Optimal Complex Power Production Cost in the Electric Power Market

Cost reduction issues have received serious attention from actors of power industries during the past decade in the power market mechanism. Appropriate management of reactive power is very essential for supporting power system security. Besides, it has also dominant effects on real energy losses. Furthermore, the reactive power can support the secure operation of the system as an ancillary service. However, most researches have focussed on a transaction of the reactive power in electricity markets. On the other hand, reactive power production of generating is highly dependent on the real power output and only absorbed by the local consumers. As a result, to accommodate a market and to maintain a secure operation of the system, a fair cost allocation method seems to be very essential. Appropriate pricing of reactive power as an ancillary service has been a challenging problem during the past decade. However, most methods proposed so far for reactive power pricing are essentially based on empirical approximations. In this paper, a new method for reducing active and reactive power cost allocations has been proposed. The method is based on optimal cost calculation, which will be imposed on generators producing reactive power. The proposed method is fair, accurate and realistic, simple and easy to be applicated in the power system. Application of the proposed method on IEEE 9-bus standard network confirms its validity and effectiveness.