IEEE TRANSACTIONS ON POWER SYSTEMS, VOL. 17, NO.

1, FEBRUARY 2002 41

Components of Nodal Prices for

Electric Power Systems
Luonan Chen, Senior Member, IEEE, Hideki Suzuki, Tsunehisa Wachi, and Yukihiro Shimura

Abstract—We present a method to provide a detailed descrip-
tion of each nodal price, by breaking down each nodal price into
a variety of parts corresponding to the concerned factors, such as
generations, transmission congestion, voltage limitations and other
constraints or elements. This full information for nodal prices can
be used not only to improve the efficient usage of power grid and
congestion management, but also to design a reasonable pricing
structure of power systems, or to provide economic signals for gen-
eration or transmission investment. Several numerical examples
demonstrate this approach.
Index Terms—Active set, congestion, decomposition, deregula-
tion, marginal cost, nodal price, optimal power flow.
I. INTRODUCTION
price, which is demanded by the power industry. In other
words, it is still unclear which generator or constraint a nodal
price is influenced from and how much each factor of a power
system contributes to the nodal prices.
To break down or trace nodal prices into various components,
a number of useful computation methods, such as [12]–[15],
have been developed. However, all of these methods either in-
volve some heuristic implementations that make the decompo-
sition of nodal prices not unique due to the dependence on the
heuristic settings, or are only partial decomposition of indepen-
dent factors. Unlike ac power flow which generally cannot be
traced to the sources or routes, we will show in this paper that
the nodal prices can actually be theoretically and uniquely de-
composed into all independent components associated with not

E LECTRIC utilities have experienced a period of rapid

changes especially in market structure and regulatory
policies in many parts of the world. Because of the emergence
only each generator but also each constraint or element of the
whole power system due to their linearity to all factors.
This paper aims theoretically to propose a method to pro-
of independent power producers (IPP) as well as the changing
vide a detailed description of each nodal price, i.e., we break
structure of the electricity supply industry, the electric power
down each nodal price into a variety of parts corresponding to
industry has entered an increasingly competitive environment
the concerned factors, such as generations, transmission conges-
under which it becomes more realistic to improve economics
tion, voltage limitations and other constraints. The decomposi-
and reliability of power systems by enlisting market forces [1],
tion is unique and components in each nodal price are identical
[2], [11], [15]. To induce efficient use of both the transmission
to their increment values from the economics viewpoint because
grid and generation resources by providing correct economic
the derivations are based on the marginal conditions [11]. This
signals, a nodal price or spot price theory for the deregulated
full information for nodal prices can be used not only to im-
power systems was developed [1], [2]. Different from the con-
prove the efficient usage of power grid and congestion manage-
ventional single-price structure, the nodal price varies in both
ment, but also to design a reasonable pricing structure of power
space and time and is composed of the variable operation costs
systems, or to provide economic signals for generation or trans-
and any additional charges for maintaining quality and reliable
mission investment. In the next section, we give a general ex-
electricity services [5]. So far a considerable number of litera-
planation by deriving nodal prices from an Optimal Power Flow
ture designing the nodal price have been published by taking
(OPF) based model. Section III proposes a theoretical method
into the consideration of not only the short-term operation
to determine each component of nodal prices with a number of
costs but also values of the ancillary electrical services, such
examples, and Section IV is numerical simulation. Finally, we
as [1]–[5]. Most of the existing theories of nodal price use the
give several general remarks to conclude this paper in Section V.
Lagrangian multipliers as shadow prices to evaluate the equiv-
alent values of constraints or factors for security, reliability
II. DERIVATION OF NODAL PRICE
and quality. Although these Lagrangian multipliers provide
valuable information to some extent based on the shadow price In this section, we first define the operation problem of a
of each active constraint (e.g., transmission congestion, voltage power system as an OPF problem and then derive nodal prices
limits), it cannot give a detailed description of each nodal for both real and reactive power at an optimal solution.

Manuscript received January 19, 2000; revised June 28, 2001.

