Risk-Based Locational Marginal Pricing and Congestion Management

This paper develops a new electricity market clearing mechanism, called risk-based locational marginal pricing (RLMP). The RLMP is derived from the risk-based security-constrained economic dispatch model, where risk is modeled to capture the system´s overall security level. Compared to the traditional locational marginal pricing (LMP) which is composed of three components: energy, congestion, and loss, the RLMP consists of an additional risk component. The risk component is a price signal to reflect the system´s overall security level. This paper discusses the features of RLMP, and analyzes its benefits over traditional LMPs. The proposed concept and method are illustrated on a six-bus system and the WECC 240-bus system.