Determination of Network Rental Components in a Competitive Electricity Market

The locational marginal pricing (LMP)-based settlement results in a surplus collected by the system operator from the consumers. The nonlinear transmission losses and the constrained operation of the power system due to operating limits, such as power flow limits on transmission lines, cause the accumulation of this surplus. This accumulated revenue, referred to as the network rental in this paper, has two main components: loss rental and constraint rental. This paper develops a method to calculate these different rental components paid by each consumer, by combining the power flow tracing and KKT optimality conditions. This yields quantitative determination of how each consumer has overpaid in the form of loss rental and constraint rental, which in turn can be used to get a better insight of how the rental is accumulated. Simple three- and four-bus systems are used to demonstrate the proposed method.