Skip to Main Content
Nodal electricity prices are designed to send efficient economic signals to market participants for operating and investment decisions. The inherent nonlinearity of transmission losses and the use of marginal loss pricing can obscure the intended economic information in the loss component of nodal prices. As one step in clarifying the determination of the marginal loss price component, this paper discusses the calculation of nodal electricity prices in lossy networks and presents a variety of accepted methods for determining marginal loss. This paper then proposes a method for calculating the marginal loss component of nodal prices during hours with congestion that reflects each market participant's contribution to marginal losses more accurately than current implementations. The proposed method recognizes that increases in incremental energy flows cannot flow across constrained lines, and thus, system-wide marginal losses should not be attributed to generators or loads in the constrained subregions. The objectives of the discussion are to improve the understanding of how marginal losses are determined and also to improve the accuracy of the information conveyed in the marginal loss price component. The ultimate goal is to promote more efficient price signals to electricity market participants for both transmission loss and congestion.