Level 200 - LMP Mechanics Workbook (Part One) v6

Level 200:
Locational Marginal Price Mechanics

(part one)
Student Workbook
Table of Contents
Power Flows: Pre- and Post-Contingency .................................................................................. 3

Introduction to Power Flows: Pre- and Post-Contingency........................................................................ 3
Exercise 1: Power Flow on a 2-Bus/3-Line Network ................................................................................. 6
Exercise 2: Power Flow on a 2-Bus/3-Line Network ................................................................................. 9
Exercise 3: Power Flow on a 2-Bus/3-Line Network ............................................................................... 12
LMPs with No Congestion .........................................................................................................24
Exercise 7: LMPs with No Congestion on a 2-Bus/3-Line Network......................................................... 25
Exercise 8: LMPs with No Congestion on a 3-Bus/3-Line Network......................................................... 29
LMPs with Congestion ..............................................................................................................40
Exercise 9: LMPs with Congestion on a 2-Bus/3-Line Network .............................................................. 41
Exercise 10: LMPs with Congestion on a 3-Bus/3-Line Network ............................................................ 45
LMPs with Congestion (tighter constraints) ...............................................................................63
LMPs with Congestion (additional examples) ............................................................................77
Shadow Prices of Transmission Lines .......................................................................................86
Exercise 16: Shadow Prices on a 3-Bus/3-Line Network ......................................................................... 87
Exercise 20: Shadow Prices on a 3-Bus/3-Line Network ....................................................................... 103
Power Flows: Pre- and Post-Contingency

Introduction to Power Flows: Pre- and Post-Contingency
A basic understanding of how power flows on a transmission grid is important in understanding the
mechanics of Locational Marginal Price.
Simplifying Assumptions
We will assume that generation commitment decisions have already been made (so that we know what
generation is available), that we are dealing with a system where there are no losses, and that we are
performing a one-period dispatch only.
These simplifying assumptions will hold true for all of the examples in this workbook.
Objective
The objective of this section is to learn how to calculate power flows on a 2-bus network model and a 3bus network model, given Physical Parameters, Injection and Withdrawal data and Contingencies.
Definitions
Busbar: An electrical conductor, typically a thick section of copper or aluminum, designed to connect
two or more pieces of electric equipment and carry a high amount of current.
Node: A representation of a busbar in a network model.
Impedance: A measure of how much an electric device or wire restricts the flow of current (many
factors influence electrical impedance).
Contingency: The loss of a major piece of electrical equipment such as a generator or transmission line.
Concepts
Power flows on all available transmission paths between injection and withdrawal points.
The power flow on a particular transmission path will be inversely proportional to the relative
impedance of that path
When power is injected and withdrawn at multiple busses, the individual power flow components can
be layered one on top of the other to determine the net power flow on each line.
Exercise 1: Power Flow on a 2-Bus/3-Line Network

Impedances and Line Limits.
In this scenario, we will assume that each line has the same impedance (the same amount of restriction
on electrical flow). This is a two-bus, 3-line model. The limit on power flow on each line is the same:
1000 MW.
Power Flow and Power Flow with Contingency

If we inject 1200 MW at bus A, and withdraw 1200 MW at bus B, how much power will flow on the
individual lines, based on their relative impedances?
Line 3 has experienced a contingency and is out-of-service. If we inject 1200 MW at bus A, and withdraw
1200 MW at bus B, how much power will flow on lines 1 and 2 based on their relative impedances?
Double Contingency
Line 2 and line 3 have both experienced contingencies and are out-of-service. If we inject 1200 MW at
bus A, and withdraw 1200 MW at bus B, how much power will flow on line 1?

Impedances and Line Limits
In this next scenario, the impedance on line 1 is 2. On lines 2 and 3, the impedance is still 1.
The limit on power flow remains the same on each line: 1000 MW.
Power Flow and Power Flow with Single Contingency

individual lines, based on their relative impedances? You can solve this equation to determine the
power flows: 0.5X + X + X = 1200. X is the amount of power that will flow on lines 2 and 3.
Line 3 has experienced a contingency. If we inject 1200 MW at bus A, and withdraw 1200 MW at bus B,
how will power flow on lines 1 and 2, based on their relative impedances? You can solve this equation to
determine the power flows: 0.5X + X = 1200. X is the amount of power that will flow on line 2.
10
Double Contingency
Line 2 and 3 have experienced contingencies and are out-of-service. If we inject 1200 MW at bus A, and
withdraw 1200 MW at bus B, how much power will flow on lines 1?
11

