Locational marginal pricing

There are several independent system operators that are using centralized dispatch techniques for alleviating transmission system congestion. In such systems an optimization is performed to alleviate congestion. The objective of the optimization is to minimize the bid based price of meeting power demand while enforcing the transmission system constraints. For these systems the use of locational marginal prices (LMPs) provides a useful way of pricing the congestion rescheduling actions that are performed. This paper discusses some of the salient aspects of an LMP based congestion pricing scheme.