A Proposed Alternative to Locational Marginal Pricing and its Impact on New Generation

The author follows up his earlier critique of locational marginal pricing by offering an alternative approach to LMP for congestion management involving compensation payments for constrained up and constrained down generation and an allocation algorithm of those payments to constrained interfaces and ultimately to the users of the transmission system. This alternative compensation/charge method provides greater incentives for the development of new generation than does LMP.