A. Formulation
L. Chen is with the Department of Electrical Engineering and Elec- For a buses system, let and
tronics, Osaka Sangyo University, Osaka, Japan (e-mail: chen@elec.osaka-
sandai.ac.jp). , where and represent real and
H. Suzuki and T. Wachi are with the Department of Power Systems, KCC reactive power demands of bus- , respectively. Define the
Ltd., Tokyo, Japan. variables in power system operation to be ,
Y. Shimura is with the Electric Power Development Company, Ltd., Tokyo,
Japan. such as real and imaginary parts of each bus voltage (or voltage
Publisher Item Identifier S 0885-8950(02)00888-X. value and its angle).
0885–8950/02$17.00 © 2002 IEEE
42 IEEE TRANSACTIONS ON POWER SYSTEMS, VOL. 17, NO. 1, FEBRUARY 2002

Therefore, the operation problem of a power system for

the given loads ( , ) can be formulated as an OPF problem
[8]–[10]
Min for (1)
s.t. (2)
(3)
where and
have and
equations, respectively, and are column vectors while
stands for the transpose of a vector .
: scalar, short-term operating cost, such as fuel
cost;
: vector, equality constraints, such as bus
power flow balances (Kirchoff’s laws);
: vector, inequality constraints including
limits of all variables
where includes all variable limits and function
limits, such as upper and lower bounds of transmission lines,
generation outputs, stability or security limits [10], etc. When
is a fuel cost function of the system, can be expressed as
where is the fuel cost of
the th generator. Notice that can also be a benefit function
although this paper takes as a cost function.
Obviously, (1)–(3) are a typical OPF problem as far as the
demands ( , ) are given. There are many efficient approaches
which can be used to obtain an optimal solution, such as
successive linear programming, successive quadratic program-
ming, the Newton method, the – decomposition approach
[6], [7], the surrogate constraint and functional transformation
approaches [8]–[10].
(6)
where and are nodal prices of real and reactive power
at bus- , respectively. and are usually
considered as the real and reactive power transaction charges
from bus- to bus- .
Notice that the nodal prices derived by differentiating the
maximized social welfare function with respect to the real and
reactive demands, yield the same results as (5) and (6). That is,
first replace (1) with “
for ” subject to the same constraints as (2) and (3),
where is short-term value-added function of the
customers connected to bus- . Then we can prove that nodal
prices are the same as (5) and (6), by letting the marginal
benefit equal to the nodal prices of real
and reactive power at the optimal solution, respectively [5].
Therefore according to (5), the nodal price of real
power at bus- can be viewed as the system marginal cost
(the sum of a marginal generation cost plus a set
of premiums corresponding to their respective constraints)
created by an increment of real power load at bus- . The
same explanation is also applicable to the nodal price of
reactive power .
A significant property for nodal prices is that each nodal price
is actually defined simply as a linear summation of all factors
according to (5) and (6) because each nodal price, e.g., can
be rewritten as

B. Nodal Price
This property is completely different from that of AC power
Define the Lagrangian function (or system cost) of (1)–(3) as flow which is generally nonlinear to each source or route, and
, then is also fundamental to the decomposition or coloring of nodal
prices in this paper. Therefore, theoretically it is possible to trace
the contributions of all factors involving in the operations of
(4) power systems to each nodal price.

