Executive Summary:
On April 21, 2025, the Federal Energy Regulatory Commission (FERC) approved PJM’s proposal to introduce a price cap and collar for its Reliability Pricing Model (RPM). The approved rule establishes a price cap of $325/MW-day and a collar of $175/MW-day for the Base Residual Auctions (BRAs) for the 2026/27 and 2027/28 Delivery Years. This development brings both stability and strategic implications in upcoming auction cycles for battery and solar asset owners participating in capacity markets. In this article, we will outline the coming capacity market opportunities and what they mean for SYSO clients.
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Why PJM Proposed the Cap and Collar
PJM’s price cap and collar proposal stems from a combination of infrastructure challenges and market dynamics, which have driven several new capacity market reforms. Significant growth in electric load, aging transmission infrastructure, and the slow pace of new generation coming online have created significant reliability concerns, while driving up recent capacity market auction prices nearly 900%. Additionally, the price cap and collar proposal was developed as part of a settlement agreement with Pennsylvania Governor Josh Shapiro to mitigate ratepayer exposure to high capacity prices.
Key Details of the Cap and Collar
Under the new framework, clearing prices in the BRAs cannot exceed $325/MW-day or fall below $175/MW-day. This price cap and collar will be applied across all Locational Deliverability Areas (LDAs) within PJM, regardless of local capacity constraints. Importantly, the cap and collar will function as an overlay to the existing Variable Resource Requirement (VRR) demand curves, effectively limiting the auction’s ability to produce prices outside the defined range.
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Discover why battery and solar developers in PJM are turning to SYSO for expert guidance in navigating PJM’s capacity market reforms.
Implications for Capacity Market Participants
This new structure introduces several opportunities for PJM capacity market participants, including solar and storage asset owners.
Revenue Certainty for Developers
The cap and collar provides a more predictable pricing environment for capacity participants. While the cap limits upside for constrained LDAs, the collar offers downside protection that can be especially valuable for new or marginal assets. Generators and storage operators can benefit from stable planning for financing and operational decisions.
Concerns Raised by PJM Stakeholders
Stakeholder feedback on the cap and collar has been mixed. Some argue that the $325/MW-day cap is too low to support long-term investment in high-value generation. Others worry that the $175/MW-day collar could overstate competitive pricing signals and distort market efficiency. There are also concerns about whether PJM’s stakeholder process sufficiently accounted for the full diversity of market participants when setting this price cap and collar.
Looking Ahead
This cap and collar is a temporary measure, designed to apply only to the 2026/27 and 2027/28 Delivery Years. It is likely that upcoming reviews will bring further changes to the VRR and broader capacity market redesign. As market supply and demand dynamics evolve, SYSO remains committed to helping clients stay ahead of regulatory shifts, revenue risks, and system needs.
What This Means for SYSO Clients
For SYSO clients operating within PJM’s market, particularly those involved in battery storage and solar, the new cap and collar requires strategic recalibration. SYSO is uniquely positioned to help clients:
- Adjust revenue modeling in response to the new price signals.
- Optimize capacity auction bidding strategies with accurate, up-to-date forecasting.
- Maximize participation across energy, ancillary, and capacity markets while navigating compliance obligations.
SYSO’s real-time dispatch capabilities through our 24/7 NOC and market insights ensure that client assets are positioned to perform effectively within the new capacity environment in PJM. Contact us today to schedule an evaluation of your assets.