Analysis of market signals in a competitive electricity market using components of network rental

In the competitive electricity market, Locational Marginal Prices (LMPs) are important pricing signals for the participants as the effects of transmission losses and binding constraints are embedded in LMPs. While these LMPs provide valuable information at each location, they do not provide a detailed description in terms of contributing terms. The LMP components, on the other hand, show the explicit decomposition of LMP into contributing components, and thus, can be considered as better market signals. However, the effects of transmission losses cannot be explicitly seen from the LMP components. In this paper, the components of network rental is proposed to be used as a method in analyzing market signals, by decomposing the network rental into contributing components among the consumers. Since, the network rental is the surplus paid by all the consumers, components of network rental show how each consumer has actually overpaid due to losses and each binding constraint separately. A case study is also presented to demonstrate the potential of this proposed method in market signal analysis.