where and C. Problem and Example

are the Lagrangian multipliers (or dual variables) as- Equation (5) or (6) seems to have given a full description
sociated to (2) and (3), respectively, and are usually of each component for a nodal price even without any further
explained as shadow prices from the viewpoint of eco- analysis. However, in contrary to intuitive observation, we will
nomics. Hence, and show late that it is incorrect. Actually there are generally only
. Actually, the La- one or two terms remaining nonzero at an optimal solution
grangian function can also be viewed as an equivalent for (5) and (6) depending on the formulation, even though
system cost. many constraints become active (or binding) and many gen-
Then at an optimal solution ( ) and for a set of given erators contribute to this nodal price. The main reason is that
( , ), the nodal prices of real and reactive power for each bus the variables ( ) in the Lagrangian function (4) [or
are expressed below for OPF equations (1)–(3)] are all independent variables and only a
few equations among (2) and (3) or have direct relation with
certain bus demand or . Therefore, most of the terms in (5)
or (6) are eliminated after differentiating with certain demand
or , irrespective of any solution. We take a four-bus system
(5) shown in Fig. 1 and Table I, as an example to show this point.
CHEN et al.: COMPONENTS OF NODAL PRICES FOR ELECTRIC POWER SYSTEMS
Fig. 1. Four-bus test system.
TABLE I
TRANSMISSION LINE DATA OF A FOUR-BUS TEST SYSTEM
Example 1: For the system shown in Fig. 1 and Table I, upper
and lower bounds for generators G1 and G4 are
, ; , .
The voltage values for all buses are bounded between 0.95 and
1.05. Besides, the real power flow in line 2–3 is also restricted
between 0.3 and 0.3. All of the values are indicated by p.u.
The fuel cost function for generators G1 and G4 is expressed as
. components of each nodal price are and how the constraints
For this four-bus system, there are four equalities for (2) cor-
responding to their respective real and reactive power balances
(or Kirchoff’s laws) of load-buses 2 and 3, and 18 inequalities
for (3) corresponding to four pairs of voltage, 2 2 pairs of
generation output, and one pair of line flow upper and lower
bounds, respectively. In this paper, we take real and imaginary
parts of bus voltages as state variable which has 2 4 el-
ements. Therefore, and in , of them (e.g., voltage limits) have market values which may
and can be represented in terms of and
by using real power balances of their respective buses.
Regardless of the solution, according to (5), the nodal prices of
real power have the forms as
(7)
where and are the Lagrangian multipliers related to
real power balances of the respective buses 2 and 3. and
are the Lagrangian multipliers related to the upper and
lower bounds of real power generation for generator , respec-
tively, while and are for generator . straints which should be components of each nodal price, and
Obviously, nodal price at demand bus- is expressed only
by the Lagrangian multiplier corresponding to the power
flow balance of bus- , and all other terms in (5) vanish due to
their relation independent of . It is also true for the nodal
prices of reactive power.
43
By solving OPF (1)–(3), we have an optimal solution where
,
and line flow from bus 3 to bus 2 reaches its limit – .
In addition, the voltage values of bus 2 and bus 4 also reach
their lower and upper bounds, respectively, i.e., and
. Therefore, there are only a few Lagrangian mul-
tipliers nonzero (related to four equalities and three active in-
equalities) which are
(8)
(9)
(10)
where and are the Lagrangian multipliers related to
the lower and upper bounds of buses 2 and 3, and – corre-
sponds to the line flow constraint from bus 3 to bus 2. Since the
generator at bus 4 is cheaper than the generator , electric
power is mainly transferred from through bus 3 toward bus
2. As a result, power flow in line 3-2 reaches its limit (0.3 p.u.)
which causes the congestion problem, although the cheaper gen-
erator still has generation capability.
Substituting the values of the Lagrangian multipliers and
( ) into (7), we have the nodal prices of real power
(11)
where .
Hence, even although we can obtain the nodal prices
according to (5) and (6), it is still unknown exactly what
(congestion or other limits) and generators influence the value
of each nodal price.
III. COMPONENTS OF NODAL PRICE
There are many factors or constraints affecting the opera-
tion of power systems, e.g., generators, voltage limits, line flow
limits, power flow balance conditions (Kirchoff’s laws). Some
be relaxed (e.g., from 1.00 1.05 to 0.95 1.05) and taken as
tradable goods depending on market needs. The relaxation for
these limits may be realized by technology innovations or fa-
cilities investments, etc. But some of them actually cannot be
traded, e.g., for real power flow balance condition at each bus,
the summation of all injected real power at each bus must be
zero which cannot be relaxed or violated because it is a physical
law. Therefore the evaluation or pricing for the factors with no
market value is meaningless, even although we can theoretically
trace the contributions of all factors involving in the operations
of power systems to each nodal price. Hence, before breaking
down the nodal prices, we have to classify all constraints in the
operations of power systems into two groups, i.e., tradable con-
nontradable constraints which are mandatory constraints during
the operation and are not components of nodal prices.
In this section, we theoretically propose a method to break
down the nodal prices into a variety of components by using
the marginal conditions of operation, which are derived from
44 IEEE TRANSACTIONS ON POWER SYSTEMS, VOL. 17, NO. 1, FEBRUARY 2002

