NERC 2025 Reliability Assessment

 2025 Long-Term Reliability Assessment Overview

The North American Electric Reliability Corporation (NERC) released its 2025 Long-Term Reliability Assessment on January 29, 2026, highlighting significant reliability concerns for the PJM Interconnection. Over the past year, PJM’s risk designation shifted dramatically from "Normal" to "High Risk," primarily due to a staggering 69% projected increase in summer peak demand. This surge is attributed largely to the proliferation of data centers and artificial intelligence workloads. Simultaneously, PJM faces reduced supply reserve margins and expedited retirements of fossil-fueled generators, compounding these reliability risks.

from NERC

Key Drivers of Reliability Risks

Several critical factors contribute to PJM’s challenges:

• Rapidly rising demand from data centers, especially in Northern Virginia, is outpacing available supply.
• Accelerated retirement of baseload power plants—driven by policies like the Virginia Clean Economy Act (VCEA)—has reduced firm generation resources more quickly than reliable replacements can be integrated.
• The region is shifting toward weather-dependent resources, which increases the system’s vulnerability.
• Transmission infrastructure development is lagging, making it difficult to accommodate new loads and generation.

The VCEA, in particular, has been identified as a major contributor to PJM’s "High Risk" designation. This legislation mandates rapid retirement of fossil-fuel generators and promotes intermittent energy sources while failing to anticipate the explosive growth in data center demand. As a result, PJM is struggling to maintain adequate supply and reliability.

Grid Congestion and Economic Bottlenecks

The main cause of grid congestion has shifted in recent years. While previous challenges revolved around integrating geographically dispersed renewables—creating cost pressures in regions like MISO and ERCOT through 2024—the primary driver in 2025 and 2026 is a concentrated demand shock from data centers in PJM’s Northern Virginia corridor. This localized surge is creating immediate reliability and economic bottlenecks.

• From 2025 onward, congestion is most acute due to the unprecedented growth and concentration of new demand in PJM Interconnection. The electricity consumption surge from AI-driven data centers in Northern Virginia, now the world’s largest data center market, is overwhelming existing transmission capacity and resulting in years-long backlogs for new grid connections.
• The crisis in PJM centers around aging infrastructure unable to support overwhelming, localized demand—posing direct threats to both economic development and grid reliability in key load centers.

• Implementing targeted reliability initiatives

PJM Market Outcomes and Regulatory Responses

The results of the PJM Base Residual Auction for the 2027/2028 Planning Year, released December 17, 2025, reflected the region’s challenges. For the first time, the entire 13-state PJM footprint failed to meet its target reliability standards—driven by explosive demand from data centers and regulatory price controls. The auction price was capped due to a legal settlement intended to prevent runaway price spikes that could have severely impacted households and businesses across the region.

In typical markets, higher prices attract new suppliers. However, the extraordinary growth in data center demand has outstripped the energy sector’s ability to respond, especially given the industry’s regulatory structure designed to guarantee reliable service for all. PJM now has a significant backlog of new power projects awaiting construction. Historically, the grid was sized for stable demand and already paid for; new infrastructure increases capital costs for all users, not just new entrants.

Compounding these market pressures, many PJM states began retiring older fossil-fuel generation just as data center demand spiked, resulting in power shortages. The December 2025 auction price cap, again due to a legal settlement, was put in place to shield customers from potentially crippling increases across the entire region.

The cap reflects regulators’ belief that it would be unfair to make consumers pay "scarcity prices" for shortages resulting from policy decisions—such as permitting massive data center developments without adequate planning for power needs or transmission upgrades. State-level “Clean Energy Standard” laws in Virginia, Maryland, and Illinois have accelerated the retirement of dispatchable fossil-fueled power, outpacing the connection of new resources. Administrative delays in permitting and construction have further exacerbated the problem.

Reserve Margin and Emergency Measures

The December 2025 Base Residual Auction failed to secure enough "firm" power, such as coal, gas, or nuclear, to achieve the 20% reserve margin. The grid will enter the 2027/2028 year with only a 14.8% margin. To bridge this gap, the Virginia Department of Environmental Quality (DEQ) changed its guidance policy to allow data centers to legally operate their backup generators. This action included suspending certain environmental rules and provisions of the VCEA, permitting the use of Tier II diesel generators to prevent rolling blackouts that could result from the price cap-induced shortages.

Environmental and Public Health Implications

While these measures keep the "lights on" for residents and businesses, they come with significant environmental costs. Northern Virginia has, in effect, become a "de facto diesel power plant" during periods of extreme weather, undermining the core goals of the Virginia Clean Economy Act, which aimed to reduce carbon emissions. This shift has led to a larger regional carbon footprint and increased emissions of harmful air pollutants, such as particulates and nitrogen oxides (NOx), which pose serious public health risks.

The Virginia DEQ acknowledges that it has never performed a cumulative emissions modeling exercise for these clusters of backup generators. Under the latest guidance, if PJM declares a "Grid Stress Event" (such as a 48-hour cold snap), generator zones in Ashburn and Gainesville would become the main power source for data centers. This scenario could result in thousands of diesel engines running simultaneously near schools and homes, potentially releasing up to half of the region’s annual NOx budget within just a few days.

Operational Realities and Community Impact

In the most recent cold snap, PJM did not issue a mandatory Energy Emergency Alert (EEA) 3 that would have forced all participants off the grid. Nevertheless, several data center operators voluntarily switched to their backup generators to alleviate grid stress, ensuring that homes and families had electricity during peak demand.

Local advocacy groups, including the Coalition to Protect Prince William and the Piedmont Environmental Council (PEC), documented "hundreds and perhaps thousands" of diesel generators operating in Loudoun and Prince William Counties during such events. Data centers are not required to notify the state when backup generators are activated, creating a "blind spot" for public agencies, while residents are left to observe, hear, or smell the generators without official oversight.