A pricing strategy for electricity market based on marginal principle

This paper aims to propose a theoretical method to derive reasonable electricity prices for the utility and the consumers in the market, which not only reflects the market mechanism but also ensures retrieving the expenses to be completely recovered during the operation. Specifically, by assuming that purchasing prices from power producers are determined by biddings, auctions or negotiations, the derivation problem of prices on load buses is formulated as a nonlinear optimization problem. The mathematical formulation used here has almost the same form as the conventional OPF except for additional variables corresponding to electricity prices of consumers. The marginal principle has been used to compute the load prices. This paper focuses on finding equilibrium of price among an electric utility, independent power producers and consumers. The lowest affordable load price is determined to prevent the management from dropping into loss for the utility.