Locational Marginal Price (LMP) assessment using hybrid active and reactive cost minimization

Abstract

This paper presents a new aspect in assessment of Locational Marginal Prices (LMP). LMP values are the key indications, which enables handling settlement procedures in the competitive electricity markets, so the fairness and accuracy of LMP’s values have always been the central issues. An approach can be developed, where reactive power costs take part into the objective function of the system dispatch. The intent is to find what happens if the costs of active and reactive powers are explicitly bided and therefore minimized. It is indicated that the cost of system will be further minimized when the cost of both active and reactive powers simultaneously minimized. Unlike traditional way at which the cost of real power were only considered, the LMP values are calculated with respect to proposed objective function in which the active and reactive sources are optimally dispatched and all the system constrained came into the optimal region of operations. In short, this approach provides better and cheaper way to deal with system dispatch and its settlement procedures. The proposed method indicates that adding reactive power costs in the objective function of the system will affect the LMPs drastically and can increase the profits in the energy market. An IEEE-14 bus system is employed to represent the promised approach.