LMP Revisited: A Linear Model for the Loss-Embedded LMP

In this paper, the concept of locational marginal price (LMP) is revisited by analyzing the Karush-Kuhn-Tucker (KKT) condition of a general optimal power flow (OPF) problem. The impact of losses on LMP is investigated. Several well-known properties and formulations of the LMP are illustrated from a novel perspective. In particular, the special case of the lossless DC OPF model is discussed. Based on this theoretical analysis, a linear model for the loss-embedded LMP is proposed. The influence of losses on the LMP is recovered by solving a system of linear equations. The proposed method does not rely on strong subjective assumptions, such as the selection of reference buses or the determination of the “loss factor.” Case studies show that the proposed method has distinct advantages compared with the method currently practiced in major electricity markets.