Advanced pricing in electrical systems. I. Theory

This paper sets forth a comprehensive theory for the real-time pricing of electricity that includes selected ancillary services and extends the theory to incorporate constraints on power quality and environment impact that often influence the operation of a power system. This paper is Part I of a two paper set. It sets forth the mathematical development of the extended model for real-time pricing. The formulation is novel in that it combines the dynamic equations for load-frequency control with the static equations of a constrained optimal power flow. Part II derives optimal nodal specific real-time prices for both real and reactive power. The prices derived include additive premia, or opportunity costs, reflecting the effects of voltage regulation, maintenance of generation and transmission reserves, regulation of frequency and tie-line flows, removal and/or control of power harmonics and others.