, grid operators are increasingly calling on flexible resources.
Demand response dispatches have reached record numbers year over year to account for this new reality. These dispatches aren’t in response to catastrophic grid emergencies leading to blackouts, but rather the day-to-day reality of what grid management has become: a complex interaction among resource types and energy demand. Operators need alternative resources like demand response to handle imbalances as the frequency of events that narrow the gap between supply and demand increases.
The supply side faces its own challenges. Coal and gas plant retirements are creating capacity gaps while new generation faces financing challenges, permitting difficulties, or supply chain problems. Even as renewable energy additions accelerate, they bring different grid management dynamics due to their variable output profiles.
Regional variations add another layer of complexity. Elevated pricing is appearing not just in PJM but also inthe Midcontinent Independent System Operator, Southwest Power Pool and Electric Reliability Council of Texas territories. Each region has its own local factors, but the underlying trend of load growth outpacing reliable capacity additions is consistent across markets.
The value of flexibility
Modern resources like wind, solar, storage and demand response are most effective when valued appropriately. Changes to capacity accreditation played a significant role in the sharp rise of PJM’s prices. Many resources were derated to an unreasonable degree, undercounting their value for reliability and sending prices upward accordingly.
With more participation and technical sophistication, we know that demand-side flexibility is an increasingly reliable resource. Electricity is the primary operational cost for data centers, for example, so many are developing deep expertise in how markets work and how they can participate across different value streams. They understand that for their load to come online faster, they are going to need to play a role in enabling the capacity to meet it. And demand response resources are the fastest-to-market that grid operators and utilities have available to them.
These businesses understand that flexibility has value. Some data centers can adjust their operations based on grid conditions and market prices, participating in demand response programs while shifting processes to other geographies in real time. They’re not passive consumers but active market participants who can help balance supply and demand when needed.
On a purely economic basis, aggregating customer flexibility through demand response programs is significantly more cost-effective than building new peaking power plants. When grid operators can pay customers to temporarily reduce their electricity use during stress events, that’s much cheaper than constructing and maintaining generation that might only run a few dozen hours per year.
The broader transformation
PJM’s capacity crisis reflects a national grid transformation where traditional assumptions about electricity demand no longer apply. The digital infrastructure boom represents a fundamentally different load profile than what grid planners have historically managed.
The ongoing debates about baseload versus renewable energy miss a crucial point: Successful grids will need to combine multiple resource types. Tremendous growth in solar and wind generation, massive investments in battery storage, and increasing participation in demand response programs are all happening simultaneously.
As more variable renewable resources come online and load patterns become less predictable, the ability to quickly adjust supply or demand becomes more critical. Market mechanisms are incentivizing this flexibility, as evidenced by PJM’s rocketing capacity prices.
To be sure, flexibility is only part of the solution. In fact, demand response stayed roughly flat, year-over-year, in the latest capacity auction for 2026-2027. While some of this is due to capacity accreditation changes, it also adds urgency for more large energy users to step off the sidelines and implement flexibility strategies. There is room for more demand response growth, and with PJM’s reserve margin slimmer than ever, every megawatt counts.
These are early indicators of how grids will continue to evolve with ongoing digitalization and a changing generation mix. Energy users who understand these market dynamics and can adapt their operations accordingly will be better positioned as this transformation accelerates. Those who can provide flexibility when the grid needs it most will find increasing opportunities to earn revenue while also contributing to overall grid reliability.
Rather than viewing rising capacity costs as simply a burden, energy users should understand them as incentives for more efficient and dynamic loads. The grid is sending clear economic signals about what it values, and smart market participants will respond accordingly.
