The potential reactive power investment opportunity for both independent power generation and consumer

Reactive power, one of ancillary service in power market, has a profound effect on the security of power system because it affects voltages throughout the system. Many famous major outages have been ultimately traced to problems with insufficient reactive power support. Although the costs of reactive power provided by transmission and distribution facilities can be recovered through traditional cost-of-service ratemaking mechanisms, the means by which generators can recover their costs of reactive power is not so clear. Thus, this paper examines the concept of reactive power\´s own compensation and charges sequentially which is somewhat symmetrical to the compensation problem. Also, since actually the question of resolving several important policy issues concerning market participants\´ obligations to provide or pay for reactive power is the key of "unbundling reactive power" problem, it would be instructive for this paper to analyze the potential reactive power investment opportunity presented in both operating a merchant plant and charging consumers for direct reactive power consumption according to certain market regulations in the deregulated wholesale market for electricity.