nontradable constraints and Karush–Kuhn–Tucker (KKT) con- algebraic equations which have the same number as variables
ditions [10]. In other words, we try to identify or trace all fac- . and have the same elements as those of
tors from a nodal price not qualitatively but quantitatively. and , respectively, according to their definitions.
Equation (15) is necessary condition to keep the Lagrangian
A. Conditions of Optimality function (or equivalent system cost) always at a minimum while
Let and be the active inequalities among , and their re- (16) can be viewed as compulsory constraints for which the op-
spective Lagrangian multipliers among at an optimal solution eration of a power system must obey. On the other hand, may
of (1)–(3). Then the optimal solution for a set of the be considered as the factors which can be traded (or tradable
given demands satisfies goods) and have market values, in contrast to . Therefore,
from the viewpoint of economics, (15) and (16) are the mar-
ginal conditions for the decomposition of nodal prices, which
(12) are identical to (12)–(14) at the optimal solution.
(13) C. Description of Nodal Price
(14)
Next, we first establish the relations between and
based on the marginal conditions (15) and (16), and then
where the other Lagrangian multipliers in but not in are
use these relations to decompose the nodal prices.
all zero because their respective inequalities are not active (or
Assume that (17) holds at an optimal solution of
nonbinding). is a column vector while is a row vector.
(1)–(3)
According to the definition of nodal prices, (12)–(14) are nec-
essary optimality conditions, which must be satisfied when eval-
uating nodal prices.
(17)
B. Classification of Constraints
From the viewpoint of economics, the Lagrangian function Then according to the implicit function theorem, there exists
in (4) is the sum of operating cost plus a number of the equiv- a unique differentiable mapping , in open
alent charges related to their constraints. Needless to say, each neighborhoods of the given . In other words, the variables
element of in is an important factor which we are not independent of but functions of
intend to distinguish from nodal prices. Besides, to break down as far as (15) and (16) hold. Actually (17) is a partial Hessian
the nodal prices in a more detail manner, as mentioned before, matrix of , which is usually used in sensitivity analysis of OPF
we have to decide which components we (or participants of the solution.
market) are interested among all of constraints in . For instance By considering and as functions of
in Example 1, there are two voltage and one line flow constraints , (15) and (16) can be rewritten as follows:
active in addition to four equalities. We are interested in, how
the generators G1, G4 and voltage limitations and line conges-
tion influence each nodal price of (5) and (6), comparing to the
terms of (5) related to the power balance constraints (or Kir- (18)
choff’s laws) of load-buses 2 and 3. We will show these in Ex-
(19)
ample 2.
Let be the constraints (nontradable constraints) among
Let , ,
which we are not interested or we do not intend ex-
, ,
plicitly to count their charges for nodal prices, and be the
. The above notion is appli-
remaining constraints (tradable constraints). Define to be the
cable to or .
Lagrangian multipliers corresponding to the constraints of ,
Differentiating (18) and (19) with respect to and noting
and to be the remaining Lagrangian multipliers corresponding
that is an element of , we have
to . Then we drop other equations among except ,
and rewrite (12)–(14) as follows:

(20)
(15)
(16)
Therefore, by solving (20) and considering (17), we have
where
at the optimal solution as follows:

(21)
for the simplicity of expression, and are all column
vectors while , are row vectors. Note that (15) and (16) are where and .
CHEN et al.: COMPONENTS OF NODAL PRICES FOR ELECTRIC POWER SYSTEMS 45

