An energy reference bus independent LMP decomposition algorithm

The volatility of the price of electricity in a locational marginal price (LMP) market makes it necessary to introduce financial price risk hedging instruments. The congestion-related and marginal-loss-related revenue surpluses collected by the regional transmission operator (RTO) are proposed to be redistributed to market players. It is important to be able to correctly decompose the LMP into its congestion and marginal-loss components, which are critical for the valuation and settlement of these financial instruments. A new energy reference bus independent LMP decomposition model using an ac optimal power flow (OPF) model is presented to overcome the reference bus dependency disadvantage of the conventional approach. The marginal effect of the generators' output variation with respect to load variation are used as the basis of this decomposition model. The theoretical derivation and a proof are given. The new model achieves a set of reference bus independent results. An example is presented comparing the new model with the conventional model.