LMP decomposition: A novel approach for structural market power monitoring

The main goal of this paper is to decompose and then analyze the locational marginal price (LMP) for monitoring the ability of the generation companies (GenCos) to exercise market power. To achieve this goal, the electricity price discovery mechanism is restated and it is shown that the LMP at bus n (LMPn) is composed of three components. The first is a constant value for each bus, while the second component includes the weighted summation of the strategies of the GenCos which not facing their generation caps, and the third component is composed of the weighted sum of generation of the units that facing their generation caps.The proposed decomposition produces important information regarding LMP. First, the weighting coefficients of the second and third terms indicate the sensitivity of LMPn to the bidding strategies and generations of units. Furthermore, the decomposition of LMPn to the constitutive components reveals the contribution of each GenCos to the electricity price at bus n. Hence, the weighting coefficients and the price components of the GenCos represent the potential for structural market power of the GenCos to the price discovery at each bus. The simulation results on the IEEE 24-bus test system illustrate the efficiency of the proposed monitoring approach.

► We decompose and then analyze the LMP for monitoring the ability of the GenCos to exercise market power.
► LMP is decomposed to the weighted summation of strategies of the marginal units plus the weighted summation of Pmax of limited units.
► The weighting coefficients in the LMP decomposition is used to structural market power monitoring.
► The weighting coefficients in the decomposed LMP indicate the sensitivity of LMP to the bidding strategies and generations of units.
► The decomposition of the price at each bus to the constitutive components reveals the contribution of each GenCo to the price at that bus.