As the same way, can be obtained D. Algorithm and Examples

We straightforward have the following procedure computing
(22) nodal prices as well as their components.
1) For a set of the given demands , solve the optimiza-
where and . tion problem (1)–(3) to obtain an optimal solution and
Then we are at the position to decompose the nodal prices. their dual solution .
Noting that and are functions of , the 2) Choose the constraints whose costs will explicitly be
Lagrangian function of (4) is reformulated as follows: counted in the evaluation of the nodal prices, and then
calculate or according to (21) or (22).
3) Evaluate the nodal prices and and their compo-
(23)
nents according to (24) and (25).
Therefore, differentiating of (23) with respect to and , Note that the Lagrangian multipliers are zero for nonbinding
nodal prices of (5) and (6) become equations, thereby having no influence on the nodal prices or
the Lagrangian function.
(24)
Example 2: Assume the same conditions as Example 1. And
(25) then calculate the components of the nodal prices.
According to Example 1, there are seven binding constraints,
including three active inequalities (voltage lower bound at bus 2,
where we take into account of the second part of (20), i.e.,
voltage upper bound at bus 4, line flow bound from bus 3 to bus
or for , and also
2) among (3), and four equalities (two pairs of real and reactive
use and at an optimal solution, for the derivation
power balances for demand buses 2 and 3) of (2). Besides, there
of (24) and (25).
are two energy resources appearing in of (1), i.e., generators
Next, we show that (24) and (25) are actually the de-
G1 and G4.
composed nodal prices. If the objective function of
[Case-1]: We intend to express the nodal prices in the fol-
(1) is constructed by many factors (e.g., many gen-
lowing form:
erators), i.e., , then
for the first term of Nodal price at bus- charge from generator G1
(24), or charge from generator G4
for the first term of (25). Furthermore, let compensation for voltage lower bound at bus-2
and where and are the th equation compensation for voltage upper bound at bus-4
of and its respective Lagrangian multiplier. Then the second congestion charge of line 3–2.
term of (24) or (25) can be represented as For this case, (nontradable constraints) includes all four
or power balance equalities of (2), and (tradable constraints)
. Therefore, is composed of the three active constraints among (3). Hence,
and and – . We
are the components associated to the factor first calculate or according to (21) or (22) at the op-
(e.g., the th generator) for real and reactive power, respec- timal solution of Example 1. Then we have the nodal prices
tively, while and or and their components according to (24) and (25)
represent the terms of summarized in Table II. The results in Table II are the same as
the respective constraint for real power and reactive power, (11) for the values of nodal prices but have detailed descrip-
respectively. Generally, each term in (24) and (25) is nonzero tions for each term. For instance, the nodal price of real power
at an optimal solution, in contrast to the terms of (5) and (6). at bus 2 is composed of five terms corresponding to the equiv-
If includes all of the constraints among both and , alent charges or compensations for generator G1 (1.5599), gen-
then all of the factors appearing in are nonzero and will ex- erator G4 (19.6789), lower bound of bus 2 voltage ( 0.6433),
plicitly expressed in the nodal prices. On the other hand, if upper bound of bus 4 voltage (1.3856) and congestion of line
includes all of the constraints among both and , then all 3–2 (5.8805), i.e.,
of the terms except those among disappear in (24) and (25).
In the extreme, if none of (12)–(14) is used in deriving (21) and generator G1
(22) [i.e., and are all independent due to the elim- generator G4
ination of (15) and (16)], then (24) and (25) simply reduce to lower bound of bus-2 voltage
(5) and (6) which have no information left except the values of upper bound of bus-4 voltage
nodal prices, e.g., (24) becomes (7) for Example 1. congestion of line 3–2
(26)
Evidently the nodal prices of (24) and (25) hold as long as
the marginal conditions of (15) and (16) or (21) and (22) are which shows equivalent charges for their respective factors
satisfied. Equations (24) and (25) are certainly identical with when there is an increment of real power load at bus 2, and
(5) and (6) in terms of the values of nodal prices but have these charges are certainly identical with the cost increment
