Locational Marginal Pricing: A Fundamental Reconsideration
This study establishes that Locational Marginal Pricing (LMP) is conceptually problematic for grid-supported centrally-managed wholesale power markets transitioning to decarbonized grid operations with increasingly diverse participants, hence with increasingly uncertain and volatile net loads. LMP a...
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IEEE
2024-01-01
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| Series: | IEEE Open Access Journal of Power and Energy |
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| Online Access: | https://ieeexplore.ieee.org/document/10419119/ |
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| author | Leigh Tesfatsion |
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| author_sort | Leigh Tesfatsion |
| collection | DOAJ |
| description | This study establishes that Locational Marginal Pricing (LMP) is conceptually problematic for grid-supported centrally-managed wholesale power markets transitioning to decarbonized grid operations with increasingly diverse participants, hence with increasingly uncertain and volatile net loads. LMP assigns a common per-unit price LMP(b,T) (<inline-formula> <tex-math notation="LaTeX">${\$}$</tex-math></inline-formula>/MWh) to each next unit (MWh) of grid-delivered energy, conditional on delivery location b and delivery period T. However, this entails a serious many-to-one benefit/cost measurement error: namely, the valuation of this next unit by a market participant or system operator will typically depend strongly on the dynamic attributes of the path of power injections and/or withdrawals (MW) used to implement its delivery at b during T. One option is to muddle through, forcing market participants and system operators to express benefit/cost valuations for next units of grid-delivered energy in per-unit form without regard for the true benefits and costs of flexible power delivery. Another option, advocated in this study, is to explore conceptually-coherent nodal multi-interval pricing mechanisms permitting grids to function efficiently as flexibility-support insurance mechanisms, i.e., as mechanisms enabling just-in-time nodal power deliveries to meet just-in-time nodal power demands as well as system reliability requirements. |
| format | Article |
| id | doaj-art-259372776fb74e4a9edfa3c56f1de7d0 |
| institution | Kabale University |
| issn | 2687-7910 |
| language | English |
| publishDate | 2024-01-01 |
| publisher | IEEE |
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| series | IEEE Open Access Journal of Power and Energy |
| spelling | doaj-art-259372776fb74e4a9edfa3c56f1de7d02025-01-21T00:03:00ZengIEEEIEEE Open Access Journal of Power and Energy2687-79102024-01-011110411610.1109/OAJPE.2024.336175110419119Locational Marginal Pricing: A Fundamental ReconsiderationLeigh Tesfatsion0https://orcid.org/0000-0002-7783-2708Department of Economics, Iowa State University, Ames, IA, USAThis study establishes that Locational Marginal Pricing (LMP) is conceptually problematic for grid-supported centrally-managed wholesale power markets transitioning to decarbonized grid operations with increasingly diverse participants, hence with increasingly uncertain and volatile net loads. LMP assigns a common per-unit price LMP(b,T) (<inline-formula> <tex-math notation="LaTeX">${\$}$</tex-math></inline-formula>/MWh) to each next unit (MWh) of grid-delivered energy, conditional on delivery location b and delivery period T. However, this entails a serious many-to-one benefit/cost measurement error: namely, the valuation of this next unit by a market participant or system operator will typically depend strongly on the dynamic attributes of the path of power injections and/or withdrawals (MW) used to implement its delivery at b during T. One option is to muddle through, forcing market participants and system operators to express benefit/cost valuations for next units of grid-delivered energy in per-unit form without regard for the true benefits and costs of flexible power delivery. Another option, advocated in this study, is to explore conceptually-coherent nodal multi-interval pricing mechanisms permitting grids to function efficiently as flexibility-support insurance mechanisms, i.e., as mechanisms enabling just-in-time nodal power deliveries to meet just-in-time nodal power demands as well as system reliability requirements.https://ieeexplore.ieee.org/document/10419119/Locational marginal pricingUS RTO/ISO-managed wholesale power marketsmany-to-one benefit/cost measurement errorvolumetric grid riskgrid-supported power markets as flexibility-support insurance mechanismsnodal multi-interval pricing mechanisms |
| spellingShingle | Leigh Tesfatsion Locational Marginal Pricing: A Fundamental Reconsideration IEEE Open Access Journal of Power and Energy Locational marginal pricing US RTO/ISO-managed wholesale power markets many-to-one benefit/cost measurement error volumetric grid risk grid-supported power markets as flexibility-support insurance mechanisms nodal multi-interval pricing mechanisms |
| title | Locational Marginal Pricing: A Fundamental Reconsideration |
| title_full | Locational Marginal Pricing: A Fundamental Reconsideration |
| title_fullStr | Locational Marginal Pricing: A Fundamental Reconsideration |
| title_full_unstemmed | Locational Marginal Pricing: A Fundamental Reconsideration |
| title_short | Locational Marginal Pricing: A Fundamental Reconsideration |
| title_sort | locational marginal pricing a fundamental reconsideration |
| topic | Locational marginal pricing US RTO/ISO-managed wholesale power markets many-to-one benefit/cost measurement error volumetric grid risk grid-supported power markets as flexibility-support insurance mechanisms nodal multi-interval pricing mechanisms |
| url | https://ieeexplore.ieee.org/document/10419119/ |
| work_keys_str_mv | AT leightesfatsion locationalmarginalpricingafundamentalreconsideration |