Assessment of Locational Marginal Prices (LMP) based on total dispatch cost minimization

This paper presents a new aspect in assessment of Locational Marginal Prices (LMP). LMP values are practically the key indications for handling the settlement procedures in the competitive electricity markets, Therefore the fairness and accuracy of LMP´s values have always been the central issues. An approach can be developed, where reactive power costs take part into the objective function of the system dispatch. The intent is to find what happens if the costs of active and reactive powers are explicitly bided and therefore minimized. It is demonstrated the cost of system dispatch will be minimized when the cost of active and reactive power minimized. Unlike traditional way at which the cost of real power only minimized, the LMP values are calculated with respect to both active and reactive cost minimization. Nevertheless, this approach introduces better and cheaper way to deal with system dispatch and its settlement procedures. Importantly, this work illustrates that adding reactive power costs in the objective function of the system affects the LMPs drastically. An IEEE-14 bus system is taken to represent the promised approach.