Cost Analysis of Reactive Power Using Marginal Cost Theory in Electricity Markets

Reactive power plays an important role in supporting active power transfer. Reactive power is essential for secure operation of power system and it is important to compute the cost of reactive power. Marginal cost theory is used for calculation of the cost of reactive power at each bus in electric markets. In conventional power flow methods, normally the reactive power production cost is ignored. To obtain an accurate reactive power marginal cost, production cost of the reactive power is considered in the objective function. The model is tested with IEEE-14 bus system for several load changes in order to price the reactive power of the generator.