A spot pricing mechanism for voltage stability

Payment for reactive power services is a part of generator revenue in most established electricity markets today. However, such payments do not have a sound technical basis taking into account the critical role dynamic sources of reactive power play in maintaining voltage stability of the power system. It is also expected that the reactive power will eventually be traded under a spot market arrangement as the markets mature. This paper proposes a spot pricing mechanism for reactive power that takes into account the contributions made by generators both by providing reactive power to meet the current demand and also holding reactive power 'reserve' to maintain the system voltage stability in the face of a potential contingency. An OPF based dispatch/pricing model is proposed that optimally allocates real and dynamic reactive reserve among the generators to meet a pre-specified voltage stability margin. Nodal MW and MV Ar spot prices are affected by the desired stability margin because an increase in MV Ar and/or MW demand has the cascading effect of increasing the dynamic MV Ar/MW reserve requirement. Simplistic illustrative examples are presented to develop insights on the theoretical premise. Experiments conducted for a reduced New Zealand North Island power system reveal some interesting impacts of the voltage stability constraint on real and reactive power prices. (C) 2003 Elsevier Science Ltd. All rights reserved.