Pricing of Energy in a Deregulated Power Market

Abstract

To reduce the energy prices at various nodes in a multi-bus system, restructuring or deregulation is needed to encourage competition for trading of power among the market participants. Energy prices or Locational Marginal Prices (LMPs) act as economic signals for the traders who utilize the networks in the system. LMP at any node is defined as the total cost of the incremental outputs of the marginal generators to deliver one unit of energy at a particular node without increasing the flow of the congested line. The pricing at various buses or nodes is very critical which depends upon the maximum line loadability, losses in the lines, generator bids, load costs, choosing a proper reference bus in the system and even meticulous planning of efficient management by the Independent System Operator (ISO). This paper focuses and highlights the basic concepts of LMP and it reveals how congestion, congestion-surplus in the line change due to trading of electricity and how these inculcate the LMPs at various nodes in our eight bus system to vary and alert the market participants about market power due to congestion. This has been incorporated by Shift Factor (SF) based DC-Optimal power flow (DC-OPF) model.