Capacity Market Charges: What Businesses Need to Know

Capacity market charges are quietly consuming 20–30% of your electricity bill—and most businesses have no idea why. With prices surging 833% for 2025-2026, these hidden fees represent a massive threat to your operating costs. Whilst grid stability matters, the real question isn’t whether capacity charges are necessary—it’s whether you’re paying more than you should. Understanding what actually drives these costs could mean the difference between haemorrhaging money and keeping your energy expenses under control.

What Are Capacity Charges?

Capacity charges show up on your electricity bill for one simple reason: keeping the lights on when everyone wants power at the same time. These fees guarantee that enough generating capacity exists to handle demand surges. Think of it as paying for backup. Not glamorous, but necessary.

Capacity charges are your insurance policy for peak demand — paying for backup power before you actually need it.

Here’s the deal. Utility companies use demand forecasting to predict when you’ll need the most power. They also handle outage planning to keep things running smoothly. All of that costs money.

Without these charges, there’s no financial mechanism to maintain the infrastructure you’re counting on. Power plants need upkeep. Grids need reliability investments. By establishing energy consumption data benchmarks, you can better understand your operational patterns and how they contribute to peak demand exposure. Someone’s got to pay for it.

That someone? It’s you. These charges apply to residential, municipal, commercial, and industrial consumers alike. Welcome to the club. Capacity charges appear as a distinct line item separate from your regular kWh usage charges.

How Much of Your Bill Goes to Capacity Charges?

Capacity charges typically eat up 20–30% of your total electricity bill—making them the second-biggest cost after the energy itself.

Your business size matters here: large energy consumers in manufacturing, healthcare, or data services get hit harder because capacity charges are calculated based on your peak load contribution. The July 2025 PJM capacity auction cleared at market cap of $329.17/MW-day, representing a 22% increase from the previous year that will hit customer bills starting June 2026.

And where you’re located? That’s a whole other headache, with some MISO regions paying around $100,000 per MW annually whilst others paid just $2,000 during the same period. Since your capacity tag is analysed and assigned annually by your utility, understanding when peak hours occur gives you a chance to reduce next year’s charges. Through comprehensive energy audits, you can identify inefficiencies in your operations. By implementing energy efficiency upgrades like LED lighting and advanced HVAC technologies, you can lower your peak demand contribution and reduce future capacity charges.

Typical Cost Percentage Ranges

When you’re staring at your electricity bill, capacity charges aren’t some tiny footnote. They’re eating up 10 to 30 per cent of your total costs. Sometimes more.

For large energy consumers? You’re looking at the higher end. We’re talking 20 to 30 per cent. And here’s the kicker—when you combine capacity with transmission costs, that number can hit 50 per cent. Half your bill. Gone.

Why does this matter to you? Because reserve margins are tightening across regions. Generation plants are retiring faster than new ones come online. That demand response programme your utility keeps mentioning? It exists because the grid’s getting squeezed.

Your geographic location changes everything. Your contract type matters. Your service territory’s market structure? Huge factor. Nothing’s standard here. Working with a transparent energy broker can help you navigate these regional variations and identify the best contract terms for your specific situation.

Understanding these capacity charges is essential for businesses seeking to optimise energy use(Omnium Process) and reduce unnecessary expenditure on grid infrastructure costs.

Business Size Impact

Because your business sits in a specific size category, your exposure to capacity charges isn’t some universal flat rate. Your business scale matters. A lot.

Large industrial facilities get hit harder because industrial tariffs expose them more directly to capacity costs. That’s just how it works. Meanwhile, your demand elasticity—or lack of it—determines how much wiggle room you’ve actually got.

Here’s what shapes your bill impact:

• Large, consistent loads face higher allocated capacity charges even without increased consumption
• Continuous operations during peak hours jack up your exposure
• Mid-Atlantic businesses face annual rate increases of 10-20% or more
• Capacity charges eat up 10-30% of fixed-rate contracts
• Monthly bills could spike up to 29% in PJM’s 2025-2026 delivery year

You’re not alone in this mess. Implementing real-time monitoring tools can help you track consumption patterns and identify opportunities to shift operations away from peak demand periods, directly reducing your exposure to capacity charges. Advanced monitoring systems provide the detailed analysis needed to pinpoint inefficiencies and develop targeted strategies for managing your energy costs during peak periods.

Regional Price Variations

Your business size shapes your exposure, but where you operate? That’s the real kicker.

PJM region businesses just got slammed with an 833% capacity charge increase. Monthly bills jumped up to 29% overnight. Why? More power plants retiring than new ones coming online. Resource adequacy problems, plain and simple.

