Transmission losses modification in location marginal prices calculation

This paper presents a method for considering transmission losses in location marginal prices (LMP) calculation. The LMP at a specific location reflects the marginal cost in serving the last MW of load considering the marginal production cost, the impact of locational injections on congestion constraints, and in some cases, the marginal effect of transmission losses. Compared with the first two components, the losses cost is often neglected in LMP because it is not so significant, and is treated by additional measures to allocate it among market participants. Based on the classical spot pricing theory, this paper deduces the formula for transmission losses modification in LMP calculation and defines the losses modification factor. Then, two approaches of DC and AC load flow models are presented for losses modification factor calculation. Numerical analysis on RTS-24 bus system shows the economic signal including losses modification can improve the resource arrangement with less transmission losses and more effective energy transmission.