The PJM Interconnection, the largest electrical grid in the U.S., experienced prices that nearly doubled over the past year, as per a report released yesterday by Monitoring Analytics, an independent market overseer acting as a watchdog for the PJM grid. The cause? Data centers.

Wholesale electricity prices for one megawatt-hour surged to $136.53, increasing from $77.78 at the corresponding time last year. Crain’s Chicago Business was the first to cover the price surge. Monitoring Analytics pointed to data centers and PJM’s inability to adequately manage their increasing demand.

The market monitor did not hold back. “The price effects on customers have been extremely significant and cannot be reversed,” Monitoring Analytics stated. “The price effects will be even more pronounced in the short term unless the challenges related to data center load are resolved promptly.” 

PJM is susceptible to such critiques. In 2022, coinciding with the rise in data center construction, the grid operator halted applications for new generating sources, due to a lengthy backlog. It only recently began accepting new requests. Meanwhile, electricity consumption from data centers has surged dramatically. The PJM grid includes Northern Virginia, an area densely populated with data centers.

The price increase serves as a reminder of a more profound issue: The U.S. power grid was not equipped for the electricity demands of an AI-centered economy, and the disparity between what the grid can provide and the industry’s requirements is growing.

Monitoring Analytics asserted that without the heightened demand from data centers, “the capacity market would not have encountered the same stringent supply-demand conditions, nor the elevated prices observed.”

It further noted that “the current capacity supply in PJM is insufficient to satisfy the demand from large data center loads and will continue to be inadequate in the near future.”

Monitoring Analytics criticized PJM’s lack of transparency in decision-making and its delay in essential software upgrades. “These upgrades have faced multiple years of delays and lack a definitive expected implementation timeline,” the report indicated. 

The report follows a white paper published by PJM Interconnection, which explored the future of the grid it oversees. The white paper proposed three possible directions, but none attracted the interest of one of the region’s largest utilities, AEP, which has threatened to exit the PJM grid entirely.

Monitoring Analytics expressed similar dissatisfaction with PJM’s white paper. The group remarked that PJM was utilizing the crisis “as a pretext” for altering the operation of its power market. “The fundamental aspects of the PJM market design remain sound,” it stated, implying that the grid operator had mishandled its reaction to rising demand. The solution, it asserted, “begins with acknowledging that the root of the current problems is data center load.” In other words, it’s the data centers, plain and simple.