In this example, the impedance on line 1 and line 2 is 2, and the impedance on line 3 is 1. The limit on
power flow is the same on each line: 1000 MW.
12
Power Flow and Power Flow with Single Contingency on

individual lines, based on their relative impedances? You can solve this equation to determine the
power flows: 0.5X + 0.5X + X = 1200. X is the amount of power that will flow on line 3.
If Line 1 is out-of-service. If we inject 1200 MW at bus A, and withdraw 1200 MW at bus B, how will
power flow on lines 2 and 3, based on their relative impedances? You can solve this equation to
13
Single Contingency on Line Two and Single Contingency on Line Three

If Line 2 is out-of-service, and we inject 1200 MW at bus A, and withdraw 1200 MW at bus B, how will
If Line 3 is out-of-service. If we inject 1200 MW at bus A, and withdraw 1200 MW at bus B, how will
determine the power flows: 2X = 1200. X is the amount of power that will flow on line 1 or 2.
14

In this example, the relative impedances are the same for each line. This limit on power flow is the same
on each line: 1000 MW.
15
Injection at Bus B / Withdrawal at Bus C, and Injection at Bus A / Withdrawal at Bus C

If we inject 100 MW at bus B, and withdraw 100 MW at bus C, how much power will flow on path B-A-C
versus path B-C? Note that path B-A-C has twice the relative impedance (2) as path B-C (1).
If we inject 100 MW at bus A, and withdraw 100 MW at bus C, how much power will flow on path A-B-C
versus path A-C? Note that path A-B-C has twice the relative impedance (2) as path A-C (1).
16
Combined Injection and Withdrawal Data

If we inject 100 MW at bus A, inject 100 MW at bus B and withdraw 200 MW at bus C, how much net
power will flow on each path and in what direction?
To answer these questions, you can lay the individual power flows on top of each other.
17

In this scenario, the impedance on line A-C is 2. The other lines have an impedance of 1. The limit on
power flow on each line is 1000 MW.
18
Injection at Bus B / Withdrawal at Bus C and Injection at Bus A / Withdrawal at bus C

versus path B-C? Note that path B-A-C has twice the relative impedance (2) as path B-C (1).
If we inject 100 MW at bus A, and withdraw 100 MW at bus C, how much power will flow on path A-B-C
versus path A-C? Note that path A-B-C has twice the relative impedance (2) as path A-C (1).
19

If we inject 100 MW at bus A, inject 100 MW at bus B and withdraw 200 MW at bus C, how much power
will flow on each path and in what direction?
20

In this scenario, the impedance on line A-C is 2. The other lines have an impedance of 1. The limit on
power flow remains the same on each line: 1000 MW.
21
Injection at Bus B / Withdrawal at Bus C and Injection at Bus B / Withdrawal at Bus A

versus path B-C? Note that path B-A-C has three times the relative impedance (3) as path B-C (1).
If we inject 100 MW at bus B, and withdraw 100 MW at bus A, how much power will flow on path B-C-A
versus path B-A? Note that path B-C-A has three times the relative impedance (3) as path B-A (1).
22

If we inject 200 MW at bus B, withdraw 100 MW at bus B and withdraw 200 MW at bus C, how much
power will flow on each path and in what direction?
Supplemental Questions
If everything else is held constant, what happens to the power flow on a transmission line as its
impedance goes up? As its impedance goes down?
What is a busbar? Why is a busbar constructed of aluminum or copper?
What is a contingency? Why are contingencies important in understanding power flow?
What physical parameters are needed to calculate power flows on a transmission line?
When different sets of injections and withdrawals are laid on top of each other, is it possible for
those separate flows to add up to a zero net flow?
On a 3-bus network, when impedance is the same on every line, why does power flow around
the network in a 1/3 to 2/3 ratio?
23
LMPs with No Congestion