more detail information for their components. We will use of the total system for one unit change of . From (26),
several examples to show this fact next. obviously power supply is mainly from generator G4 but is
46
TABLE II
NODAL PRICES AND THEIR COMPONENTS FOR CASE 1
partially restricted due to the congestion of line 3–2 for an
increment of the real power at bus 2. In addition, from Table II
it is evident that the congestion of line 3–2 considerably incurs
the expense of customers at bus 2, in contrast to other buses.
[Case-2]: We intend to express the nodal prices in the fol-
lowing form:
Nodal price at bus- charge from generator G1
charge from generator G4
congestion charge of line 3–2
without explicit expression of compensations for voltage
bounds at bus 2 and bus 4 (i.e., further assume that bounds of
bus 2 and bus 4 are not tradable goods besides power balance
constraints of each bus).
For this case, includes six equations including all four
equalities of (2) and two active inequalities related to voltage
lower bound at bus 2 and voltage upper bound at bus 4, respec-
tively. On the other hand, is composed of only one active
constraint related to line 3–2 flow constraint. Hence
, , and - . As the same way
as the computation of Case-1, we have the nodal prices
summarized in Table III, which shows the same values of nodal
prices as (11) or Table II of Case 1 but has different descriptions
due to the setting of this case. For instance, as shown in Table III,
the nodal price of real power at bus 2 is composed of three terms
corresponding to the equivalent charges or compensations for
generator G1 (2.5482), generator G4 (19.6326), and congestion
of line 3–2 (5.6809), i.e.,
generator G1
generator G4
congestion of line 3–2
(27)
which shows equivalent charges when there is an increment of
real power load at bus 2, as far as only these three factors are
concerned.
In this example, the constraints of voltage bounds at buses 2
and 3 as well as the four real and reactive power balance equal-
ities may be viewed as compulsory conditions and cannot be
traded in the market.
Example 3: Assume the same conditions as Example 1 but
without the real power flow constraint in line 3–2. Then recal-
culate the components of the nodal prices.
There are four equalities of corresponding to their respec-
tive real and reactive power balances of demand buses 2 and 3,
and 16 inequalities of corresponding to four pairs of voltage
and four pairs of generation output, respectively.
IEEE TRANSACTIONS ON POWER SYSTEMS, VOL. 17, NO. 1, FEBRUARY 2002
TABLE III
NODAL PRICES AND THEIR COMPONENTS FOR CASE 2
TABLE IV
NODAL PRICES AND THEIR COMPONENTS WITHOUT LINE FLOW CONSTRAINTS
By solving OPF (1)–(3), we have an optimal solution where
, .
In this case, real power of generator G4 reaches its upper bound
0.7, and line flow from bus 3 to bus 2 increases to 0.31 more
than the previous limit of Example 1. In addition, the voltage
values of bus 2 and bus 4 also reach their lower and upper bounds
respectively, i.e., and . Therefore, there are
seven Lagrangian multipliers nonzero, related to four equalities
, of , the lower bound of bus 2 voltage, the upper bound of bus
4 voltage and the upper bound of real power for generator G4,
respectively, (instead of line 3–2 limit in Example 1).
In this example, we intend to express the nodal prices in the
following form:
Nodal price at bus- charge from generator G1
charge from generator G4
compensation for voltage lower bound at bus-2
compensation for voltage upper bound at bus-4.
The nodal prices as well as their components are depicted in
Table IV, which shows that the price at bus 2 is significantly
reduced from 27.8616 to 24.6495 due to the elimination of the
congestion in line 3–2. Actually the generation of G4 has no ef-
fect on nodal prices due to its binding to the upper bound, and
can be dropped from the components. Different from Example
2, according to Table IV, the power supply as well as the gen-
eration charges comes completely from generator G1 for an ad-
ditional increase of real power at any bus because generator G4
has reached its upper bound.
IV. SIMULATION AND POWER LOSSES
A. Numerical Simulation
A IEEE 30-bus test system shown in Fig. 2 and Table V is
used in this section for numerical simulation. The voltage values
for all buses are set between 0.95 and 1.05. Besides, the real
power flow in line 2–5 is also restricted between 0.6 and 0.6.
The main loads are at buses 5,7 and 8 while the four generators
CHEN et al.: COMPONENTS OF NODAL PRICES FOR ELECTRIC POWER SYSTEMS 47

