Extensions of the locational marginal price theory in evolving power systems: A review

Abstract

The locational marginal price (LMP) theory is the foundation of nowadays electricity markets. With the rapid growth of intermittent renewable generation, new features are emerging in power systems, such as the uncertainty of power supply, the scarcity of flexibility, and the increase of distributed generation. In this situation, the electricity pricing scheme needs to be augmented with new features to meet requirements of incentive compatibility, cost causation-awareness, revenue adequacy, and transparency in a new market environment. Though a broad spectrum of literature has investigated extensions of the LMP addressing different challenges, a panorama of these extension directions is absent. To this end, this paper provides a systematic review of existing LMP extension research from four aspects, including pricing with non-convexity, pricing with multiple intervals, pricing with uncertainty, and pricing in distribution systems. These extension directions are derived from the impacts of the power system evolution on dispatch and pricing models. For each extension direction, the motivation and basic problem setup are introduced, followed by a critical survey of related research progress. Future directions and research gaps of the LMP extension are also indicated in this paper.