Introduction to LMPs with No Congestion
Before we calculate Locational Marginal Prices (LMPs) in situations where there is transmission
congestion, we will calculate LMPs in situations where there is no congestion and where we are
following a pure economic dispatch.
Objective
The objective of this section is to learn how to calculate power flows and LMPs on a 2-bus network
model and a 3-bus network model, given Physical Parameters, Economic Parameters and Injection and
Withdrawal data.
Definitions
Economic Dispatch: The least-cost mix of resources to serve load.
Security Constrained Economic Dispatch (SCED): The least-cost mix of resources to serve load, which
respects all constraints (including transmission constraints).
Constrained Optimization: A more general term for describing SCED.
LMP: The cost of serving an increment of load at a particular node (bus) at a particular time under a
least-cost security-constrained dispatch.
Concepts
With no congestion, LMPs reflect pure economic dispatch and are the same at every bus.
LMPs can be calculated at nodes where there is generation but no load.
LMPs can be calculated at nodes where there is no generation or load.
24
Exercise 7: LMPs with No Congestion on a 2-Bus/3-Line Network

In this scenario, all lines have the same impedance. The limit on power flow is the same on each line:
500 MW.
25
Generation, Load and Dispatch

Generator A has a maximum output of 1000 MW and an offer of $10/MWh. Generator B has a
maximum output of 80 MW and an offer of $50/MWh.
If the load at bus B is 900 MW, the least cost dispatch is to get all of the power from Generator A. How
much of that 900 MW will flow on each line?
26
LMPs
What will the LMP be at Bus A and Bus B?
This is answering the question: what is the least cost dispatch for serving the next increment of load at
Bus A and at Bus B?
27
Single Contingency and Impact on LMPs

If Line 3 is out-of-service, how much power will now flow on line 1 and line2? Under these conditions,
what are the LMPs at Bus A and Bus B?
28
Exercise 8: LMPs with No Congestion on a 3-Bus/3-Line Network

Line Limits
In this scenario, impedances are the same on each line (that will be the case for the rest of the 3-bus/3line scenarios). And the limit on power flow is the same on each line: 1000 MW.
29
Generation Info
Generator A has a maximum output of 800 MW, an offer of $45/MWh for up to 300 MW, an offer of
$50/MWh for up to 500 MW and an offer of $55/MWh for above 500 MW.
Generator B has a maximum output of 600 MW, an offer of $10/MWh for up to 550 MW and an offer of
$12/MWh for above 550 MW.
Generator C has a maximum output of 900 MW and an offer of $40.
30
Load, and Dispatch of Generator B.

In this scenario, load exists only at Bus C and is 500 MW.
Because Generator B is our least expensive resource, well dispatch it to 500 MW. How will power flow
on the system as a result of this dispatch? Will any of the transmission lines exceed a limit?
31
LMPs
Given the load and dispatch information, what are the LMPs at Bus A, Bus B and Bus C?
32
Load Increase
Well increase the load at Bus C to 900 MW so we can see the impacts on dispatch, power flow and
LMPs.
33
Dispatch of Generator B
Because Generator B is our least expensive resource, we will dispatch it to the top 600 MW. What will
the power flows look like from Generator B?
Because Generator C is next in line as the least expensive resource, we will dispatch it to 300 MW.
Because it is at the sum bus as our load, there are no power flow impacts to consider.
34
Combined Dispatch and LMPs

The combined dispatch is a 600 MW injection at Bus B, a 300 MW injection at Bus C and a 900 MW
withdrawal at Bus C. What will the net power flows look like?
Given the dispatch and power flows, what are is the LMP at Bus A, Bus B and Bus C?
35
Load Increase
In this next scenario, we will increase load to 1600 MW and observe the impacts on dispatch, power
flow and LMPs.
36
Dispatch of Generator B and Dispatch of Generator C

First well dispatch our least expensive resource, Generator B, to the top. What will the power flows look
like from this dispatch?
Next, well dispatch Generator C to the top.
37
Dispatch of Generator A, and Combined Dispatch

And finally, well get our last 100 MW from our most expensive resource: Generator A. What will the
power flows look like from this dispatch?
Based on the combined dispatch of Generator B, Generator C and Generator A, what will the power
flows look like?
38
LMPs
Based on the dispatch and power flows, what are the LMPs at Bus A, Bus B and Bus C?
What is economic dispatch?
Why are LMPs the same at every bus when there is no congestion?
Under an economic dispatch with no congestion, what happens to LMPs as load increases?
39
LMPs with Congestion

