Two-Settlement Locational Marginal Pricing for Distribution Networks

Advances in distributed energy resource technologies, including software embedded in energy consuming devices, can enhance the price-sensitivity of electric loads. We present a two-settlement (day-ahead and real-time) locational pricing mechanism that can take advantage of this demand flexibility to improve efficiency of operation and investment in distribution networks. We identify two key differences between locational pricing of the transmission network and locational pricing of the distribution network that our two-settlement pricing mechanism addresses. We then provide an illustrative example to demonstrate how our distribution network pricing mechanism provides incentives for improved efficiency of distribution network operation.