A new method for real and reactive power loss allocation in bilateral markets

In electricity markets, every user must be responsible for the system losses he causes. Developing a fair loss allocation scheme for real and reactive power is significant to avoid cross subsidies and to give correct economic signals to market participants. This paper introduces a new method for determining real and reactive power loss allocations in bilateral contracts. The basic idea of the method assumes that each transaction has its own effect on the system plus its interactive effect with other transactions. Each transaction share of losses is based on its contribution on the system currents flows. A method is proposed to determine these currents contributions, which need to be adjusted, due to the nonlinearity of the system, using the introduced current adjustment factors (CAFs). Unlike other approaches, our method can be applied effectively to allocate both real and reactive power losses simultaneously, which saves time and effort. It is extremely easy to understand and to be implemented. Furthermore, it can determine each transaction contribution to every branch on the system, which is helpful in congestion management. Results illustrate the consistency of the method with expected results. Reliability and quality of supply are out of the scope of this paper.