A comprehensive analysis of reactive power pricing in a competitive electricity markets

Reactive power plays an important role in maintaining voltage stability, supporting real power transmission and overall system reliability. Thus, developing an accurate and feasible method for reactive power pricing is very significant in a deregulated electricity market. In this paper, the reactive power production cost of generator is represented as a nonlinear model that considers the corresponding economic loss if active power is not generated; that cost is the opportunity cost and the cost of reactive power production of the static capacitors are included in the objective function of total system operation cost. The methodology has been implemented using a modified optimal power flow is presented for calculation of the pricing of active and reactive power at each bus in competitive electricity markets. IEEE-14 bus system has been used for the computer study and the case studies done, shows the effects of various factors on the reactive power marginal price. Results demonstrate that the active and reactive power marginal prices give economical signals that could impel even more the participation of agents of competitive reactive power markets.