Social Welfare Maximization Considering Reactive Power and Congestion Management in the Deregulated Environment

This article addresses two well-known problems of competitive electricity markets: (1) reactive power procurement and (2) congestion management, using social welfare maximization in pool based competitive electricity markets. The social welfare function, which customarily consists of the benefit function of consumers and cost function of real power generation, is modified to include the cost function of reactive power generation. This will incorporate an economic signal regarding production and consumption of reactive power within locational marginal prices payable to the suppliers and chargeable from the consumers at different locations. The reactive power cost function of a synchronous generator is modeled using the lost opportunity to trade real power to produce required amount of reactive power. An approximate P-Q capability curve of the synchronous generator is used for this purpose. Further, the effect of incorporation of consumers' benefit bids on managing system congestion at an acceptable level is demonstrated with the help of decomposition of locational marginal prices of real and reactive power into energy/reference, loss, and congestion components. The effectiveness of the technique is tested on a 5-bus system and an IEEE 118-bus system. A discussion is presented to explain and compare the results obtained.