Introduction to LMPs with Congestion
In this section, we will change various parameters and load levels and observe the impact of
transmission congestion on LMPs.
Objective
model and 3-bus network model under congestion, given Physical Parameters, Economic Parameters
and Injection and Withdrawal data.
Definitions
Physical Congestion: A situation where transmission lines are at or above a stated limit, which requires
the least-cost dispatch to maintain or reduce the flows on these lines.
Financial Congestion: A manifestation of Physical Congestion where LMPs separate (become different at
every node in the market).
LMP: The change in overall production cost from serving an increment of load at a particular node (bus)
at a particular, time under a least-cost security-constrained dispatch.
Concepts
Physical Congestion on a line causes Financial Congestion (the separation of LMPs across the market).
LMPs are higher on the constrained side of a transmission line or interface, and lower on the
unconstrained side.
Tighter transmission limits cause LMPs to separate even more.
To manage congestion in a least-cost security-constrained fashion, a dispatch must rely on multiple
marginal generators.
Even on a 3-bus model, calculating LMPs at some busses is tricky (not immediately obvious).
40
Exercise 9: LMPs with Congestion on a 2-Bus/3-Line Network

Impedance, Line Limits and Generation
In this scenario, the impedance is the same on each line. The limit on power flow is the same on each
line: 500 MW.
41
Generation, Load and Dispatch

Generator A has a maximum output of 1200 MW and an offer of $10/MWh. Generator B has a
maximum output of 80 MW and an offer of $50/MWh.
With a load of 900 MW at Bus B, the least-cost security-constrained dispatch is to dispatch Generator A
to 900 MW. What are the power flows under this dispatch?
42
LMPs
What are the LMPs at Bus A and Bus B under this dispatch?
43
Load, Dispatch and LMPs

Now we have a contingency on Line 3 which has put it out-of-service, and load at Bus B has increased to
1000 MW. The least-cost security-constrained dispatch is to dispatch Generator A to 1000 MW. What
are the resulting power flows? Are any of the lines now at a limit?
What are the resulting LMPs in this load and dispatch scenario? What is the least-cost securityconstrained solution to serve the next increment of load at bus B? Is there Physical Congestion? Are we
seeing Financial Congestion?
44

Line Limits and Generation
In this scenario, the line limit on A-B has been reduced to 500 MW.
The bottom graphic contains the generation limits and offers
45
Load, and Dispatch of Generator B

There is a single load at Bus A of 1150 MW.
We will serve this load by dispatching our least expensive resource, Generator B, to its limit of 600 MW.
What are the resulting power flows from this dispatch?
46
Dispatch of Generator C and Generator A.

Next, well dispatch Generator C as high as we can take without violating any transmission limits. What
are the resulting power flows from this dispatch?
Our last 250 MW to meet load will have to come from our most expensive resource, Generator A.
47

The combined dispatch is 600 MW from Generator B, 300 MW from Generator C and 250 MW from
Generator A. What are the power flows that result from this combined dispatch?
What are the LMPs that result from this combined dispatch? What is the least-expensive, securityconstrained dispatch to serve the next increment of load at Bus A? At Bus C? At Bus B (this one is tricky)?
Note that LMPs are higher on the constrained side of line A-C and lower on the unconstrained side.
48
LMPB Move GenC, then Move GenC and GenA

To serve the next increment of load at Bus B, lets increase the dispatch of Generator C by 1 MW. What
are the resulting incremental power flows?
The dispatch of Generator C to serve load at Bus B has freed up some room on line A-B (the dispatch of
Generator C pushes back on the constraint). So now lets do two things at once increase the dispatch
of Generator C by 1 more MW, and dispatch Generator A down by 1 MW. What are the resulting
incremental power flows?
49
LMPB - Combined Gen Changes, and Production Cost Change

The combined generation changes to serve an increment of load at Bus B in a least cost security
constrained fashion are: dispatch Generator C up 2 MW, and Generator A down by 1 MW. What is the
combined incremental power flow change? What is the impact on constrained line A-B?
Lets calculate the LMP at Bus B by looking at the total production cost change from serving an
additional MW of load at Bus B.
50

Line Limits and Load
In this scenario, the limit on line A-B has been reduced to 500 MW.
Load in this scenario is 1300 MW at Bus A.
51
Dispatch of Generator B and Generator C

