An alternative approach to deal with congestion and transmission cost

Basic concept of nodal price modeling in competitive market environment and some special considerations on its formulation are presented in this paper. Nodal prices represented by locational marginal prices (LMP) based settlement strategy is carried out in a deregulated market environment to establish the amount of money received by generation companies from system operator and paid to system operator from customers. In this approach, cost of transmission services is implemented together with LMP which represents energy price, losses cost, and network congestion cost. The main idea behind the LMP modeling and the techniques used to incorporate transmission usage tariff into the model are discussed. A simple 3-bus network system is used to examine the model.