Spot markets for reactive power

There is concern that the present structure of reactive power compensation in competitive power markets may not encourage efficient or adequate investment in or operation of reactive power assets. New ways must be explored to promote appropriate investment and operation of reactive power capability in a way that bolsters system security as well as economic trade. In this paper I argue that spot markets for reactive power, in conjunction with forward markets, are an important component of a successful strategy to achieve this by (1) improving real-time efficiency, (2) facilitating open access to transmission, and (3) supporting long-term contracts. I also propose a particular spot market design and characteristics of the resulting nodal settlement. Because transmission assets can produce and consume reactive power, in some cases to a high degree and with fine controllability, they are involved as active participants in this proposed spot market, and both the capacity and electrical characteristics are valued.