Generator B is our least expensive resource. We will dispatch it to its limit of 600 MW. What is the
resulting incremental power flow?
Next, well take our next cheapest resource, Generator C, and dispatch it as high as we can without
violating any transmission limits? What is the resulting incremental power flow?
52

Well have to get our last 550 MW from our most expensive resource, Generator A. Because this
resource is at the same bus as our load, there is no resulting incremental power flow.
The combined dispatch is 600 MW from Generator B, 300 MW from Generator C and 550 MW from
Generator A. What is the resulting incremental power flow?
53
LMPs, and Incremental Dispatch of Generator C

What is the resulting LMP at Bus A? At Bus C? At Bus B (this one is tricky again)? Note that LMPs are
higher on the constrained side of line A-B and lower on the unconstrained side.
To serve the next incremental of load at Bus B in a least-cost security-constrained fashion, lets increase
the dispatch of Generator C by 1 MW. What is the resulting incremental power flow?
54
LMPB Move GenC and GenA, and Combined Generation Changes

By moving Generator C to serve load at bus B, we have freed up room on constrained line A-B. Lets use
that space to dispatch Generator C up another MW, and dispatch Generator A down 1 MW. What is the
resulting incremental power flow? The combined dispatch is an increase of 2 MW from Generator C and
a decrease of 1 MW from Generator A. What is the incremental power flow and impact on line A-B?
55
LMPB Production Cost Change

56

Line Limits and Load
In this scenario, the limit on line A-B is 500 MW.
Load is 1450 MW at Bus A.
57
Dispatch of Generator B and Generator C

Generator B is our least expensive resource. We will dispatch it to its limit of 600 MW. What is the
resulting incremental power flow? Next, well take our next cheapest resource, Generator C, and
dispatch it as high as we can without violating any transmission limits? What is the resulting incremental
power flow?
58

Well have to get our last 550 MW from our most expensive resource, Generator A. Because this
resource is at the same bus as our load, there is no resulting incremental power flow. The combined
dispatch is 600 MW from Generator B, 300 MW from Generator C and 550 MW from Generator A. What
is the resulting incremental power flow?
59
LMPs, and Incremental Dispatch of Generator C

What is the resulting LMP at Bus A? At Bus C? At Bus B (this one is tricky again)? Note that LMPs are
higher on the constrained side of line A-B and lower on the unconstrained side. To serve the next
incremental of load at Bus B in a least-cost security-constrained fashion, lets increase the dispatch of
Generator C by 1 MW. What is the resulting incremental power flow?
60
LMPB Move GenC and GenA, and Combined Generation Changes

By moving Generator C to serve load at bus B, we have freed up room on constrained line A-B. Lets use
that space to dispatch Generator C up another MW, and dispatch Generator A down 1 MW. What is the
resulting incremental power flow? The combined dispatch is an increase of 2 MW from Generator C and
a decrease of 1 MW from Generator A. What is the incremental power flow and impact on line A-B?
61
LMPB Production Cost Change

What is physical congestion?
What is financial congestion?
Why does physical congestion lead to financial congestion?
What is the underlying mechanism that causes LMPs to separate when a transmission line
becomes constrained?
Why do LMPs decrease on the unconstrained side of a transmission line or interface? Why do
LMPs increase on the constrained side of a transmission line or interface?
When a transmission line becomes constrained, why are LMPs at some busses set by multiple
generators (why are there multiple marginal generators)?
62
LMPs with Congestion (tighter constraints)

Introduction
In this next set of scenarios, we will reduce transmission line limits even more. Other parameters will
remain the same.
Objective
model under congestion, given Physical Parameters, Economic Parameters and Injection and
Withdrawal data.
Definitions
There are no new definitions in this section.
Concepts
With reduced power flow limits on transmission lines, LMPs will separate even more there will be a
greater spread between the LMPs on the constrained side of a line and the unconstrained side.
63

In this scenario, the limit on line A-B has been reduced to 350 MW. Generation limits and offers are the
same as the prior scenario.
64

In this scenario, load is 1150 MW at Bus A. As the first step in our least-cost, security-constrained
dispatch, well dispatch Generator B to its limit of 600 MW. What is the power flow from this dispatch?
65
Dispatch of Generator C, and Generator A.

