Long-Run Marginal Cost Pricing for Reactive Power in Distribution Networks

Embedded generators are expected to play an increasingly important role in future energy supply. They could potentially benefit networks from loss reduction and deferred or delayed investment. Equally, they can increase network investment through inappropriate siting, potentially leading to expensive network upgrading and expansion. This cost/benefit of embedded generator is not reflected by any of the existing distribution network charging model. The aim of this paper is to develop a long-run marginal cost pricing (LRMC) model for distribution network that can price both real and reactive power and reflect the long-term cost/benefit to a network from a network user. The developed model is adopted from investment cost related pricing (ICRP) that is used by the UK's transmission network operator, reflecting the marginal cost to a network from a nodal generation/demand increment. The ICRP model for the UK's transmission networks only prices real power as it is based on DC power flow. In this paper, the paper extended the ICRP charging principle to pricing reactive power. The economic efficiency of the proposed charging model is demonstrated on a subset of a practical distribution system and validated through the comparison with the two charging models: 1) current yardstick distribution charging model; 2) ICRP model based on the DC power flow. This paper results from work undertaken in a project on distribution charging methodologies for Western power distribution (WPD). The views in the paper expressed are not those of WPD.