Assessment of the Economic Benefits from Reactive Power Compensation

The U.S. power industry is under great pressure to provide reactive power or VAr support. Although it is generally known that there are technical benefits for utilities and industrial customers to provide local reactive power support, a thorough quantitative investigation of the economic benefit is greatly needed. This paper seeks to provide a quantitative approach to evaluate the benefits from local reactive power compensation. This paper investigates the benefits including reduced losses, shifting reactive power flow to real power flow, and increased transfer capability. These benefits are illustrated with a simple two-bus model and then presented with a more complicated model using optimal power flow. Tests are conducted on a system with seven buses in two areas. These simulations show that the economic benefits can be significant, if compared with capacity payment to central generators or power factor penalties applied to utilities. This economic value may give utilities a better understanding of the Var benefits to assist their cost-benefit analysis for Var compensation. In addition, since the economic benefits are significant, this paper suggests that the future reactive power market should consider local Var providers