Derivation of Locational Marginal Prices for Restructured Wholesale Power Markets

Haifeng Liu, Leigh Tesfatsion () and A.A. Chowdhury

Staff General Research Papers from Iowa State University, Department of Economics

Abstract: Although Locational Marginal Pricing (LMP) plays an important role in many restructured wholesale power markets, the detailed derivation of LMPs as actually used in industry practice is not readily available. This lack of transparency greatly hinders the efforts of researchers to evaluate the performance of these markets. In this paper, different AC and DC optimal power flow (OPF) models are presented to help understand the derivation of LMPs. As a byproduct of this analysis, we are able to provide a rigorous explanation of the basic LMP and LMP-decomposition formulas (neglecting real power losses) presented without derivation in the business practice manuals of the U.S. Midwest Independent System Operator (MISO). Related work can be accessed at: http://www.econ.iastate.edu/tesfatsi/MISOEnergyGroup.htm

Keywords: Locational marginal pricing; wholesale power market; AC optimal power flow; DC optimal power flow; U.S. Midwest Independent System Operator (MISO) (search for similar items in EconPapers)
JEL-codes: D4 L0 L3 Q4 (search for similar items in EconPapers)
Date: 2009-06-03

Published in Journal of Energy Markets, 2009, Vol. 2, No. 1, pp. 3-27.

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Persistent link: http://EconPapers.repec.org/RePEc:isu:genres:13068

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