A summary of algorithms in reactive power pricing

For decades, power factor penalties have been used in providing reactive power pricing. Low power factor implies more current is flowing in the network than should be ideally with unity power factor. The extra current flow means the conduction losses in the wiring and transformers are higher than would be with higher power factor for a given load. With recent investigations, it has been shown that the practice of power factor penalties is unable to provide accurate price signals to customers. This paper presents a summary of algorithms that have proposed for pricing reactive power. The rates are based on marginal cost pricing implemented using a modification of the optimal power flow algorithms. The algorithms applied show that the cost of reactive power transport is as equally significant as active power for maximum economic efficiency.