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Markets in Real Electric Networks Require Reactive Prices

Differences in locational spot prices in an electric network provide the natural measure of the price for transmission. The ubiquitous problem of loop flow requires different economic intuition for interpreting the implications of spot pricing. The DC-Load model is the usual approximation for estimating spot prices, although it ignores reactive power effects. This approximation is best when thermal constraints create congestion in the network. In the presence of voltage constraints, the DC-Load model is insufficient, and the full AC-Model is required to determine both real and reactive power spot prices.

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Energy Specializations: Electricity – Markets and Prices ; Electricity – Policy and Regulation

JEL Codes:
D42 - Market Structure, Pricing, and Design: Monopoly
E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General

Keywords: Electric networks, Reactive prices, Spot prices, congestion, DC-Load model

DOI: 10.5547/ISSN0195-6574-EJ-Vol14-No3-8

Published in Volume14, Number 3 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.