Reactive power pricing and management

This paper explores the technical and economic issues of determining reactive power pricing structures in an open-access environment. It is believed that reactive power pricing and management under open-access will depend upon two important developments: (1) the functional unbundling of facilities that support the reactive power and voltage control service, and (2) grid rules to facilitate the coordination between generation and transmission systems for reliable system operation. The paper discusses the characteristics of reactive power that must be considered in order to develop a framework for reactive power pricing and management. Several cost allocation methods for valuing reactive power are presented. Two workable reactive power pricing structures are also proposed. The first is based on performance standards and the second is based on the local reactive power market concept