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The paper presents an integrated framework to analyze the issues of reactive power planning along with reactive power pricing. The planning problem involves optimal placement and sizing of capacitors in a network such that operating and investment costs are minimum. A simple bus-wise cost-benefit analysis (CBA) scheme is proposed which involves solving a modified optimal power flow problem (OPF) iteratively. The proposed CBA incorporates detailed hourly loading conditions at a bus and achieves a fairly accurate estimate of the benefits from capacitor placement. The formulation is directly handled by the well known MINOS code and is solved efficiently. It obviates the need to introduce integer variables and is thus suitable for large system applications. A two-part reactive power spot-pricing scheme is formulated, by which the investment and operational costs can be recovered by the utility. The proposed reactive power price has two parts-a fixed part to account for the investment costs of new capacitor at a bus and a variable spot price to account for the operating costs incurred in supplying the additional reactive power from generating units.
Chattopadhyay et al. (1995) studied this question.