We cant dispatch Generator C at all. This means we will have to get our last 550 MW from Generator A
66

This is the combined dispatch: 600 MW from Generator B and 550 MW from Generator A. What is the
incremental power flow from this dispatch? Is the limit on line A-B being exceeded? What are the LMPs
at each of the busses?
67
LMPB Move GenA

The least-cost security-constrained way to serve incremental load at Bus B involves increasing the
dispatch of Generator C by 1 MW. What are the incremental power flow impacts from this dispatch?
What happens to constrained line A-B? The next incremental dispatch is to increase Generator C by
another MW, and decrease the dispatch of Generator A by a MW.
68
LMPB - Combined Gen Changes, and Production Cost Change

Here is the combined dispatch: an incremental increase of 2 MW from Generator C and an incremental
decrease of 1 MW from Generator A. What are the net incremental power flows from this dispatch?
What is the impact on constrained line A-B? What is the incremental production cost change?
69

In this scenario, the limit on line A-B has been reduced to 300 MW. The generation info is the same as in
earlier scenarios.
70

Load is 1150 MW at Bus A. To serve this load in a least-cost, security-constrained fashion, well first take
our cheapest resource Generator B to 450 MW. What is the power flow from this dispatch? What is
the impact on line A-B?
71
Dispatch of Generator C and Generator A.

Our next cheapest resource is Generator C, but we cant dispatch it at all without putting additional flow
on constrained line A-B. So well have to get the rest of our power 700 MW from Generator A. What
is the power flow from this dispatch?
72

This is the combined dispatch: 450 MW from Generator B and 700 MW from Generator A. What are the
combined power flows from this dispatch? Is the limit on line A-C being exceeded? What are the
resulting LMPs at each bus, and why?
73
LMPC Move GenA and Move Generator B

The least-cost security-constrained way to serve incremental load at Bus C involves increasing the
dispatch of Generator A by MW. What is the incremental power flow impact from this dispatch? What
happens to constrained line A-B? The next change is to increase the dispatch of Generator B by MW.
What is the incremental power flow impact of this dispatch, and the impact on constrained line A-B?
74
LMPC - Combined Gen Changes, and Production Cost Change

The combined dispatch is an additional MW from Generator A, coupled with an additional MW from
Generator B. What are the net incremental power flows from this dispatch? What is the net impact on
constrained line A-B? What is the production cost change?
75
Generally, what happens to LMPs when the limits on constrained transmission lines are
reduced?
With tighter transmission constraints, what happens to LMPs on the constrained side of a
transmission line or interface? Why?
With tighter transmission constraints, what happens to LMPs on the unconstrained side of a
transmission line or interface? Why?
76
LMPs with Congestion (additional examples)

Introduction to LMPs with Congestion (additional examples)
These are simply some extra examples to look to gain a better understanding of economic dispatch,
power flows and LMPs on a 3-bus/3-line network.
Objective
model under congestion, given Physical Parameters, Economic Parameters and Injection and
Withdrawal data.
77

Impedances, Line Limits and Generation.
In this scenario, all 3 lines have the same impedance. The power flow limit on each line is 100 MW. Each
bus has a 100 MW generator, but with difference offers (as indicated).
78
Load, and Dispatch of Generator C

There is a single load at Bus B of 80 MW. To serve this load in a least-cost security-constrained fashion,
we will dispatch Generator to 80 MW. What is the power flow impact of this dispatch?
79
LMPs
In this scenario, what are the LMPs at each bus?
80
Line Limits, and Unconstrained Dispatch of Generator C.

Now well change the scenario by decreasing the power flow limit on line B-C to 50 MW. If we again
dispatch Generator C to 80 MW, what is the resulting power flow impact? Have we surpassed a binding
limit on transmission line B-C?
81
Re-dispatch of Generator C, and Dispatch of Generator A

Lets dispatch Generator down to 70 MW. What is the power flow impact of this re-dispatch?
Next, well dispatch our next cheapest resource Generator A to 10 MW. What are the power flow
impacts of this dispatch? What is the loading on line B-C?
82

Our combined dispatch is 70 MW from Generator C and 10 MW from Generator A. What are the power
flows from this combined dispatch? Have we exceeded any transmission limits? What are the resulting
LMPs at each bus?
83
LMPB Move Generator C, and Move Generator A

To serve the next increment of load at Bus B, lets back down Generator C by 1 MW. This will act to
unload the constraint on line B-C by how much?
This will allow us to increase the dispatch of Generator A by 2 MW. What are power flows from this
incremental dispatch and what is the impact on constrained transmission line B-C?
84
LMPs Combined Generator Changes and Production Cost Change

