Locational Marginal Price Decomposition Using a Fully Distributed Slack Bus Model

The implementation of risk hedging instruments against the inherent volatile nature of locational marginal prices (LMPs) requires the decomposition of such economic signals into specific components. These components are dependent on the active energy reference selection in optimal power flow (OPF) models that govern the LMP decomposition. Active power distributed slack bus models are commonly used to set the active energy reference in LMP decomposition frameworks to satisfy the financial interests of electricity market participants more equitably. However, in recent years, some important energy-related organizations have shown interest in incorporating reactive power into market-oriented OPF models. This scenario highlights the need for research efforts focused on the formulation of distributed slack bus models that address active and reactive powers. In this context, this paper proposes an LMP decomposition model based on an OPF framework with a fully distributed slack bus formulation. The harmful financial impacts of conventional reactive energy reference specification strategies in the calculation of LMP components are explained from the perspective of market participants. In the proposed decomposition model, to overcome such impacts, active and reactive power mismatches are compensated through the conventional active power distributed slack bus and the proposed reactive power distributed slack bus, respectively. Thus, the double selection of energy reference conceives a new source of negotiation between market participants in the formulation of risk hedging instruments. Numerical simulations on the IEEE 30-bus test system show that differences between LMP congestion components can change by 8.1300% for feasible variations in the reactive energy reference specification.