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The recent paradigm shift in the architecture of a smart grid is driven by the need to integrate renewable energy sources, the availability of information via advanced metering and communication, and an emerging policy of a demand structure that is intertwined with pricing. By using smart grid communication technologies that offer dynamic information, the ability to use electricity more efficiently and provide real-time information to utilities is expected to be significantly improved. The introduction of both renewable energy sources as well as efforts to integrate them through an information processing layer brings in dynamic interactions between the major components of a smart grid. In this paper, a dynamic model of the wholesale energy market due to the network constraints is derived. This dynamic model is fundamentally linked to one of the central features of the energy market, of optimal power flow. Beginning with a framework that includes real-time pricing, an attempt is made in this model to capture the dynamic interactions between generation, demand, locational marginal price, and congestion price near the equilibrium of the optimal dispatch. Conditions under which stability of the market can be guaranteed are derived. Numerical studies are reported to illustrate the dynamic model, and its stability properties.