Towards Locational Marginal Pricing Model for Nigerian Electricity Tariff Structure using Optimal Power Flow Computation

Abstract

In the Nigerian deregulated electricity market, competition and economic pricing of electricity in the long term stage is fundamental. A transparent and predictable pricing structure of electricity is also needed to provide useful information to market participants (such as generation companies, transmission companies and customers). The existing methodology for setting electricity tariff using the Multi-year tariff order (MYTO) is perceived to be less efficient in reflecting true cost of electricity and in sending correct price signals. It also relies on long run marginal cost method. Motivated by these concerns, this paper employed a locational marginal pricing (LMP) model that is based on minimizing the cost of supply of electricity to a location when there is an increment in the load clusters. A linear programming approach incorporating DC and AC optimal power flow (OPF) model is carried out. Model implementation was done using the 330kV Nigerian grid network within three-tier cases viz: Case 1- LMP value under normal conditions (No constraint enforcement), Case 2: LMP value considering Congestion/Transmission Limit and Case 3: LMP value considering losses. The result from the three cases considered shows that the LMP varies at various locations owing to transmission congestion constraint and transmission losses while the final total cost of supply of electricity varies. With the removal of fixed charges in the electricity tariff, electricity should be priced based on locations to reflect correct price list to the market stakeholders.