Meanwhile, ISO-NE is chilling. Prices have stayed flat after earlier chaos. Lucky them.

MISO? Total rollercoaster. One year, Michigan businesses paid $100,000 per megawatt. The next year, same zones paid around $2,000. Transmission constraints create these wild swings between zones. Omnium’s multi-site management capabilities help businesses across regional zones consolidate and optimise their water and energy services simultaneously.

And if you’re in Texas (ERCOT), California, or the Southwest? No capacity market at all. You’re in energy-only territory.

Same country. Wildly different rules. Your location isn’t just an address—it’s a cost factor. Understanding regional energy market structures helps businesses anticipate capacity charge volatility and plan procurement strategies accordingly.

Why Capacity Prices Jumped 833% for 2025-2026

The 833% price jump didn’t happen in a vacuum—it’s the result of a perfect storm that’s been brewing for years.

You’re looking at a market that got hit from multiple directions at once. Data centre concentration exploded demand whilst power plants quietly shut down. The auction mechanics? They worked exactly as designed—they just revealed how broken things had become.

Here’s what collided:

• Data centres now account for 97% of the 5,250 MW load growth
• Generation capacity dropped by 6,600 MW
• Peak demand increased 3,243 MW simultaneously
• Hydrocarbon plants closed prematurely
• Regulatory delays stalled new infrastructure

How Peak Load Contribution Sets Your Capacity Costs

Your Peak Load Contribution isn’t some random number pulled from thin air—it’s calculated from your average electricity demand during five specific summer peak hours when everyone’s running their air conditioning.

Those five hours, picked by PJM after the fact, basically set your capacity costs for the entire following year.

The good news? Grasping how this measurement works gives you a shot at actually doing something about it.

Understanding PLC Calculation Methods

Because your capacity costs aren’t pulled from thin air, there’s an actual method to this madness—it’s called Peak Load Contribution, or PLC. It’s based on your demand during five peak hours from the previous summer. Yeah, just five hours determine what you’ll pay for an entire year.

Here’s how the calculation breaks down:

• Your metered data gets adjusted for transmission and distribution losses
• Hourly loads are scaled to match total zonal load through demand forecasting
• Load profiling averages your reconciled peak loads across those five critical hours
• Weather normalisation gets applied before final averaging
• The whole thing’s calculated in November or December for the following June

The PLC stays fixed for twelve months. No exceptions. Your summer behaviour literally sets your capacity obligations for the next year.

Reducing Your Peak Usage

So what’s a business to do? Demand forecasting becomes your best friend. You’re fundamentally playing detective—tracking weather patterns, monitoring grid conditions, and watching for those scorching 90-degree days when everyone cranks their AC.

Some companies shift operations to off-peak times. Others join demand response programmes and actually get paid to power down. Behavioural incentives work too. Your team learns to cut usage when alerts hit.

Here’s the real talk: reduce your load during those five mysterious hours, and you’ll see lower capacity charges for the entire following year. That’s the game.

Fixed-Rate vs. Passthrough: Which Contract Protects You?

In terms of capacity market charges, picking between fixed-rate and pass-through contracts basically boils down to one question: how much uncertainty can your business stomach?

Fixed-rate contracts offer contract certainty. Everything’s bundled into one price. No surprises. Pass-through? That’s direct market exposure—you see every cost fluctuation in real time.

Here’s what you’re really choosing between:

• Fixed rates lock in capacity charges, so you’re shielded from peak demand spikes
• Pass-through rates look cheaper upfront because network charges are stripped out
• Suppliers absorb risk with fixed contracts; you absorb it with pass-through
• Market prices jumped 143% over the past decade
• Pass-through requires monitoring—nobody’s babysitting your costs for you

Neither option is inherently “better.” It depends on whether you’d rather pay for predictability or gamble on market timing.

Three Ways to Lower Your Capacity Charges

Choosing your contract type matters. But it’s not your only lever.

First, there’s load shifting and operational scheduling. You move energy-hungry tasks to off-peak hours. Simple concept. Minimal investment. Your production schedule becomes a cost-cutting tool.

Your production schedule isn’t just about output—it’s a cost-cutting tool hiding in plain sight.

Second, demand response programmes actually pay you to reduce consumption during peak periods. Yes, really. The grid gets stressed, you pull back, and you get compensated. It’s a proven way to offset those capacity charges that keep climbing.

Third, energy storage changes everything. Battery systems let you store cheap, off-peak power and discharge it when the grid’s screaming for relief. You’re not just reducing your bill. You’re shrinking your contribution to peak demand entirely.

Three paths. One goal. Lower costs.