Contribution of transmission and voltage constraints to the formation of locational marginal prices

This paper develops analytical formulae for expressing Locational Marginal Prices (LMPs) as the sum of components due to each of transmission and/or voltage binding constraints using full non-linear Alternating Current (AC) power system model. Each LMP component at a node consists of a price-bonding factor (PBF) multiplied by the marginal price of a corresponding marginal node. Hence PBF represents a price linkage between a marginal and a non-marginal node due to a certain system operating constraint. The aim of the methodology is not to determine LMPs but to decompose them in order to identify particular constraints that are affecting the formation, thereby identifying those lines that may need upgrade. The methodology has been tested on 5-node PJM and 2746-node Polish systems.