Offer-Based Real-Time Reactive Power Supply in a Restructured Power System

This paper explores the inclusion of dynamic reactive power devices such as synchronous condensers, static VAr compensators (SVC), static synchronous compensators (STATCOM), and other flexible AC transmission system (FACTS) controllers, in a restructured setting. The operators of such devices may need to offer reactive power at a cost to be adequately compensated. It is assumed in this paper that the marginal cost to a generator of producing reactive power is negligibly small and generators would therefore offer reactive power at zero cost. A reactive power offer from these other devices would be accepted if it reduces the overall production cost. The rationale for introducing this offer-based reactive power supply is discussed. Three cases of a small power system are used to illustrate how system constraints and supplier constraints give rise to additional operating costs such as minimum generation costs and lost-opportunity costs. In each case an appropriate reactive power offer, from a reactive power supplier that would otherwise have no economic incentive to participate, can be used to remove a binding constraint and lower the overall production cost. The goal of this approach is to provide a stronger economic incentive for investments of needed reactive power supply in appropriate locations.