The combined incremental dispatch is an additional 2 MW from Generator A and a reduction of 1 MW
from Generator C. What are the combined incremental power flow impacts?
What is the production cost change from this combined incremental dispatch?
85
Shadow Prices of Transmission Lines

Introduction
An understanding of LMPs and how they are calculated requires at least a rudimentary understanding of
shadow prices, which is a concept from the mathematical field of constrained optimization.
Objective
The objective of this section is to learn how to calculate transmission line shadow prices on a 3-bus
network model under congestion, given Physical Parameters, Economic Parameters and Injection and
Withdrawal data.
Definitions
Shadow Price (1): the savings in total production cost that would occur by adding 1 MW of capacity to a
constrained transmission line, and then re-dispatching the system to take advantage of the extra
capacity.
Shadow Price (2): the increase in total production cost from re-dispatching the system to free up 1 MW
of capacity on a constrained transmission line.
Concepts
The shadow price of a constrained transmission line is a negative number (this reflects a production cost
savings).
As load increases and causes greater physical and financial congestion, the shadow price of a
constrained transmission line will become more negative.
As the limit on a constrained transmission line tightens and causes greater physical and financial
congestion, the shadow price of the line will become more negative.
86
Exercise 16: Shadow Prices on a 3-Bus/3-Line Network

In this scenario, the power flow limit on line A-C and B-C are 1000 MW. The power flow limit on line A-B
is 500 MW. The generation information is the same as in earlier scenarios.
87
Load and Combined Dispatch

Bus A has 1150 MW of load. The least-cost security-constrained dispatch to serve the 1150 MW of load
at Bus A is 600 MW from Generator B, 300 MW from Generator C and 250 MW from Generator A.
88
LMPs, and Increasing the Limit on Line A-B by 1 MW

The LMPs from this least-cost security-constrained dispatch are $45 at Bus A, $35 at Bus B and $40 at
Bus C.
Given the definition of shadow price, lets increase the limit on line A-B (a binding transmission
constraint) and then if that allows us to de-dispatch the system to lower production cost.
89
Change in Dispatch, and Shadow Price of Line A-B

With another MW of capacity on line A-B, we can decrease the dispatch of our most expensive resource,
Generator A, by 3 MW. At the same time, we can increase the dispatch of a less expensive resource,
Generator C, by 3 MW. What is the incremental power flow that result from this re-dispatch? What is
the impact of this re-dispatch on constrained line A-B?
The Shadow Price of Line A-B is the incremental production cost saving from this re-dispatch.
90

The line limits and generation information are the same as in the previous exercise.
91
Load, and Combined Dispatch

In this scenario, load had increased to 1300 MW. The least-cost security-constrained dispatch to serve
this load is 600 MW from Generator B, 300 MW from Generator C and 400 MW from Generator A.
92

Bus C.
93

With another MW of capacity on line A-B, we can decrease the dispatch of our most expensive resource,
Generator A, by 3 MW. At the same time, we can increase the dispatch of a less expensive resource,
Generator C, by 3 MW. What is the incremental power flow that result from this re-dispatch? What is
the impact of this re-dispatch on constrained line A-B?
94

In this scenario, the line limits and generation information remain the same.
95

In this scenario, load had increased to 1300 MW. The least-cost security-constrained dispatch to serve
this load is 600 MW from Generator B, 300 MW from Generator C and 550 MW from Generator A.
96

Bus C.
97

With another MW of capacity on line A-B, we can decrease the dispatch of Generator A by 3 MW and
increase the dispatch of Generator C by 3 MW. What is the incremental power flow impact?
98

In this scenario, the limit on power flow on line A-B has been reduced to 400 MW. The generation
information is the same as in the previous scenarios.
99

In this scenario, load is 1150 MW. The least-cost security-constrained dispatch to serve this load is 600
MW from Generator B and 550 MW from Generator A.
100

Bus C.
101

With another MW of capacity on line A-B, we can decrease the dispatch of Generator A by 3 MW and
increase the dispatch of Generator C by 3 MW. What is the incremental power flow impact?
102

In this scenario, the limit on power flow on line A-B has been reduced to 300 MW. The generation
information is the same as in the previous scenarios.
103

