In conventional vertically integrated power utilities, the cost of reactive power support is normally recovered by two means: one is to include the cost of reactive power support into active power price and the other is to use load power factor penalty. In a deregulation environment, the reactive power support, system reserve and operation control services are all regarded as system ancillary services, and the cost of each ancillary service should be considered separately. Because the conventional pricing methods of reactive power support do not fit the market environment any more, a reasonable and practical pricing scheme for reactive power support is highly demanded. Generally, there are two kinds of pricing mechanisms in electricity markets, i. e. the spot pricing based on marginal cost and the embedded pricing based on uniform allocation of production cost.
The spot price is developed from microeconomic theories, defined as the marginal cost of system production and operation. It is proved that electricity demands and supplies in a power market are balanced at the spot price and the maximum social welfare is reached. Baughman and Siddiqi, Choi et al. and Chattopadhyay et al.
The Term Paper on Pricing and Costing Methods
Organizations today more than ever before must ensure that they reduce costs as well, as the time used to avail products and services to the market. Since planning as well as the estimation of costs are critical to businesses it is important that organizations chose the best pricing and costing techniques. (Seonen, 2006). The implication here is that the fundamental goal of any business concern is ...
further present the research work on reactive power price based on the spot pricing. However, the spot pricing approach has the following disadvantages in real-time applications. (a) In some cases, the spot price is quite sensitive to the system constraints and operation conditions; therefore, a slight change in system status could lead to considerable price fluctuations. Rapid and significant price fluctuation is not desirable to any existing market because it increases the financial risks of both the demand side and the supply side.
(b) The spot price is usually obtained from optimal power flow (OPF) computation, which is time consuming and has convergence problems because of numerous nonlinear network constraints. (c) The revenue gained by the spot price may not be sufficient for the recovery of total cost and hence additional price adjustments are needed.
