Locational Marginal Pricing: A Fundamental Reconsideration
This study establishes that Locational Marginal Pricing (LMP) is conceptually problematic for grid-supported centrally-managed wholesale power markets transitioning to decarbonized grid operations with increasingly diverse participants, hence with increasingly uncertain and volatile net loads. LMP a...
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Published in | IEEE open access journal of power and energy Vol. 11; pp. 104 - 116 |
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Main Author | |
Format | Journal Article |
Language | English |
Published |
New York
IEEE
2024
The Institute of Electrical and Electronics Engineers, Inc. (IEEE) |
Subjects | |
Online Access | Get full text |
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Summary: | This study establishes that Locational Marginal Pricing (LMP) is conceptually problematic for grid-supported centrally-managed wholesale power markets transitioning to decarbonized grid operations with increasingly diverse participants, hence with increasingly uncertain and volatile net loads. LMP assigns a common per-unit price LMP(b,T) (<inline-formula> <tex-math notation="LaTeX">{\}</tex-math></inline-formula>/MWh) to each next unit (MWh) of grid-delivered energy, conditional on delivery location b and delivery period T. However, this entails a serious many-to-one benefit/cost measurement error: namely, the valuation of this next unit by a market participant or system operator will typically depend strongly on the dynamic attributes of the path of power injections and/or withdrawals (MW) used to implement its delivery at b during T. One option is to muddle through, forcing market participants and system operators to express benefit/cost valuations for next units of grid-delivered energy in per-unit form without regard for the true benefits and costs of flexible power delivery. Another option, advocated in this study, is to explore conceptually-coherent nodal multi-interval pricing mechanisms permitting grids to function efficiently as flexibility-support insurance mechanisms, i.e., as mechanisms enabling just-in-time nodal power deliveries to meet just-in-time nodal power demands as well as system reliability requirements. |
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ISSN: | 2687-7910 2687-7910 2644-1314 |
DOI: | 10.1109/OAJPE.2024.3361751 |