In this scenario, load is 1150 MW. The least-cost security-constrained dispatch to serve this load is 600
MW from Generator B and 550 MW from Generator A.
104

Bus C.
Lets increase the limit on line A-B to 301 MW so that we can re-dispatch and lower production cost.
105

With another MW of capacity on line A-B, we can decrease the dispatch of Generator A by 1.5 MW and
increase the dispatch of Generator B by 1.5 MW. What is the incremental power flow impact?
106
What are the two definitions for shadow price? Why are these two definitions really the same?
Why is the shadow price on an unconstrained transmission line zero?
Why is the shadow price of a constrained transmission line different than zero?
What happens to the shadow price of a transmission line as the limit tightens and LMPs
separate more?
All else equal, if all generator offers were doubled, what would happen to the shadow price of a
constrained transmission line? What would happen if all generator offers were halved?
107
108

Level 200 - LMP Mechanics Workbook (Part One) v6

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Level 200:

Locational Marginal Price Mechanics

Power Flows: Pre- and Post-Contingency .................................................................................. 3

Power Flows: Pre- and Post-Contingency

Exercise 1: Power Flow on a 2-Bus/3-Line Network

Power Flow and Power Flow with Contingency

Exercise 2: Power Flow on a 2-Bus/3-Line Network

Power Flow and Power Flow with Single Contingency

Exercise 3: Power Flow on a 2-Bus/3-Line Network

Power Flow and Power Flow with Single Contingency on

Single Contingency on Line Two and Single Contingency on Line Three

Exercise 4: Power Flow on a 3-Bus/3-Line Network

Injection at Bus B / Withdrawal at Bus C, and Injection at Bus A / Withdrawal at Bus C

Combined Injection and Withdrawal Data

Exercise 5: Power Flow on a 3-Bus/3-Line Network

Injection at Bus B / Withdrawal at Bus C and Injection at Bus A / Withdrawal at bus C

Combined Injection and Withdrawal Data

Exercise 6: Power Flow on a 3-Bus/3-Line Network

Injection at Bus B / Withdrawal at Bus C and Injection at Bus B / Withdrawal at Bus A

Combined Injection and Withdrawal Data

What is a busbar? Why is a busbar constructed of aluminum or copper?

What is a contingency? Why are contingencies important in understanding power flow?

LMPs with No Congestion

Exercise 7: LMPs with No Congestion on a 2-Bus/3-Line Network

Generation, Load and Dispatch

Single Contingency and Impact on LMPs

Exercise 8: LMPs with No Congestion on a 3-Bus/3-Line Network

Load, and Dispatch of Generator B.

Combined Dispatch and LMPs

Dispatch of Generator B and Dispatch of Generator C

Dispatch of Generator A, and Combined Dispatch

What is economic dispatch?

LMPs with Congestion

Exercise 9: LMPs with Congestion on a 2-Bus/3-Line Network

Generation, Load and Dispatch

Load, Dispatch and LMPs

Exercise 10: LMPs with Congestion on a 3-Bus/3-Line Network

Load, and Dispatch of Generator B

Dispatch of Generator C and Generator A.

Combined Dispatch and LMPs

LMPB Move GenC, then Move GenC and GenA

LMPB - Combined Gen Changes, and Production Cost Change

Exercise 11: LMPs with Congestion on a 3-Bus/3-Line Network

Dispatch of Generator B and Generator C

Dispatch of Generator A, and Combined Dispatch

LMPs, and Incremental Dispatch of Generator C

LMPB Move GenC and GenA, and Combined Generation Changes

LMPB Production Cost Change

Exercise 12: LMPs with Congestion on a 3-Bus/3-Line Network

Dispatch of Generator B and Generator C

Dispatch of Generator A, and Combined Dispatch

LMPs, and Incremental Dispatch of Generator C

LMPB Move GenC and GenA, and Combined Generation Changes

LMPB Production Cost Change

What is physical congestion?

What is financial congestion?

Why does physical congestion lead to financial congestion?

LMPs with Congestion (tighter constraints)

Exercise 13: LMPs with Congestion on a 3-Bus/3-Line Network

Load, and Dispatch of Generator B

Dispatch of Generator C, and Generator A.

Combined Dispatch and LMPs

LMPB Move GenA

LMPB - Combined Gen Changes, and Production Cost Change