Summary of algorithms in reactive power pricing

For decades, power factor penalties have been used as the basis for reactive power pricing. A low power factor implies that more current flows in the network than with the ideal situation with a unity power factor. The extra current flow means that the conduction losses in the wiring and transformers are higher than would be with a higher power factor for a given load. Current research has shown that power factor penalties do not provide accurate price signals to customers. The objective of this paper is to present a summary of some of the algorithms that have been proposed for pricing reactive power. The pricing rates are based on marginal costing implemented using some modification of optimal power flow (OPF) algorithms. The algorithms applied show that for maximum economic efficiency, the cost of reactive power transport is as equally significant as active power.