Abstract
This paper examines a price mechanism with one price assigned for each level of bundled real and reactive power. Equilibrium allocation under this pricing approach raises system efficiency via better allocation of the reactive power reserves, neglected in the traditional pricing approach. Pricing reactive power separately is not very practical since its cost is highly dependent on real power output. Equilibrium allocation of the bundled pricing was simulated on the simple 3-bus system power auction and compared with free reactive power optimal power flow solution. The efficiency of this approach was shown in the general case, and tested on the 30-bus IEEE network with piecewise linear cost functions of the generators.
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