Calculating short-run marginal costs of active and reactive power production

Proper pricing of active and reactive power is an important issue for economic and secure operations of power systems in an open transmission access (OTA) environment. This paper presents a flexible formulation for this purpose. The proposed formulation identifies an important price component for reactive power, which is fundamentally different from those existing in the literature. This makes the pricing of reactive power more understandable. The proposed approach is efficient for real-time application and allows for carrying out active and reactive power pricing simultaneously or independently through the use of the decoupled optimal power flow formulation. Price signals derived from this approach are quite meaningful from an engineering point of view. In addition, the proposed approach can be easily extended to evaluate NUGs and wheeling transactions. The paper includes test results on the 30- and 118-bus IEEE standard systems.