Fig. 2. IEEE 30-bus standard test system.

are located at buses 1, 2, 22 and 27. All of the values are indi- TABLE V
CONSTRAINTS AND FUEL COSTS OF GENERATORS
cated by p.u. The objective function of (1) is the total fuel costs
of generators, i.e., .
For this system, there are 2 26 equalities of corre-
sponding to their respective real and reactive power balances
of the buses without a generator, and 78 inequalities of
corresponding to 30 pairs of voltage, 2 4 pairs of generation
output, and one pair of line flow upper and lower bounds,
respectively.
Table VI shows the optimal outputs of generators, demand of
For this case, includes all 2 26 equalities of (2) and
each bus and nodal prices of real power. At the optimal solu-
two active inequalities corresponding to lower and upper bounds
tion, five inequalities become active, which are related to upper
of real power and , respectively. Note
bound of buses 11 and 27 voltages , lower
that the charges from generators include the power loss. From
and upper bounds of real power for generators at bus 1 and bus
Table VI, it is evident that the nodal prices at buses 5 and 7
27, respectively, , and upper bound of
are mostly influenced by the congestion of line 2–5, while the
line flow from bus 2 to bus 5 – . The components of
voltage bound of bus 11 mainly affect the nodal price at bus 5.
nodal prices in Table VI are obtained by setting five terms of the
On the other hand, the fuel (or generation) charges of demands
nodal prices as follows:
at bus 5 and bus 21 are mainly from generator G2 and generator
Nodal price of real power at bus- generators G2, G22 G22, respectively, while the fuel charge for the demand at bus
voltages 8 is almost equally shared by both generators G2 and G22 ac-
congestion of – cording to Table VI from the viewpoint of marginal cost. As the
same way as the computation of , we can calculate the nodal
where we drop the components related to fuel costs of genera- price of reactive power in terms of the concerned compo-
tors G1 and G27, which are actually all zero and have no influ- nents.
ence on the nodal prices because they have reached their limits
of outputs and do not provide power for an increment of demand B. Consideration of Power Losses
at any bus as long as the necessary conditions of optimality of Although the components of nodal prices include all indepen-
(15) and (16) hold. dent factors in OPF formulation, there are still important depen-
48
TABLE VI
DEMAND, GENERATION AND NODAL PRICES FOR IEEE 30-BUS
STANDARD TEST SYSTEM
dent elements, e.g., power losses, which are not explicitly han-
dled in (24) and (25). Since power loss (real or reactive power
loss) is not an independent factor in the objective function or
constraints, it cannot be directly expressed as a component of
nodal prices.
If it is necessary to evaluate effect of real power loss, (2) can
be reorganized in the following way. Deleting one real power
balance equation at any bus, we instead add the total real power
balance equality
ploss
into (2), where and are the summations of real
power generations and loads, respectively, and ploss is total real
power loss which is a function of . Then the power
loss is explicitly expressed in the reformulated by (1)–(3), which
are theoretically equivalent to the original (1)–(3). From the dual
theory of mathematical programming, there generally exists a
nonzero Lagrangian multiplier for the new equality at any
optimal solution of the reformulated (1)–(3).
Take real power loss ploss as an independent factor, i.e.,
assume ploss tradable. In other words, the total real power
balance equality should be added into . Then there is a term
in the components of nodal price
of (24), which corresponds to real power loss and can
be viewed as the value of real power loss. As the same way,
we can also evaluate the value of the reactive power loss as
in real nodal price of (24) when
one reactive power balance equality of any bus is replaced by
IEEE TRANSACTIONS ON POWER SYSTEMS, VOL. 17, NO. 1, FEBRUARY 2002
a total reactive power balance equality in (2), or evaluate
the real and reactive power losses in reactive nodal price
of (25).
V. CONCLUSION
This paper proposes a methodology directly to link each
concerned factors to the nodal prices, i.e., we break down
each nodal price into a variety of parts corresponding to
different factors, such as generations, transmission congestion,
voltage limitations and other constraints. Different from the
ac power flow which cannot generally be identified to its
sources or routes, this paper shows that the nodal prices can
theoretically be traced to each factor based on the marginal
conditions from the economics viewpoint. The decomposition
is unique, and components of each nodal price are identical
to their increment costs or benefits for total system. These
detail information for nodal prices can be used not only to
improve the efficient usage of power grid, energy resources and
congestion management, but also to design a reasonable pricing
structure of power systems, or to provide economic signals for
generation–transmission investment [11]. Several numerical
simulations have been used to demonstrate our approach.
If the decomposed components are all required to be posi-
tive, the components can be recalculated by first letting the neg-
ative components be zero, and then proportionally allocating the
nodal prices to the positive components depending on their con-
tributions (values).
Although this paper uses OPF-based model with static con-
straints as an example to demonstrate the decomposition of the
nodal prices which are actually based on the short-term marginal
cost principle, the nodal prices incorporating the long-term in-
vestment as well as dynamical constraints can be decomposed
in the same manner provided that the long-term expansion plan-
ning model or dynamical constraints are adopted instead of the
static OPF model. For example, the values or prices of control
devices such as PSS and AVR can also be evaluated as the same
way as (24) and (25) if the transient stability constraints are con-
sidered in OPF [10].
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Luonan Chen (M’92–SM’98) received the B.S.E.E. degree from Huazhong

University of Science Technology, Wuhan, China, and the M.E. and Ph.D. de-
grees in electrical engineering from Tohoku University, Sendai, Japan, in 1984,
1988, and 1991, respectively.
He joined KCC, Ltd., Tokyo, Japan, in 1991. Since 1997, he has been a Fac-
ulty Member at Osaka Sangyo University, Osaka, Japan, where he is currently
an Associate Professor in the Department of Electrical Engineering and Elec-
tronics. His research interests include nonlinear dynamics and optimization for
power systems.
Yukihiro Shimura received the B.S. degree from Tohoku University, Sendai,
Japan, in 1988.
Since 1988, he has been working at the Electric Power Development Com-
pany, Ltd., Tokyo, Japan. His interests are operation and analysis of power sys-
tems.