Effect of losses on area prices in the Norwegian electricity market

This paper contributes to the understanding of how bus and area prices are affected by losses and congestion. Recent papers have described area pricing to include bus prices that are equal within in a price area or zone. According to present Norwegian practice, the bus prices within a price area differ by an amount that is due to losses. We use a full AC optimal power flow model to illustrate this. Moreover, we demonstrate that the combined effect of transmission congestion and losses may yield a substantial change in individual bus and area prices compared with a situation with no congestion or losses.