Liu, Haifeng; Tesfatsion, Leigh; Chowdhury, A.A.

IEEE Proceedings, Power and Energy Society, Calgary, Alberta, (July 2009)

In this tutorial paper, different AC and DC optimal power flow (OPF) models are presented to help understand the derivation of Locational Marginal Prices (LMPs) in restructured wholesale power markets. As a byproduct of this analysis, the paper provides a rigorous explanation of the basic LMP and LMP-decomposition formulas (neglecting real power losses) presented without derivation in the business practice manuals of the U.S. Midwest Independent System Operator (MISO). Related resources can be accessed at: http://www.econ.iastate.edu/tesfatsi/aelect.htm

JEL Classification: D4, D6, L1, L2, L94, Q4

Keywords: Locational marginal pricing, Wholesale power markets, restructuring, electricity, Midwest ISO