A reactive power market for the future grid

As pressures to decarbonize the electricity grid increase, the grid edge is witnessing a rapid adoption of distributed and renewable generation. As a result, traditional methods for reactive power management and compensation may become ineffective. Current state-of-art for reactive power compensation, which rely primarily on capacity payments, exclude distributed generation (DG). We propose an alternative: a reactive power market at the distribution level designed to meet the needs of decentralized and decarbonized grids. The proposed market uses variable payments to compensate DGs equipped with smart inverters, at an increased spatial and temporal granularity, through a distribution-level Locational Marginal Price (d-LMP). We validate our proposed market with a case study of the US New England grid on a modified IEEE-123 bus, while varying DG penetration from 5% to 160%. Results show that our market can accommodate such a large penetration, with stable reactive power revenue streams. The market can leverage the considerable flexibility afforded by inverter-based resources to meet over 40% of reactive power load when operating in a power factor range of 0.6 to 1.0. DGs participating in the market can earn up to 11% of their total revenue from reactive power payments. Finally, the corresponding daily d-LMPs determined from the proposed market were observed to exhibit limited volatility.