Investigation and Evaluation of the Adoption of Locational Marginal Pricing in Electricity Markets

This research paper investigates and evaluates the adoption of locational marginal pricing (LMP) in electricity markets. LMP is a pricing mechanism used to allocate transmission costs based on the location of the electricity generator and consumer. The study examines the effects of active power generation and line constraints on LMP as it relates to market efficiency, price volatility, and electricity costs. To conduct the research, the study uses a six bus network to model advanced market arrangements for the Great Britain power system using analytical methods and software such as Power Factory and Power World. The results suggest that LMP can lead to more efficient electricity markets by incentivising generators to be located in areas with high demand and low transmission costs. Also, huge investments are needed in transmission networks to relieve network congestion to allow consumers to enjoy the benefits of LMP. The findings of this study have implications for policymakers and market participants in electricity markets, as they provide insights into the potential benefits and drawbacks of LMP as a pricing mechanism.